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Finding the Best Indicators to Identify the Poor

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  • Adama BAH

    () (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

Abstract

Proxy-means testing (PMT) is a method used to assess household or individual welfare level based on a set of observable indicators. The accuracy, and therefore usefulness of PMT relies on the selection of indicators that produce accurate predictions of household welfare. In this paper I propose a method to identify indicators that are robustly and strongly correlated with household welfare, measured by per capita consumption. From an initial set of 340 candidate variables drawn from the Indonesian Family Life Survey, I identify the variables that contribute most significantly to model predictive performance and that are therefore desirable to be included in a PMT formula. These variables span the categories of household private asset holdings, access to basic domestic energy, education level, sanitation and housing. A comparison of the predictive performance of PMT formulas including 10, 20 and 30 of the best predictors of welfare shows that leads to recommending formulas with 20 predictors. Such parsimonious models have similar predictive performance as the PMT formulas currently used in Indonesia, although these latter are based on models of 32 variables on average.

Suggested Citation

  • Adama BAH, 2013. "Finding the Best Indicators to Identify the Poor," Working Papers 201324, CERDI.
  • Handle: RePEc:cdi:wpaper:1509
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    File URL: http://publi.cerdi.org/ed/2013/2013.24.pdf
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    References listed on IDEAS

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    1. David Coady & Margaret Grosh & John Hoddinott, 2004. "Targeting of Transfers in Developing Countries : Review of Lessons and Experience," World Bank Publications, The World Bank, number 14902.
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    5. Sudarno Sumarto & Daniel Suryadarma & Asep Suryahadi, 2007. "Predicting Consumption Poverty using Non-Consumption Indicators: Experiments using Indonesian Data," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 81(3), pages 543-578, May.
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    More about this item

    Keywords

    Proxy-Means Testing; Variable/Model Selection; Targeting; Poverty; Social protection;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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