Tyranny of numbers

There appears to be some confusion surrounding the meaning and use of the PPP (Purchasing Power Parity) among some readers of this weblog and of Rastak, where Dr. Davoud Souri published a rejoinder to my comments on his poverty calculations. (I am sorry I cannot participate in Rastak discussions because I am not good in typing or composing in Persian!)

Comparison of poverty across countries is an important subject, and impossible to do without some sort of comparison of purchasing power of different currencies across countries.  Unfortunately, market exchange rates are not generally a good guide for such comparisons, hence the need for PPP comparisons.

A good starting point for a useful discussion of poverty and policies to combat it is to establish common ideas about what is regarded as high and low rates of poverty.  To establish such benchmarks, it is natural to refer to what other countries with similar level of productivity and income are able to achieve in poverty reduction.  It is one thing to complain about poverty if countries with similar incomes to Iran are doing much better and quite another if they are not, in which case the only point of reference is one’s own high and lofty ideals.

What does the PPP mean and how is it used in  poverty analysis? (more…)

This is a question that many people are asking,  some wishing the answer were in the affirmative, but the truth is that with current data this question is not easy to answer.  The data we have (thanks to the good work at the Statistical Center of Iran) helps us identify the poor in 2004, the year before Mr. Ahmadinejad took office, but do not tell us what happened to these people three years later.  For this we would need panel data, that SCI used to collect, but stopped after 2003 for lack of funding (and interest on the part of researchers).

The question that we can answer with the data that we do have (Household Expenditures and Income Surveys–HEIS, for short) is whether the proportion of those poor has changed since 2004.   This is the question that several researchers, including the study that I noted in my earlier post, have asked and tried to answer.  To answer this we need to compare the distributions of per capita expenditures over time.  This appears straightforward enough, but it involves an important, and often controversial, assumption about where to place the poverty line in different years.  The assumption most often made is to take one poverty line for a given year and calculate what it would buy in other years.  As an example, let us take our poverty lines for 2007 from this study that I mentioned in my previous post (about 34600 rials per day for urban and 14800 rials  for rural individuals–a rather large gap).  How much these sums of money would be wroth in 2004?  (more…)

In his perceptive comment on my previous post, Ali asks an excellent question:

“Is there a reliable relationship between calorie intake and a person’s income? Does spending less on food really mean earning less money? How about assets (house, car, …) that individual owns? Is this method consistent over years considering the change in the food items of the basket?”

The answer is yes at low levels of income, but the relationship becomes less reliable as a country’s income increases; in rich countries the direction of the relationship sometimes reverses –the poor consume more calories and are therefore more likely to be overweight–for a range of incomes. If you take any of the high-threshold poverty measures that are used in Iran, you will have trouble convincing most poverty experts outside Iran that they are poor by developing-county standards. (more…)

“Give me a poverty scenario and I will produce the numbers to support it,” is a saying among those who work with poverty numbers denoting the flimsiness behind the science of poverty analysis.  In this season of presidential elections in Iran, a scenario much in demand is that poverty has increased under Ahmadinejad.   There are newspaper reports of research that offer evidence for just such a scenario (for examples, see reports in Persian here, here, and here), that seem influential but have not gone through the usual academic scrutiny.   A few months ago I commented on another high profile poverty report that appeared last year in a journal published by the Central Bank of the Islamic Republic of Iran, using faulty methodology to show that poverty has increased.  A study by a serious researcher, Professor Davoud Souri of Sharif University of Technology in Iran, was published last week on the prominent Persian website Rastak which is dedicated to “free market economics”, is a notch above the rest in academic rigor and therefore worth a closer look. (more…)