Poverty, Inequality and Well-being

Researchers of German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) provided new insights on the building of indices of poverty and inequality and the selection of poverty dimensions. In particular, research at DIE has produced the “Correlation Sensitive Poverty Index” (CSPI) which, in contrast to UNDP’s “Multidimensional Poverty Index” (MPI), accounts for inequality as well as correlations between poverty dimensions; and a pro-poor growth index that measures whether the poor disproportionately benefit from growth by using the distributional component of changes in the poverty gap. Thus, this project contributes to a better measurement of poverty, inequality and well-being, thereby bridging theory, statistical rigour and political legitimacy.

Project Lead:
Nicole Rippin

Project Team:
Tilman Altenburg
Francesco Burchi
Markus Loewe
Mario Negre
Malerba, Daniele
Nicole Rippin

German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)

Time frame:
2010 - 2020 / completed

Co-operation Partner:

Department of Development Economics, University of Göttingen; Department of Economics, Roma Tre University; World Bank’s Development Research Group on concepts and operationalization of pro-poor growth

Project description

Amartya Sen's Nobel Prize-winning capability approach revolutionised the way we conceptualise and thus measure well-being and poverty. Within this conceptual framework, well-being and poverty are not conceived as unidimensional phenomena and analysed in terms of possession or lack of income (or consumption). In fact, the income approach has increasingly been criticised as especially the poor have often little opportunity to monetarily satisfy their needs, in particular when it comes to public goods like health or education. Sen’s approach tries to overcome this problem by focusing directly on capabilities, i.e. what people are able to do and be. In order to extract relevant well-being dimensions within a society, DIE researchers have recently developed the “Constitutional Approach”. As this method builds on national Constitutions – when they meet certain criteria – the resulting dimensions are more likely to be accepted by the society and employed by policy-makers. At the same time, Amartya Sen stressed the importance of considering inequality for measurement purposes. Yet, inequality is not or not sufficiently accounted for in some of the most influential measures of poverty and pro-poor growth. The UNDP's Multidimensional Poverty Index (MPI), an index rooted in the capability approach, is a good example of this as it does not account for inequality - nor for the fact that correlations exist between poverty dimensions. DIE’s response to overcome these weaknesses, is Rippin’s Correlation Sensitive Poverty Index (CSPI), which satisfies the valuable properties of the MPI but in addition accounts for inequality as well as the correlations between poverty dimensions. Another example for the insufficient consideration of inequality can be seen in the pro-poor growth debate. Growth that reduces poverty is often considered pro-poor, regardless of whether the poor benefit from it more than the non-poor. DIE research in collaboration with the World Bank has led to the development of a pro-poor growth index that considers growth to be pro-poor only when it disproportionally benefits those under the poverty line. The index focuses on how changes in the distribution affect the poverty gap and, improving on previous methodologies, allows for an assessment on whether growth has been pro-poor and by how much over a given spell.

Here are some of the research questions that are addressed within this project:

1. How should poverty be measured in the future? How do extent and shape of global poverty change according to different poverty measures? What are the policy implications?

2. How can well-being and poverty dimensions be better selected? And which weights should they receive? How could future household surveys be modified in order to be able to capture the main missing dimensions? How should survey questions be formulated in order to be able to provide not only information about achieved functionings, like being well-nourished, but also capabilities, i.e. the ability to be well-nourished?

3. In light of the current debate on Post-2015, the capability approach offers a unique framework to measure and analyse well-being and poverty in high- as well as in low-income countries. What are the specific choices a researcher has to make to measure these phenomena in affluent societies? What can we learn from the experience of much more advanced data sets like the German Socio-Economic Panel (SOEP) with regard to the inclusion of missing dimensions, choice of indicators and the formulation of capability questions? How does poverty look like in OECD countries like Germany and Italy? What are the main differences with regard to developing countries?

4. When looking at the income dimension, how did countries perform in terms of translating growth into poverty reduction through a growth that is pro-poor? How do results correlate with other dimensions and macroeconomic indicators so as to shed light on the determinants of such a progressive transformation? How good a measure can the new pro-poor growth index be as a tool for performance evaluation, progress monitoring and goal setting? Is it possible to expand this income/consumption based methodology to the multidimensional approach? 
5. From a pro-poor perspective, and given the German-supported World Bank goal of bringing global extreme poverty down to 3% by 2030, what kind of structural transformation will countries need to undertake to provide the necessary changes in income distribution that will be required given the inherent uncertainty of growth episodes, particularly at a time of increasing environmental limitation to business as usual? How does this relate to the shared prosperity discourse that focuses on growth of the 40 bottom percent of the income distribution?