The handbook on poverty and inequality provides tools to measure, describe, monitor, evaluate, and analyze poverty It provides background materials for designing poverty reduction strategies This book is intended for researchers and policy analysts involved in poverty research and policy making The handbook began as a series of notes to support training courses on poverty analysis and gradually grew into a sixteen, chapter book Now the Handbook consists of explanatory text with numerous examples, interspersed with multiple-choice questions (to ensure active learning) and combined with extensive practical exercises using stata statistical software The handbook has been thoroughly tested The World Bank Institute has used most of the chapters in training workshops in countries throughout the world, including Afghanistan, Bangladesh, Botswana, Cambodia, India, Indonesia, Kenya, the Lao People's Democratic Republic, Malawi, Pakistan, the Philippines, Tanzania, and Thailand, as well as in distance courses with substantial numbers of participants from numerous countries in Asia (in 2002) and Africa (in 2003), and online asynchronous courses with more than 200 participants worldwide (in 2007 and 2008) The feedback from these courses has been very useful in helping us create a handbook that balances rigor with accessibility and practicality The handbook has also been used in university courses related to poverty

Handbook on Poverty and Inequality

The problem in estimating a social accounting matrix (SAM) for a recent year is to find an efficient and cost-effective way to incorporate and reconcile information from a variety of sources, including data from prior years. Based on information theory, the paper presents a flexible 'cross entropy' (CE) approach to estimating a consistent SAM starting from inconsistent data estimated with error, a common experience in many countries. The method represents an efficient information processing rule-using only and all information available. It allows incorporating errors in variables, inequality constraints, and prior knowledge about any part of the SAM. An example is presented, applying the CE approach to data from Mozambique, using a Monte Carlo approach to compare the CE approach to the standard RAS method and to evaluate the gains in precision from utilizing additional information.

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Updating and Estimating a Social Accounting Matrix Using Cross Entropy Methods

All countries fund safety net programs for the protection of their people Though an increasing number of safety net programs are extremely well thought out, adroitly implemented, and demonstrably effective, many others are not This book aims to assist those concerned with social policy to understand why countries need social assistance, what kind of safety programs will serve those best and how to develop such programs for maximum effectiveness Safety nets are part of a broader poverty reduction strategy interacting with and working alongside of social insurance; health, education, and financial services; the provision of utilities and roads; and other policies aimed at reducing poverty and managing risk Though useful, safety nets are not a panacea, and there are real concerns over whether they are affordable and administratively feasible or desirable in light of the various negative incentives they might create In most settings where there is political will to do so, such concerns can be managed through a number of prudent design and implementation features Much information and innovation exist on these topics; this book summarizes, references, and builds on this knowledge base to promote well-crafted safety nets and safety net policy

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For Protection and Promotion: The Design and Implementation of Effective Safety Nets

"This paper provides a nuanced perspective on debates about the potential for Africa's smallholder agriculture to stimulate growth and alleviate poverty in an increasingly integrated world. In particular, the paper synthesizes both the traditional theoretical literature on agriculture's role in the development process and discusses more recent literature that remains skeptical about agriculture's development potential for Africa. In order to examine in greater detail the relevance for Africa of both the “old” and “new” literatures on agriculture, the paper provides a typology of African countries based on their stage of development, agricultural conditions, natural resources, and geographic location... More broadly, the paper demonstrates that conventional theory on the role of agriculture in the early stage of development remains relevant to Africa. While the continent does face new and different challenges than those encountered by Asian and Latin American countries during their successful transformations, most African countries cannot significantly reduce poverty, increase per capita incomes, and transform into modern economies without focusing on agricultural development." from Authors' Abstract

The Role of Agriculture in Development: Implications for Sub-Saharan Africa

Ce papier presente une methodologie qui permet de s’affranchir de l’hypothese de l’agent representatif 
couramment utilisee dans les modeles d’Equilibre General Calculable (EGC). Il s’agit de remplacer les 
traditionnels agregats correspondant a d’hypothetiques « menages representatifs » par un echantillon de 
menages reels, tires d’une enquete budget-consommation. Cette approche permet de prendre en compte toute 
l’heterogeneite des menages etudies, non seulement economique mais egalement demographique, 
sociologique, etc. Ce type d’approche presente neanmoins l’inconvenient de la taille puisqu’il s’agit de 
manipuler des bases de donnees de plusieurs milliers d’individus. Ce papier presente un modele applique a 
l’Indonesie pour etudier l’impact social d’un choc d’epargne exterieure et l’evolution du taux de change reel d’equilibre qui resulte de ce choc (avant la crise financiere asiatique). Les resultats obtenus sont compares a 
ceux obtenus avec un modele plus “standard” a menages representatifs.

