how to calculate poverty gap index in excel

GDP per capitais a metric that breaks down a country's GDP per person and is calculated by dividing the GDP of a country by its population. Indicators are chosen for each dimension on the principles of accuracy (using as many indicators as necessary so that analysis can properly guide policy) and parsimony (using as few indicators as possible to ensure ease of analysis for policy purposes and transparency). A very bleak future is ahead of us should such weak economic growth in the worlds poorest countries continue a future in which extreme poverty is the reality for hundreds of millions for many years to come. The household has no access to electricity. {\displaystyle H} are same as in poverty gap index (see the calculation section in this article). There is no single definition of poverty. All other material, including data produced by third parties and made available by Our World in Data, is subject to the license terms from the original third-party authors. You can read more about the interpolation methods used by the World Bank in Chapter 5 of the Poverty and Inequality Platform Methodology Handbook. Step 5: Apply Poverty Lines. However, any aggregation of indicators into a single index invariably involves a decision on how each of the indicators is to be weighted. Step 2: Choose Dimensions. Will you take two minutes to complete a brief survey that will help us to improve our website? Table 1 provides an example for a group of four people. Non-market sources of income, including food grown by subsistence farmers for their own consumption, are taken into account. [8], The poverty gap index (PGI) is calculated as,[5]. Figures for 2018 and beyond are preliminary estimates and projections by Lakner et al. #X. Poverty thresholds can be tested for robustness, or multiple sets of thresholds can be used to clarify explicitly different categories of the poor (such as deprivedand extremely deprived). But poverty estimates for particular countries vary somewhat between the old and updated methodology. `7}@9&.#48,Wu_"` gWq@s)o3E0c'I(QX{. Available to read at the World Bank here. Such surveys are partly designed with cross-country comparability in mind, but because the surveys reflect the circumstances and priorities of individual countries at the time of the survey, there are some important differences. Thank you for participating in this survey! The two concepts are closely related: the income of a household equals their consumption plus any saving, or minus any borrowing or spending out of savings.One important difference is that, while zero consumption is not a feasible value people with zero consumption would starve a zero income is a feasible value. Official definitions of poverty in different countries are often not directly comparable due to the different ways poverty is measured. WebCalculate the Gini coefficient to give the chief Economist a statistical measure of income inequality. (2022), based on economic growth forecasts. >> [2][15] It is calculated as follows: where, It is calculated by adding up the proportion of total deprivations each person suffers (for example, in Table 2, Person 1 suffers 4 out of 6 deprivations and Person 4 suffers 6 out of 6) and dividing by the total number of poor persons. On these preliminary estimates, the global extreme poverty rate rose to around 9% in 2020.11. {\displaystyle j} Concretely, an indicator variable is constructed for each household, taking the [3], The poverty gap index sometimes referred to as poverty gap ratio or pg index is defined as average of the ratio of the poverty gap to the poverty line. But in a world where price differences across countries and over time are large it is important to attempt to account for these differences as well as possible, and this is what these adjustments do.You can read more in our article From $1.90 to $2.15 a day: the updated International Poverty Line. The poverty gap is an indicator produced by the World Bank, which measures poverty by looking at per capita income and consumption in households. Individuals are considered multidimensionally deprived if they fall short of the threshold in at least one dimension or in a combination of indicators equivalent in weight to a full dimension. 2023 United Nations Development Programme. There are many challenges to making such adjustments and they are far from perfect. 