Measuring and Analyzing Poverty (with a Particular Reference to the Case of Nepal)

By Acharya, Sanjaya | The European Journal of Comparative Economics, July 1, 2004 | Go to article overview

Measuring and Analyzing Poverty (with a Particular Reference to the Case of Nepal)


Acharya, Sanjaya, The European Journal of Comparative Economics


Abstract

This paper makes an assessment of Nepalese poverty situation during 1977 - 1997 using a comparative static approach. Income and human poverty indices have been estimated using World Bank and UNDP methods, respectively. Moreover, it also makes exploratory analysis to study the causes and nature of Nepalese poverty. It concludes that Nepalese income poverty was drastically reduced during the period 1976/77 - 1984/85, but increased afterwards. However, human poverty has reduced in sustenance during the whole period. Poverty in Nepal is more pervasive, deep and uneven as compared to the rest of the South Asia. Comparing the income and human poverty indices, we conclude that income poverty is volatile as compared to the human poverty. Poverty in Nepal has some economic, demographic, and political origins; and more remote and occupational caste people are poorer as compared to the rest.

JEL Classification: D31, D63, I31, I32, O53

Keywords: income and wealth distribution, inequality, basic needs, measurement and analysis of poverty, Nepal and South Asia

(ProQuest Information and Learning: ... denotes formulae omitted.)

1. Introduction

This paper makes a comparative static analysis of the Nepalese poverty situation. The analytical approach in this paper is of a hybrid type. It joins a trend analysis of the poverty indicators of Nepal for the period 1977-1997 and a cross-sectional analysis comparing many poverty indicators of Nepal with the rest of South Asian countries. It also sheds some light on causes and nature of Nepalese poverty. In these efforts, this paper has followed both quantitative and qualitative analyses. The quantitative aspects are confined to the estimation of poverty and labour productivity indices whereas the qualitative aspects have been covered by the exploratory analysis of Nepalese poverty discourse in terms of its nature and causes.

Poverty can be measured through two different approaches: the income poverty approach and the human poverty approach. The income poverty measurement technique was developed first and human poverty measurement technique was developed later. Poverty measurement techniques logically follow from the definition of poverty. Although in theory, a utilitarian approach should enable the estimation of a poverty line corresponding to a minimum utility level, or again to an indifference curve, which separates the welfare level of a poor from the non-poor individual, determination of the poverty line is rarely formulated in utilitarian terms. Instead, we need a compensated expenditure function that determines, for any given price system, the minimum expenditure level required to reach this indifference curve (Bibi, 1998, p. 181).

Rowntree in Britain used the idea of absolute poverty first in the 1890s. He defined absolute poverty in terms of a lack of 'means' in relation to ends or 'needs' of an individual or a household. This concept has not changed much over time and across countries (New ERA, 1997, p.7). Therefore, the measure of absolute poverty calculates the number of people below a specified minimum income level. Poverty lines are generally anchored to nutritional requirements for good health and physical activities. There are two common methods for setting absolute poverty lines: the "Food-Energy Intake" (FEI) method and the "Cost-of-Basic Needs" (CBN) method. The FEI method determines a minimum income or expenditure level required to meet basic food energy requirements. Therefore, there is no explicit bundle of goods specified in this method. The CBN method, however, sets specific poverty bundles of goods and services and determines their costs in each sub-group. In this method, non-food requirements which are people's basic requirements are also included in the bundle (Ravallion, 2003, p. 4). In the Nepalese context, the CBN method has been widely used for measuring poverty.

The comparative static approach has been adopted in this paper because of the lack of time series data on poverty indices and related variables for the Nepalese economy.

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