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Measuring the Impact of Price Changes on Poverty

  • Hyun H. Son

    ()

    (International Poverty Centre)

  • Nanak Kakwani

    ()

    (International Poverty Centre)

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    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.

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

    Paper provided by International Policy Centre for Inclusive Growth in its series Working Papers with number 33.

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    Length: 18
    Date of creation: Nov 2006
    Date of revision:
    Publication status: Published by UNDP - International Poverty Centre, November 2006, pages 1-18
    Handle: RePEc:ipc:wpaper:33
    Contact details of provider: Web page: http://www.ipc-undp.org
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