Representative versus real households in the macro- economic modelling of inequality

Computable general equilibrium (CGE) models are used widely in policy analysis. The purpose of this paper is to contribute to and facilitate the use of CGE models. The paper includes a detailed presentation of a “standard” CGE model (an equation-by-equation description) and its required database. It incorporates features developed in recent years in research projects conducted at IFPRI. These features, which are of particular importance in developing countries, include household consumption of non-marketed (or “home”) commodities, explicit treatment of transaction costs for commodities that enter the market sphere, and a separation between producing activities and commodities that permits any activity to produce multiple commodities and any commodity to be produced by multiple activities. The paper discusses the implementation of the model in GAMS (the General Algebraic Modeling System) and is accompanied by a self-extracting zip file, which includes the GAMS files for the model, sample databases, simulations, solution reports, and a SAM aggregation program. Although the paper provides a standardized framework for analysis, the analyst is not forced to make “one-size-fits-all” assumptions. The GAMS code is written in a manner that gives the analyst considerable flexibility in model specification.

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A standard computable general equilibrium (CGE) model in GAMS

We develop a general equilibrium model for evaluating domestically financed transfer programmes and derive analytical expressions which provide a framework for combining results from a computable general equilibrium model with disaggregated household data. We separate the welfare impact into three components, i.e. redistribution, reallocative, and distortionary effects. We show how these are subsumed within one parameter, the cost of public funds. Using a Mexican programme for illustration, we show that substantial welfare gains result from a switch from universal food subsidies to targeted transfers, reflecting both the improved targeting efficiency of the latter and the relaxation the trade-off between equity and efficiency when designing tax systems. In an attempt to maximise the welfare impact of government transfers on lowincome households, many governments in both developed and developing countries have moved towards better targeted transfer programmes. In developed countries these transfers mostly take the form of cash transfers or tax credits, whereas in developing countries they take the form of either cash transfers (e.g. in Latin America) or infra-marginal subsidised food rations (e.g. in South Asia).l When evaluating the economic impact of such transfers, it is useful to separate these into direct and indirect income (or welfare) effects. The direct income effects reflect the design of the programme (i.e. the rules for targeting transfers) - these are often referred to as first-round effects and are captured by partial equilibrium approaches to policy evaluation. The indirect effects capture the second-round income changes brought about by the impact of cash transfers, and their financing, on the level and composition of demand and supply. Most evaluations of social safety net programmes focus on the partial equilibrium evaluation of programme targeting outcomes. Even those that focus on the indirect impacts tend to concentrate on their efficiency implications with only a very limited analysis of income distribution outcomes and with little attempt to combine both the equity and efficiency dimensions. This is all the more limiting given that the central objective of these programmes is to improve income distribution. In this paper we focus primarily on the indirect income effects. In particular, we show how the results from a computable general equilibrium model can be combined with the information available in standard household surveys to

Evaluating transfer programmes within a general equilibrium framework

This paper presents a regionally disaggregated computable general equilibrium (CGE) model of Mexico in order to examine the differential effects of external shocks across the regions. The model demonstrates how the internal migration regime is affected by exogenous changes in the presence of threshold effects, in which an exogenous change may not effect regional behavior until the shocks are large enough to overcome the isolation of local markets. The results show that migration helps mitigate the income changes caused by the simulations.

The Distributional Impact of Macroeconomic Shocks in Mexico: Threshold Effects in a Multi-Region CGE Model

Using a regionally disaggregated computable general equilibrium model, we analyze the differential welfare impacts of a cash transfer program targeted at rural areas. The direct effect of the transfers decreases regional income differentials, but the indirect effects depend on how the program is financed. Financing the program with a more efficient tax system is also less regressive and has favorable urban impacts. The less efficient instruments result in relatively higher incomes in all rural regions, but are more regressive. The increasing share of urban poverty highlights the shortcomings of rural targeting and raises the issue of horizontal equity.

A regional general equilibrium analysis of the welfare impact of cash transfers: An analysis of PROGRESA in Mexico.

Income mobility can be viewed as a first-order Markov process, with a matrix of transition probabilities which measure how individuals move from an income status in time t to a new status in time t+1 Direct estimation of transition matrices is difficult, since time series panel data are unavailable and limited data on the distribution of income do not suffice to determine the coefficients mathematically, let alone provide enough degrees of freedom for estimation In this paper, we show that maximum entropy econometrics offers a feasible way to estimate transition matrices using distributional data from Colombia Using a cross-entropy estimation method, we make efficient use of prior information about the structure of the transition matrices and how they vary with age The approach is very flexible, allowing the use of “information” in a variety of forms such as inequality constraints, errors in measurement, and prior estimates Under weak assumptions about the error generation process, we can derive test statistics based on the likelihood ratio measuring the significance of the estimation The model fits the data well in that the predicted and actual distributions for period t+1 are close The results show that there is a large degree of upward mobility in Colombia, especially at the bottom of the income distribution and for the younger age cohorts

Rebecca Lee Harris

Papers

A standard computable general equilibrium (CGE) model in GAMS

Evaluating transfer programmes within a general equilibrium framework

The Distributional Impact of Macroeconomic Shocks in Mexico: Threshold Effects in a Multi-Region CGE Model

A regional general equilibrium analysis of the welfare impact of cash transfers: An analysis of PROGRESA in Mexico.

Estimating Income Mobility in Colombia Using Maximum Entropy Econometrics