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Measuring Poverty

How to measure poverty:

Define welfare measures

Choose and estimate a poverty indicator
The section provides an introduction to the concept and measurement of poverty defined as not having enough today in some dimension of well-being.

To compute a poverty measure, three ingredients are needed:

  1. One has to define the relevant welfare measure. 
  2. One has to select a poverty line – that is a threshold below which a given household or individual will be classified as poor. 
  3. One has to select a poverty indicator– which is used for reporting for the population as a whole or for a population sub-group only.

Please refer to the highlight box on the right for more information on these steps.

Additionally, a review of these various steps is provided in Ravallion (1992)Coudouel et al. (2002), and in Learning Materials from the World Bank Institute.

The choices of welfare measure, line and indicator are very important, as they can have consequences on the resulting statistics. Different choices sometimes result in conflicting conclusions.In addition, throughout this process, a series of issues arise, for example issues related to the sampling of the survey used, to errors in measurement and to comparability (See the section on Issues).

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