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Measuring Inequality by Asset Indices: A general approach with application to South Africa

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  • Martin Wittenberg

    (DataFirst, University of Cape Town)

  • Leibbrandt, Murray

    (SALDRU, School of Economics, University of Cape Town)

Abstract

Asset indices have become widely used in a number of areas of social research, particularly in the analysis of Demographic and Health Surveys. Indeed the calculation of "wealth indexes" is now routine practice in the DHSs. Asset indices have been externally validated in a number of contexts. While these indices have been shown to work well as proxy measures of poverty, they are not suited to investigate inequality. In this paper we will show that, in fact, typical asset indices also fail an internal validity test: they frequently rank individuals in ways which violate the basic principle that individuals that have more (of anything) should be ranked higher than individuals that have less. We consider from first principle what sort of indexes might make sense, given the predominantly dummy variable nature of asset schedules. We show that there is, in fact, a way to construct an asset index which does not violate some basic principles and which also has the virtue that it can be used to construct "asset inequality" measures. However, there is a need to pay careful attention to the components of the index. We illustrate this by discussing the asset indices released publicly with South African DHS data and then a South African case study of changes over time. Both situations show the perils of mechanical approaches to calculating indexes. When calculating inequality using asset indices on South African data we find high inequality in the DHS data but that inequality has decreased markedly between 1993 and 2008. This contrasts with findings derived from income data which suggest that inequality has hardly changed at all.

Suggested Citation

  • Martin Wittenberg & Leibbrandt, Murray, 2015. "Measuring Inequality by Asset Indices: A general approach with application to South Africa," SALDRU Working Papers 141, Southern Africa Labour and Development Research Unit, University of Cape Town.
  • Handle: RePEc:ldr:wpaper:141
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    References listed on IDEAS

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    2. Kehinde O. Omotoso & Steven F. Koch, 2017. "Social Determinants of Health Inequalities in South Africa: A Decomposition Analysis," Working Papers 201716, University of Pretoria, Department of Economics.
    3. Morné Oosthuizen, 2019. "Inequality and the generational economy: Race-disaggregated National Transfer Accounts for South Africa, 2015," WIDER Working Paper Series wp-2019-24, World Institute for Development Economic Research (UNU-WIDER).
    4. Caroline Krafft & Elizabeth E. Davis, 2021. "The Arab inequality puzzle: the role of income sources in Egypt and Tunisia," Middle East Development Journal, Taylor & Francis Journals, vol. 13(1), pages 1-26, January.
    5. Abdul Latif Alhassan & Noluyolo Magazi, 2021. "Microinsurance and household asset welfare in South Africa," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(3), pages 358-382, July.
    6. Fredrick M. Wamalwa & Justine Burns, 2017. "Gender and Birth Order Effects on Intra-household Schooling Choices and Education Attainments in Kenya," Working Papers 708, Economic Research Southern Africa.
    7. Phuc Phan & Martin O’Brien, 2019. "Multidimensional Wellbeing Inequality in a Developing Country: A Case Study of Vietnam," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 145(1), pages 157-183, August.
    8. Alizée McLorg & Kennedy Omolo & Peter Sifuna & Andrea Shaw & Bhavneet Walia & David A. Larsen, 2021. "Examining Wealth Trends in Kombewa, Kenya," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 157(2), pages 631-651, September.
    9. Emily Frame & Ariane de Lannoy & Murray Leibbrandt, 2016. "Measuring multidimensional poverty among youth in South Africa at the sub-national level," SALDRU Working Papers 169, Southern Africa Labour and Development Research Unit, University of Cape Town.
    10. Dutta, Indranil & Nogales, Ricardo & Yalonetzky, Gaston, 2021. "Endogenous weights and multidimensional poverty: A cautionary tale," Journal of Development Economics, Elsevier, vol. 151(C).
    11. Emmanuel Maliti, 2019. "Inequality in Education and Wealth in Tanzania: A 25-Year Perspective," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 145(3), pages 901-921, October.
    12. Monroy-Gómez-Franco, Luis & Vélez-Grajales, Roberto & Yalonetzky, Gastón, 2021. "Layers of inequality: Unequal opportunities and skin colour in Mexico," MPRA Paper 106605, University Library of Munich, Germany.
    13. Evan M. Munro & Serena Ng, 2020. "Latent Dirichlet Analysis of Categorical Survey Expectations," NBER Working Papers 27182, National Bureau of Economic Research, Inc.

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