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Measuring the Impact of Price Changes on Poverty

Author

Listed:
  • Hyun H. Son

    () (International Poverty Centre)

  • Nanak Kakwani

    () (International Poverty Centre)

Abstract

This paper develops a methodology to measure the impact of price changes on poverty measured by an entire class of additive separable poverty measures. This impact is captured by means of price elasticity of poverty. The total effect of changes in price on poverty is explained in terms of two components. The first component is the income effect of the change in price and the second is the distribution effect captured by the price changes. It is the distribution effect which determines whether the price changes benefit the poor proportionally more (or less) than the non-poor. This paper also derives a new price index for the poor (PIP). While this index can be computed for any poverty measures, our empirical analysis applied to Brazil is based on three poverty measures, the head-count ratio, the poverty gap ratio and the severity of poverty. The empirical results show that price changes in Brazil during the 1999-2006 period have occurred in a way that favors the non-poor proportionally more than the poor. Nevertheless, during the last 2-3 years the price changes have favored the poor relative to the non-poor.

Suggested Citation

  • Hyun H. Son & Nanak Kakwani, 2006. "Measuring the Impact of Price Changes on Poverty," Working Papers 33, International Policy Centre for Inclusive Growth.
  • Handle: RePEc:ipc:wpaper:33
    as

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    File URL: http://www.ipc-undp.org/pub/IPCWorkingPaper33.pdf
    File Function: First version, 2006
    Download Restriction: no

    Citations

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    Cited by:

    1. Neri, Marcelo Côrtes, 2006. "Desigualdade, estabilidade e bem-estar social," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 637, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    2. Theresa Chaudhry & Azam Chaudhry, 2008. "The Effects of Rising Food and Fuel Costs on Poverty in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 13(Special E), pages 117-138, September.
    3. Neri, Marcelo Côrtes, 2008. "Income polices, income distribution, and the distribution of opportunities in Brazil," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 678, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    4. repec:rss:jnljse:v1i1p5 is not listed on IDEAS
    5. Julia Johannsen & Manfred Zeller & Stephan Klasen, 2007. "The capability dilemma in operational poverty assessment," Ibero America Institute for Econ. Research (IAI) Discussion Papers 159, Ibero-America Institute for Economic Research.

    More about this item

    Keywords

    Inflation; Price elasticity; Money metric utility; Price index for the poor;

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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