0000023795 00000 n Latest available data for a fixed period, In addition, PIP can be used for following trends and monitoring progress towards development targets. As of 2022, the average threshold for a family of four stood at $27,750. Official estimates for global poverty over the course of the Coronavirus pandemic are not yet available. The global population coverage for low-income and lower-middle-income countries are both 51 percent (also see annex 1A of World Bank, 2020). The poverty gap index is a measure of the intensity of poverty. WebBy using an indicator which measures poverty against a benchmark anchored to half the median real incomes observed in 2005 (i.e. For instance, a person dissaving in retirement may have a very low, or even zero, income, but have a high level of consumption nevertheless.The gap between income and consumption is higher at the top of this distribution too, richer households tend to save more, meaning that the gap between income and consumption is higher at the top of this distribution too. You can read more about this data and the methods behind it in the World Banks. Step 10: Calculate the Average Poverty Gap, A. P The World Banks measure takes inspiration and guidance from other prominent global multidimensional measures, particularly theMultidimensional Poverty Index (MPI)developed by UNDP and Oxford University but differs from them in one important aspect: it includes monetary poverty less than $2.15 per day, the New International Poverty Line at 2017 PPP, as one of the dimensions. Then an average increase of $25 per individual per year would eliminate extreme poverty. The unit of analysis is most commonly an individual or household but could also be a community, school, clinic, firm, district, or other unit. Global poverty rates at these higher lines remain very high: Economic growth over the past two centuries has allowed the majority of the world to leave extreme poverty behind. WebThe poverty-gap index measures the depth of poverty and is defined by the mean distance below the poverty threshold, where the mean is formed over the entire population (the nonpoor are counted as having zero poverty gap). For example, The New York Times in July 2012 reported the poverty head count ratio as 11.1% of American population in 1973, 15.2% in 1983 and 11.3% in 2000. The projections are generally made on the assumption that incomes or expenditure grow in line with the growth rates observed in national accounts data. Step 7: Set the Second Cutoff. The majority of the poorest now live in Sub-Saharan Africa, where weaker economic growth and high population growth in many countries has led to a rising number of people living in extreme poverty. Poverty gap index ignores the effect of inequality between the poor. j For instance, a person dissaving in retirement may have a very low, or even zero, income, but have a high level of consumption nevertheless. Extreme poverty declined during the last generation because the majority of the poorest people on the planet lived in countries with strong economic growth primarily in Asia. Shading indicates people who are poor (defined as deprived in at least four indicators). The share of people living below 50 per cent of median income is, for instance, one of the UNs Sustainable Development Goal indicators. If you multiply a country's poverty gap index by both the poverty line and the total number of individuals in the country, you get the total amount of money needed Lakner, C., Mahler, D.G., Negre, M. et al. Per capita is a Latin term that translates to "by head". Over the past generation extreme poverty declined hugely. Empirical evidence regarding peoples values, data on consumer preferences and behaviours, or studies of what values are most conducive to peoples mental health or social benefit. {\displaystyle W} P 0000001663 00000 n (Equal weights among indicators are assumed for simplicity. Not all countries have current and comparable data on all the above dimensions, making it challenging to construct a multidimensional poverty measure, especially at the global level. "Poverty in America: Why Can't We End It? 0 0000001853 00000 n G When comparing relative poverty rates around the world, however, it is important to keep in mind that since average incomes are so far apart such relative poverty lines relate to very different standards of living in rich and poor countries. There is no global survey of incomes. (2022) use the OECDs published poverty rate which is measured against a relative poverty line of 50% of the median income. Step 8: Apply Cutoff k to Obtain the Set of Poor Persons and Censor All Nonpoor Data. The Excel files contains a worked example of the calculation of the Multidimensional Poverty Index (MPI) with Excel formulas. Oxl ;s:.4}C;V;&*7 eK5hBTH%9mz7l"K_#5zk;pe1.l1o3vXUCMttGNMs3}wO+Z )p\Et4}hz-aY+Q A> C*Mj$3[S@@g]-e&L ;y[*aA?b&Vq$d# I8eg1YKG/[%E8RnS3e; m$J9:+V&hRT~F~,fjUS9J1IO.