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AAE/ECON 474 Assignment 1: Poverty Assessment

Purpose

The purpose of this assignment is to practice working with quantitative data to calculate measures of poverty and inequality and make judgments about the patterns that you observe in these development indicators.

Course Learning Outcomes

CLO1 Calculate basic measures of poverty and inequality

CLO5 Use economic models and empirical methods to evaluate development policy

Skills

The purpose of this assignment is to practice the following skills that are essential to your success in analyzing the ways in which development programs impact poverty:

● use software to view and manipulate data sets

● perform basic statistical analysis

● draw inferences about policies and programs based on basic statistical analysis

Knowledge

This assignment will require you to be familiar with the following course content:

● Microsoft Excel or Google Sheets

● statistics

● methods for measuring poverty and policy impact

Task

To complete this assignment, you will:

1. Review the case (below), the related data table (Excel file), and the report template (Word file).

Case. Countries periodically run poverty assessments to characterize the state of poverty, both overall and for particular sub-groups of the population. You will work with the data for the level of household consumption expenditure from a representative household survey of the population of Guatemala. Your task is to characterize poverty in Guatemala, with particular emphasis on heterogeneity between rural/urban populations. You have an Excel table that provides the annual household consumption expenditure per capita, denominated in US dollars for the year 2000. I have aggregated the data for you to each percentile, ranked by consumption level from lowest to highest. Data are for three population groups: the whole population and the urban and rural populations. The poverty line is provided in an additional column.

2. Save the Excel file and the Word report template where you can access them (and consider adding your surname to the file title). The following steps will guide the analysis that you need to complete in your Excel data set as well as generating the numbers you need to add to your report. Once you are done with your data analysis, you will write a brief narrative on the findings in your report.

3. Calculate poverty and poverty decomposition. In the Excel file, you will find a table in which you can fill in following information. You will transfer most of this information into your Word report. Each correct answer is worth 2 points.

3.1 Determine the percentage of the population in each sub-group: urban, rural. (2 pt.)

3.2 Determine the average per capita consumption of the poor and the non-poor overall and in each of the two sub-groups. (2 pt.)

3.3 Determine the headcount ratio P0 overall and in each sub-group. (2 pt.)

3.4 Since you know the share of the population that is in each group, calculate what is the contribution to P0 made by each subgroup. (2 pt.)

3.5 Calculate the P1 indicator—the depth of poverty. To determine P1, calculate the poverty gap (i.e., the expenditure deficit to reach the poverty line) for each household in poverty overall and in each sub-group. (2 pt.)

3.6 Calculate the P2 indicator. (2 pt.)

4. Estimate the size of the welfare budget that would be needed to eliminate poverty in each population group and an allocation of welfare to different groups by answering the questions below.

4.1 Determine the total number of poor overall and in each subgroup. (2 pt.)

4.2 Calculate the budget needed to eliminate poverty overall and for each sub-group by summing the poverty gaps in each percentile. (2 pt.)

4.3 Based on your 4.2 calculation, determine the percentage allocation of the budget needed to eliminate poverty across all poverty groups. (2 pt.)

4.4 Determine the percentage of the total expenditures of the non-poor that would be required to eliminate poverty. (2 pt.)

5. Characterize inequality in Guatemala by completing the following steps.

5.1 In your Word report, write up in your own words definitions of the measures of inequality: the Lorenz curve, the Gini coefficient, and the Kuznets ratio. (2 pt.)

5.2 In your Word report, draw the Lorenz curves (2 pt.)

5.3 Calculate the following indicators for the three groups, All, Urban, Rural, and enter your results in the table in your Word report:

(a) Average annual per capita consumption in 2000 (2 pt.)

(b) Gini coefficient in 2000 (2 pt.)

(d) Kuznets ratio (Top 20%/Bottom 40%) in 2000 (2 pt.)

6. In the final section of your Word report, write up your findings in which you relate a story that you see in these data. Describe the pattern of poverty and inequality in Guatemala, offer an explanation of the pattern of poverty and inequality, and suggest what your explanation implies for development policy in Guatemala. You don't need to address all the measures that you calculated in your narrative. At the same time, these measures, by themselves, may not provide you with enough information to tell a story and you may need to draw on sources that enrich your understanding of the Guatemalan context. (18 pt.)