Haughton and Khandker
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would imply that the commodity-based poverty line would rise as a country becomes more affluent, because the minimum resources needed to participate fully in society probably rise over time. In Sen’s prose, “an absolute approach in the space of capabilities translates into a relative approach in the space of commodities” (Sen 1983, 168). However, in what follows, we simplify the analysis by assuming that utilities are not interdependent, so the commodity-based poverty line is given in absolute terms.
Review Question 5. Is the following statement true or false? If my well-being depends on where I stand relative to others, then the dollar absolute poverty line needs to change as a country becomes richer.
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True False
Decide uz and g(·) Even if we assume that the commodity-based poverty line remains constant, we are still left with two problems. • The referencing problem. What is the appropriate value of uz—that is, what is the value of the utility of the poverty line? The choice is arbitrary, of course, but “a degree of consensus about the choice of the reference utility level in a specific society may well be crucial to mobilizing resources for fighting poverty” (Ravallion 1998, 6). • The identification problem. Given uz, what is the correct value of z—that is, what is the correct commodity value of the poverty line? This problem arises for two reasons: the size and demographic composition of households vary—an issue raised in the discussion of equivalence scales in chapter 2—and “the view that we can measure welfare by looking solely at demand behavior is untenable” (Ravallion 1998, 7).
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The implication is that external information and judgments will be required to answer the referencing and identification problems, and hence, to determine the absolute poverty line. But how is this to be done in practice? Table 3.3 presents absolute and relative poverty headcount rates for different regions in the world. How regions compare with each other depends on which poverty measure is used. For example, by the absolute measure of less than $1/day, Sub-Saharan Africa has the highest portion of the population living in poverty. However, countries in Latin America and the Caribbean have the highest portion of their population living below one-third of the average national consumption; in effect, these Latin American and the Caribbean countries are the most unequal societies, an issue that is addressed directly in chapter 6.