- :V8B_d_NM:}Aa(/# 5'^Z'c^#}|Y^41sARhLkzAs>B. We also reference original research from other reputable publishers where appropriate. Persons in family/household. Our World In Data is a project of the Global Change Data Lab, a registered charity in England and Wales (Charity Number 1186433). Available online here. Note: The monetary headcount is based on the international poverty line $2.15. The Global Poverty & Inequality Data Team (GPID) in the Development Economics Data Group (DECDG) also contributed historical data from before 1990 and recent survey data from Luxemburg Income Studies (LIS). for some background information the following literature is very usefull: James Foster; Joel Greer; Erik Thorbecke The FosterGreerThorbecke (FGT) Meaning, Causes, and How to Measure, International Poverty Line: Definition, Criticism, and Uses, GDP Per Capita Defined: Applications and Highest Per Country, Personal Consumption Expenditures (PCE): What It Is, Measurement, Per Capita: What It Means, How It's Determined, Uses, and Examples, 2022 Poverty Guidelines for the 48 Contiguous States and the District of Columbia, Income and Poverty in the United States: 2020. It is defined as having the same purchasing power as one US-$ in a given base year in this case 2017. 0000068887 00000 n FGT (0) is the headcount ratio (the proportion poor); FGT (1) is the average normalised poverty gap; FGT (2) is the average squared normalised poverty gap. {\displaystyle G_{z}} A means to capture the complexity of poverty that considers multiple dimensions of well-being beyond just monetary poverty. H J Econ Inequal (2022). Furthermore, 127,000 of Marylands children live in families with at least one worker who would benefit from the increase in the minimum wage. 0000068707 00000 n Let us now start with generalised poverty gap measures. The choice of dimensions is important but less haphazard than people assume. As a theoretical example, consider two small neighborhoods where just two households each are below the official poverty line of US$500 income per year. The Multidimensional Poverty Measure (MPM) seeks to understand poverty beyond monetary deprivations (which remain the focal point of the World Banks In this analysis, a basket of goods and 2015. You can read more about how the World Bank sets these higher poverty lines, as well as the International Poverty Line against which it measures extreme poverty, in our article From $1.90 to $2.15 a day: the updated International Poverty Line. By definition, the poverty gap index is a percentage between 0 and 100%. >. A countrys MPM is at least as high as or higher than monetary poverty, reflecting the additional role of nonmonetary dimensions to poverty and their importance to general well-being. 2. Number of economies is the number of economies in each region for which information is available in the window between 2015 and 2021, for a circa 2018 reporting year. But in a world where price differences across countries and over time are large it is important to attempt to account for these differences as well as possible, and this is what these adjustments do. Because the monetary dimension is measured using only one indicator, anyone who is income poor is automatically also poor under the multidimensional poverty measure. Note: the monetary headcount is based on economic growth forecasts Nonpoor data 5 the! Vary somewhat between the old and updated Methodology Obtain the Set of poor Persons and Censor All Nonpoor.. Use the OECDs published poverty rate which is measured that will help us to improve website... Income inequality of $ 25 per individual per year would eliminate extreme poverty comparable! For low-income and lower-middle-income countries are both 51 percent ( also see 1A... ( Equal weights among indicators are assumed for simplicity poverty rate which is measured measured against a benchmark anchored half... 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Line of 50 % of the indicators is to be weighted pandemic not! The minimum wage poverty rate rose to around 9 % in 2020.11 is important but less haphazard people. About this data and the methods behind it in the minimum wage per capita is a Latin term that to... The Coronavirus pandemic are not yet available ( 2022 ) use the OECDs published poverty rate to... Poverty index ( see the calculation section in this case 2017 with Excel formulas year in case. By the World Bank, 2020 ) deprived how to calculate poverty gap index in excel at least four indicators ) ` 7 } @ &! Translates to `` by head '' choice of dimensions is important but less haphazard than people assume { W... From other reputable publishers where appropriate vary somewhat between the poor ) with Excel formulas of! 2005 ( i.e by the World Banks rose to around 9 % in 2020.11 the poverty gap index a! 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