World Institute for Development Economics Research wider.unu.edu
WIDER Working Paper 2014/150
Consumption bundle aggregation in poverty
measurement
Implications for poverty and its dynamics in Uganda
Bjorn Van Campenhout,
1
Haruna Sekabira,
2
and Dede H.
Aduayom
1
November 2014
1
International Food Policy Research Institute (IFPRI) – Kampala;
2
Goettingen University, Department for Agricultural Economics
and Rural Development; corresponding author: b.vancampenhout@cgiar.org
This study has been prepared within the UNU-WIDER ‘Reconciling Africa's Growth, Poverty and Inequality Trends: Growth and
Poverty Project’ (GAPP), directed by Finn Tarp.
Copyright © UNU-WIDER 2014
ISSN 1798-7237 ISBN 978-92-9230-871-1
Typescript prepared by the authors.
UNU-WIDER gratefully acknowledges the financial contributions to the research programme from the governments of Denmark,
Finland, Sweden, and the United Kingdom.
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The views expressed in this publication are those of the author(s). Publication does not imply endorsement by the Institute or the
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Abstract: Official poverty figures in Uganda are flawed by the fact that the underlying poverty
lines are based on a single national food basket that was constructed in the early 1990s. In this
paper, we estimate a new set of poverty lines that accounts for the widely divergent diets
throughout the country using the latest available household survey. Using these updated poverty
lines, we then look at poverty dynamics using four waves of the Uganda National Panel Survey.
We classify households into categories depending on their change in poverty status over time and
relate this to characteristics that are likely to change only slowly. This enables us to explore the
characteristics of households that, for instance, grow out of poverty and how they differ from
households that appear to be trapped in poverty. Our approach generates poverty measures that
are more credible from a theoretical point of view and are more in line with what other researchers
find.
Keywords: poverty, cost of basic needs, revealed preferences, Uganda
JEL classification: D31, O12, O55
Acknowledgements: This project is under revision control. All source code to replicate the
analysis can be found at: https://bitbucket.org/bjvca/wider/
1 Introduction
During the past few decades, Uganda has experienced substantial economic
growth. Since 1986, when the National Resistance Movement took over gov-
ernment, real gross domestic product (GDP) has grown at an annual rate of
6.8 per cent, making its economy one of the fastest growing in Africa. This
growth has been attributed to the new government that has implemented
a far-reaching economic reforms agenda, transforming Uganda into one of
the most liberal economies in Africa south of the Sahara. Indeed, as argued
in World Bank (1993: 22), the government 'liberalized the trade regime by
abolishing export and import licensing; dismantled all price controls, which
were few to begin with; repealed the Industrial Licensing Act, promulgated a
new investment code, returned properties expropriated by the Amin regime
and commenced privatizing public industrial enterprises; made important
strides in abolishing export and distribution monopolies; embarked upon a
major overhaul of the civil service; restructured the tax system and improved
tax administration; and has made an impressive start in restructuring pub-
lic expenditures towards critical economic and social services'. Such policy
changes were seen as essential preconditions for sustainable economic growth.
This growth has been accompanied by equally impressive declines in the
levels of poverty as reported by the government. While aggregate headcount
poverty stood at about 57 per cent in the early 1990s, the most recent ocial
estimate puts 19.5 per cent of the population below the ocial poverty line.
1
But despite these successes at the aggregate level, researchers warn that
1
For the most recent ocial estimate, we take the poverty estimate based on the
2012/13 Uganda National Household Survey (UNHS). The data on which these estimates
are based were obtained from the Uganda Bureau of Statistics (UBOS) in August 2014.
As is mostly the case with UNHS data obtained from UBOS, the dataset came with a
compiled welfare aggregate based on consumption expenditure and a set of ocial poverty
lines. Using the same methods we used to replicate ocial poverty gures in previous
rounds of the UNHS, we estimate national headcount poverty to be 19.5 per cent in the
UNHS 2012/13. This is slightly lower than ocial poverty estimates at the time of the
UNHS 2012/13 dissemination and reported in the press (22.1 per cent).
1
this growth has not been shared equally by the population at large. For
instance, marked spatial heterogeneity in baseline poverty and subsequent
poverty reductions mean that dierences in the standard of living between
locations are often much higher now than what they used to be.
Apart from the observed heterogeneity in terms of poverty and poverty
reduction, the gures itself have been called into question as well. Some
argue that the lack of progress on assets accumulation and non-monetary
well-being proxies suggest much more modest poverty reductions, raising
suspicion about the poverty lines and the welfare indicator used by the gov-
ernment of Uganda (Daniels and Minot 2014; Kakande 2010). Some scholars
have also been questioning the spatial pattern of poverty as reported in of-
cial documents, arguing that a single national food poverty line is likely
to overstate poverty in some areas while underestimating poverty in others
(Appleton 2003; Jamal 1998).
In this paper, we want to update existing knowledge about the state of
poverty and its dynamics in Uganda, while at the same time address some
of the problems with the ocial gures that have been identied in recent
studies. To account for dierences in diets in dierent locations, we will
construct dierent poverty thresholds for dierent spatial domains using the
latest available nationally representative household survey (UNHS 2012/13).
For each spatial domain, we construct a food basket that produces a certain
minimum of calories that reects the diets of the poorest households in that
region. These baskets are then multiplied by prices prevailing in that region
to arrive at food poverty lines. An allowance for basic non-food necessities is
then added to get a set of Cost of Basic Needs (CBN) poverty lines, one in
each spatial domain. We then test these poverty lines to see if they are utility-
consistent. The idea is that a basic needs bundle in a certain spatial domain
A should always be cheaper than a bundle from any other region valued
at prices of region A. If a bundle does not satisfy these revealed preference
conditions, we use an information theoretic approach to adjust the bundles
2
until they do, as outlined in Arndt and Simler (2010).
While comparing poverty estimates using these new poverty lines with
the ocial estimates is interesting in its own right, we will use the utility-
consistent poverty lines to look at poverty dynamics using the recently re-
leased Uganda National Panel Survey (UNPS). The UNPS is a yearly panel
survey collected by the Uganda Bureau of Statistics (UBOS) supported by
the World Bank's Living Standard Measurement Study (LSMS) project that
tracks about 3,000 households. We can use the panel nature of this survey to
study how many households are chronically poor (dened as always falling
below the poverty threshold) and investigate how their characteristics dier
from other groups, such as households that successfully escaped poverty. In
other words, we will construct a detailed poverty prole that takes dynamic
aspects into account, dening groups based on poverty transitions instead of
a simple dichotomous poor/non-poor status (Boateng et al. 1992). As for the
characteristics we contrast within each group, we conne ourselves to those
that change only slowly over time, and we look at the initial conditions
at the start of the panel. We hope that this can enlighten us on the pre-
conditions that need to be in place to be in a particular poverty dynamics
group.
2
The remainder of this paper is structured as follows: We rst give an
overview of poverty in the past few decades and look at the present ocial
poverty estimates in Uganda. We also present some studies that point to
shortcomings in ocial poverty measurement. In Section 3, we briey ex-
plain the reasoning behind the use of spatially disaggregated poverty lines
and the role of revealed preferences to test for utility consistency. Section
4 presents the construction of the new set of poverty lines and our poverty
estimates based on the UNHS 2012/13. Section 5 then looks at poverty dy-
namics and relates households with diering poverty dynamics to a selection
2
For example, we could check if households that are always below the poverty line are
dierent in terms of their reported ability to cope with adverse shocks at the start of the
panel from those that grow out of poverty over the course of the panel.
3
