Chronic and transient poverty: Measurement and estimation, with evidence from China

TLDR: The authors proposed a new approach to separating poverty into chronic and transient components, and provided corrections for the statistical biases introduced when using a small number of periods to estimate the importance of vulnerability and transient poverty.

About: This article is published in Journal of Development Economics.The article was published on 2010-03-01 and is currently open access. It has received 91 citations till now. The article focuses on the topics: Chronic poverty & Poverty in China.

Figures

Figure 6: The cost of inequality and variability in poverty gaps

Table 1: JR transient and chronic poverty, with and without bias corrections; α = 2; asymptotic standard errors within parentheses

Table 2: JR transient and chronic poverty, with and without bias corrections, and using censored incomes for chronic poverty; α = 2; asymptotic standard errors within parentheses

Table 3: EDE transient and chronic poverty, with and without bias corrections; α = 2; asymptotic standard errors within parentheses

Figure 4: EDE transient and chronic poverty according to the poverty line α = 2

Figure 5: EDE transient and chronic poverty according to the poverty line poverty line = 1

Frequently asked questions

Q1. What is the effect of the estimation of chronic poverty?

The estimation of JR chronic poverty basically supposes that average uncensored income is a good proxy of the ability of households to consume over time, in part because households are assumed to abide by the permanent income hypothesis. 

Q2. What is the effect of bias corrections on the poverty estimate?

The bias corrections work well in all cases, generally reducing by more (and often by much more) than 50% the biases of the naive estimators of chronic and transient poverty. 

Q3. What is the argument that inequality-corrected measure of poverty should be?

This argues that an inequality-corrected measure of poverty should in general be no less than Γ1(g) in order for poverty to be sensitive to the presence of inequality among the poor. 

Q4. How much of the total poverty is now censored?

For the same α and the same poverty line, transient poverty now represents at most 23% (21% without bias corrections) of total poverty. 

Q5. What is the effect of increasing the poverty line?

This comes out clearly in Figure 3: for a poverty line set to 1, transient poverty is never lower than chronic poverty, and the ratio shown on the right vertical axis increases rapidly with α. 

Q6. What is the cost of inequality in the EDE poverty gap?

Total poverty is the sum of chronic and transient poverty:Γα(g) = Γ ∗(g) + ΓTα(g). (17)Note that the total cost of inequality in poverty gaps is the sum of the cost of inequality across individuals and that of variability across time:Cα(g) = Cα(γα) + Γ T α(g). (18)All three expressions in (18) are increasing in α. 

Q7. What is the main criticism of the JR approach?

As mentioned above on page 7, another potential criticism of JR’s approach is that their estimator of chronic poverty may seem to be too sensitive to the occurrence of very large incomes in some time period. 

Q8. What is the effect of increasing the official poverty line?

For α = 2 in Figure 2, increasing the poverty line from 50% to 150% of the official poverty line naturally increases all of the poverty estimates, but the effect is stronger for chronic poverty. 

Q9. What is the sensitivity of the poverty line to the inequality of z?

The ratio eventually tends to fall as the poverty line increase since as z rises it is the increase in the average poverty gap that tends to dominate, thus leading to an increase in chronic poverty Γα(g).