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The measurement of dynamic poverty with geographical and intertemporal price variability: evidence from Rwanda

  • Christophe Muller

Little attention has been devoted to the effects of absolute and relative prices variability at local and seasonal levels, for the measurement of living standards in LDCs. In particular, it is not known if a substantial share of welfare or poverty indicators may be the consequence of price differences rather than of differences in living standards across households and seasons. With exogenous poverty lines, we show how the directions of effects of accounting for price variability can be theoretically established for popular poverty indices. With endogenous poverty lines, using data from Rwanda, we show that the composition of the population of the poor can be notably modified by accounting for price variability. The change in aggregate living standards due to price correction is moderate although significant in every quarter, in contrast with the change in poverty which can be considerable. The correction yields generally a larger transient seasonal share of annual poverty. In terms of impact of the price correction on the assessment of poverty, the poverty line or the quarter are generally more influential than the formula of the poverty indicator. Though, poverty indicators giving a high importance to the severity of poverty are more likely to lead to a strong effect of prices. However, the sign of change in poverty indicator is not systematically related with parameters of poverty indices or with poverty lines. These results support the necessity in poverty measurement, of an accurate correction for geographical and seasonal price effects, whose directions cannot be easily predicted. Nonetheless with exogenous poverty lines, for an important class of axiomatically valid poverty indices, the change in poverty with compensation for keeping the harmonic aggregate mean of price indices constant, is always positive.

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Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 1998-06.

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Date of creation: 1998
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Handle: RePEc:csa:wpaper:1998-06
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  1. Christophe Muller, 1997. "Transient seasonal and chronic poverty of peasants: Evidence from Rwanda," CSAE Working Paper Series 1997-08, Centre for the Study of African Economies, University of Oxford.
  2. Deaton, A., 1988. "Quality, Quantity, And Spatial Variation Of Price," Papers 30, World Bank - Living Standards Measurement.
  3. Chaudhuri, Shubham & Ravallion, Martin, 1994. "How well do static indicators identify the chronically poor?," Journal of Public Economics, Elsevier, vol. 53(3), pages 367-394, March.
  4. Deaton, A., 1990. "Price Elasticities From Surveys Data: Extensions And Indonesian Results," Papers 69, World Bank - Living Standards Measurement.
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  6. Domberger, Simon, 1987. "Relative Price Variability and Inflation: A Disaggregated Analysis," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 547-66, June.
  7. Gauthier Lanot & Christophe Muller, 1997. "Dualistic sector choice and female labour supply: evidence from formal and informal sector in Cameroon," CSAE Working Paper Series 1997-09, Centre for the Study of African Economies, University of Oxford.
  8. Mary Jo Bane & David T. Ellwood, 1986. "Slipping into and out of Poverty: The Dynamics of Spells," Journal of Human Resources, University of Wisconsin Press, vol. 21(1), pages 1-23.
  9. de Janvry, Alain & Fafchamps, Marcel & Sadoulet, Elisabeth, 1991. "Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained," Economic Journal, Royal Economic Society, vol. 101(409), pages 1400-417, November.
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  11. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  12. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  13. Baye, Michael R, 1985. "Price Dispersion and Functional Price Indices," Econometrica, Econometric Society, vol. 53(1), pages 213-23, January.
  14. Ravallion, Martin, 1988. "Expected Poverty under Risk-Induced Welfare Variability," Economic Journal, Royal Economic Society, vol. 98(393), pages 1171-82, December.
  15. Glezakos, Constantine & Nugent, Jeffrey B, 1986. "A Confirmation of the Relation between Inflation and Relative Price Variability," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 895-99, August.
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  17. Muellbauer, John, 1974. "Inequality Measures, Prices and Household Composition," Review of Economic Studies, Wiley Blackwell, vol. 41(4), pages 493-504, October.
  18. repec:cup:cbooks:9780521296762 is not listed on IDEAS
  19. Joan R. Rodgers & John L. Rodgers, 1993. "Chronic Poverty in the United States," Journal of Human Resources, University of Wisconsin Press, vol. 28(1), pages 25-54.
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