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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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    1. Booysen, Frikkie & van der Berg, Servaas & Burger, Ronelle & Maltitz, Michael von & Rand, Gideon du, 2008. "Using an Asset Index to Assess Trends in Poverty in Seven Sub-Saharan African Countries," World Development, Elsevier, vol. 36(6), pages 1113-1130, June.
    2. David E. Sahn & David Stifel, 2003. "Exploring Alternative Measures of Welfare in the Absence of Expenditure Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(4), pages 463-489, December.
    3. Martin Wittenberg, 2009. "Weighing the value of Asset Proxies: The case of the Body Mass Index in South Africa," SALDRU Working Papers 39, Southern Africa Labour and Development Research Unit, University of Cape Town.
    4. Martin Wittenberg, 2013. "Non-monetary dimensions of well-being: A comment," Development Southern Africa, Taylor & Francis Journals, vol. 30(6), pages 826-829, December.
    5. Wittenberg, Martin, 2011. "Estimating expenditure impacts without expenditure data using asset proxies," Economics Letters, Elsevier, vol. 110(2), pages 122-125, February.
    6. Sahn, David E. & Stifel, David C., 2000. "Poverty Comparisons Over Time and Across Countries in Africa," World Development, Elsevier, vol. 28(12), pages 2123-2155, December.
    7. Deon Filmer & Kinnon Scott, 2012. "Assessing Asset Indices," Demography, Springer;Population Association of America (PAA), vol. 49(1), pages 359-392, February.
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    10. David McKenzie, 2005. "Measuring inequality with asset indicators," Journal of Population Economics, Springer;European Society for Population Economics, vol. 18(2), pages 229-260, June.
    11. Milanovic, Branko & Yitzhaki, Shlomo, 2002. "Decomposing World Income Distribution: Does the World Have a Middle Class?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(2), pages 155-178, June.
    12. Haroon Bhorat & Carlene van der Westhuizen, 2013. "Non-monetary dimensions of well-being in South Africa, 1993--2004: A post-apartheid dividend?," Development Southern Africa, Taylor & Francis Journals, vol. 30(3), pages 295-314, September.
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    Cited by:

    1. 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.
    2. 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.
    3. 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.

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