Relevance of income as one of the poverty indicators in Latin America

Term Paper 2006 11 Pages

Economics - Case Scenarios


Table of Contents

1. Introduction

2. What is Poverty? Measuring Methodologies
2.1 Economic Poverty Indicators (narrow, direct measures)
2.1.1 Income or consumption insufficiency method. Poverty income lines
2.1.2 Relative Poverty
2.1.3 Economic Poverty Types/Dimensions in the cases of Brazil and Peru
2.2. Socio-Political Poverty Indicators (broad, indirect measures)
2.2.1 The Unmet Basic Needs (UBN)
2.2.2 Poverty as a lack of equality
2.2.3 Socio-political Poverty Types/Dimensions in the cases of Brazil and Peru

3. Economic vs. Socio-political view of Poverty

4. Conclusions


List of Tables and Figures:


Galbraith J.K. Garcilazo E. (2004). World Bank Inequality D&S Gini Coefficients, 1950-1997 Measuring Inequality. On theory and technique. University of Texas Inequality Project, San Hose, Costa Rica. http://utip.gov.utexas.edu, http://utip.gov.utexas.edu/tutorials/Panview_1en.ppt


World Bank website. (2005). Gini Index. http://www.worldbank.com


Szekely M., et al. (2000). Do we know how much poverty there is? Banco Interamericano de Desarollo (BID). Working Paper No. 437. www.iadb.org/res/publications/pubfiles/pubWP- 437.pdf


Szekely M., et al. (2000). Do we know how much poverty there is? Banco Interamericano de Desarollo (BID). Working Paper No. 437. www.iadb.org/res/publications/pubfiles/pubWP- 437.pdf


De Janvry A., Sadoulet E. (2000). Growth, Poverty, and Inequality in Latin America: A Casual Analysis, 1970-94. Review of Income and Wealth, Series 46, Number 3, University of California at Berkeley.


Justino P., Acharya A. (2003). Inequality in Latin America: Processes and Inputs. Poverty Research Unit at Sussex University. Working Paper No. 22, Brighton, http://www.sussex.ac.uk/Users/PRU

1. Introduction

Problem Statement

Poverty has been and is a main issue in most countries, in particular in Latin America. Antipoverty efforts have increasing priority among socio-political objectives. Both internally in so-called “poor countries“ themselves, as internationally within organizations involved in anti-poverty policies. As a consequence both groups have to define what is poverty, how to measure it? What are the best indicators of poverty? Which statistics must be used to draw a clear picture and conclusions?

This is a very complex process, as it touches both tangible and less tangible indicators.

Income/Consumption Method, Household income distribution, Household Expenditures, Headcount Ratio, etc. are keywords rather for the mere economic aspect. Income/Consumption distribution has the widest use as a poverty marker.

The other methods focus on social inequalities like: access to social institutions, social security, differences in social legitimacy and status, inequalities of freedom and social and political participation.

Focus and Layout

Having the widest use due to its tangibility and measurability, income/consumption is not a perfect and only poverty indicator. Most analyses of poverty in Latin America refer to income inequality, as other perceptions i.e. due to social exclusion and impossibility of certain populations accessing key social services, etc, constitute a large part of the story about poverty in Latin America.

On the following pages, significant impact will be put on poverty markers that are sometimes treated as less important. This paper will present a framework of aspects that make the poverty in Latin America a lingering, persevering state.

The relevance of the income distribution in comparison with other poverty indicators across Latin America will be shown. In other words, to which extent can poverty in Latin America be explained by inequalities of income distribution and to which by other dimensions.

Firstly as the “non plus ultra”, the ECLAC approach to poverty measurement will be shown.

Later, for the paper purposes, a distinction between the “economic poverty indicators” and “socio-political poverty indicators” will be made. Country classification will be presented accordingly. Countries of Brazil and Peru will be taken as examples. Further on scope and importance of both poverty dimensions will be assessed. Finally a summary and conclusions sections will complete the paper. No scientific analysis of the income indicator is planned. Comparison of methods and processes is intended.

2. What is Poverty? Measuring Methodologies.

United Nations Economic Commission for Latin America & the Caribbean (UN ECLAC) has the international mandate to promote economic and social development through regional and sub-regional co-operation and integration[1]. Division of Statistics and Economic Projections developed an approach to measure and evaluate poverty. Income/Consumption insufficiency method and relative poverty measure will be discussed below.

2.1 Economic Poverty Indicators (narrow, direct measures)

2.1.1 Income/Consumption insufficiency method. Poverty income lines.

“Income/Consumption insufficiency method was adopted in the first attempts to attain quantitative assessments of poverty”[2]. Governments or some other non-official institutions generate measurements. Household (a unit generally considered) is classified as poor if its income or expenditure is lower than the value of a poverty line, which is “the amount of money that a household has to receive or spend in order to buy all the goods and services necessary to attain a minimum level of living or satisfy their basic needs”[3]. Theory suggests the following procedure: i) to define the set of basic needs; ii) determine thresholds of satisfaction; iii) select the kinds and quantities of goods and services required to satisfy identified needs; iv) price the resulting package. Often the availability of data determines the exact procedures and cause differences in the calculated indices across countries. In practice “only the value of one or rarely few basic needs is set”[4]. Surveying and the core calculation process may introduce a bias regarding several aspects. For example “(…) as rent value is included in the non-food portion of the poverty line, those not paying the rent dwell the resulting average of the survey”[5]. Difficulties may arise from different nutritional intakes in different regions. Also the fact of un- and underreporting as well as errors in surveys conducted in rural areas contributes to the problem. Seasonality, barter transactions, etc, make it difficult to gather good quality data.

To properly cluster the incidence of poverty different indices may be used. “The Headcount Index represents the proportion of population whose standard of living falls below the poverty line. (…)

Poverty Gap Index reflects depth of poverty by taking into account how far the average poor person’s income is from the poverty line. (…) Weighted Poverty Index shows how the distribution of living standards among the poor changes.”[6] Gini Index on the other hand can portray if the income is equally or unequally distributed across the country. The lower the numbers of the Gini Index, the more equal the distribution of income.

2.1.2 Relative Poverty

Many countries and international organizations use a different approach based on relative perspective. Here comparing their situation to mean or other moment of distribution identifies the poor households. The household’s budget is defined as given percentage of household income. This method is however best suitable to developed countries, where the hardest forms of poverty do not represent main social problems any longer.


[1] ECLAC website

[2] Beccaria 1997

[3] Beccaria 1997

[4] Beccaria 1997

[5] Beccaria 1997

[6] Szekely 2000


ISBN (eBook)
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419 KB
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Institution / College
Furtwangen University
Relevance Latin America American Economy



Title: Relevance of income as one of the poverty indicators in Latin America