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Economic Issue of the Day

Philippine Institute for Development Studies S u r i a n s a m g a Pa g -a a ral Pangkaunlaran ng Pilipinas

Vo l . V I I I N o . 1 ( J u l y 2 0 0 8 )

Summing up: some basic poverty notes


nderstanding and eradicating poverty has hounded mankind for centuries and despite the multitudes of studies on the subject, there is still no single, universally accepted definition of poverty. This writeup explores the many facets of poverty, the definitions attached to it, and the various ways by which poverty is measured and analyzed.

Poverty defined: clusters of meanings Since the 1880s, poverty concepts have evolved based on ideas of subsistence, basic needs, and relative deprivation. While recent poverty concepts are still grounded on these thoughts, experts have categorized existing poverty literature into clusters of meanings (Chambers 2006). The first cluster associates poverty with lack of income or means to obtain the basic dietary and nutritional needs. Poverty meant having little or insufficient income to buy food necessary for human survival. Of course, what is considered ‘sufficient’ or ‘adequate’ varies across time and space. One of the earliest studies on poverty came up with a socially acceptable amount of money needed to obtain a bundle of basic goods. This experiment by Benjamin Seebohm Rowntree was the first to introduce the concept of ‘poverty line’ appropriate to 1901 New York (Kanbur and Squire 1999). But the income-based definition of poverty was too narrow and simplistic. There are other things needed for one to survive. Hence, apart from income, the second cluster covers a wider set of basic needs to include other indicators such as lack of shelter, clothing, and lack of or poor access to social services (Chambers 2006). Much of the recent development rhetoric on poverty has its roots from Amartya Sen’s welfare economics and his pioneering work on capability deprivation and social exclusion. These concepts, capability deprivation in particular, view poverty not just in terms of physical, human survival but more on the social states of individuals that may promote or inhibit well-being. Individuals are regarded as having rights and capabilities such as acquiring skills and engaging in economic transactions or political activities. These capabilities, deemed essential to human functioning, can be suppressed in any number of ways like when

there is oppression by the government, lack of financial resources, or even ignorance or false consciousness (Wikipedia 2008). Sen pointed out the cases of South Africa and Brazil where despite the high per capita income, people have lower life expectancy and literacy rates compared to Sri Lanka and China (Zakaria 1999). The ‘human development' approach, an idea developed and advanced by the United Nations Development Programme (UNDP) in 1990, is heavily anchored on these ideas. Poverty is seen as a reflection of ‘lack of choices and opportunities in the key areas of education, health, and command over resources as well as voice related to democratic processes’ (UNDP 2006). The focus is not so much on meeting or satisfying human needs but rather in enlarging choices and attaining full human development. Despite this shift to a multidimensional concept of poverty, the income-based approach has, to date, remained the most popular and commonly used poverty measure. The World Bank’s less than $1 a day poverty concept is consistently used to monitor the size and trends in global poverty. Those living below $1/ day1 is said to be living in abject or absolute poverty because the assumption is that $1 a day is not sufficient to cover even the most basic dietary and nutritional needs of an individual.

Poverty measures in the Philippines In the Philippines, poverty is measured with the use of a predetermined poverty line or poverty threshold, which essentially refers to the minimum income or expenditure required for a family or individual to meet food and nonfood requirements to live decently in the Philippines. It is a ‘demarcation line’ that separates the poor from nonpoor. In 2006, for instance, a family with five members needed P6,274 a month to provide for the family's food and nonfood basic needs. The family is considered poor if the family's income falls short of that income requirement. And because goods are priced differently in Metro Manila as compared, say, to Samar or to the entire Philippines (Table 1), the poverty thresholds in these areas also differ, as they differ between urban and rural areas. _____________________ 1 The World Bank also uses less than $2 a day for international comparison.

Economic Issue of the Day


Vo l . V I I I N o . 1 ( J u l y 2 0 0 8 )

The National Statistical Coordination Board (NSCB) generates official poverty indicators like poverty incidence, poverty gap, and severity of poverty based on the income/ expenditure data of the Family Income and Expenditure Survey (FIES) conducted every three years by the National Statistics Office (NSO). The government recognizes that in order to address the problem of poverty, it is not enough to just identify the poor. It must also take into account the size, extent, and severity of poverty in an area. Using the same poverty line, the poverty incidence or headcount ratio can be derived by getting the ratio or percent of poor families or individuals to the entire population. In 2006, the NSCB reported a 32.9 percent poverty incidence among the population, meaning that for every 100 Filipinos, 33 are poor or have incomes below the specified 2006 poverty threshold. From 2003 to 2006, NSCB reported an increase in the incidence of poverty among households and population. Just how far the poor are from the poverty line is determined by the poverty gap index. By knowing what the gap is, government planners are able to estimate just how much intervention or resources are needed to raise the poor from their current level of poverty. For example, in Masbate, which had the highest poverty gap recorded at 22.6 percent in 2000, this meant that incomes of families must increase by at least 22.6 percent of the poverty line to close the gap and attain a ‘zero’ poverty gap. The magnitude or severity of poverty, on the other hand, gives an index of how seriously poor those people classified as poor are, and, at the same time, captures the inequality among them. An area can likewise have a severity of poverty index higher than the estimated poverty incidence ratio. Classic examples would be Masbate and Sulu. Masbate was reported as having the most severe poverty index in 2000 despite the fact that it only ranked second in terms of poverty incidence. Sulu, on the other hand, had the highest poverty incidence in _____________________ 2 Dr. Arsenio Balisacan of the UP School of Economics, for one, proposed an alternative approach and came up with two sets of poverty estimates; one based on population distributions reported in the FIES and another making use of population distributions for fixed areas. This proposed approach is currently being studied by the NSCB technical working group.

Table 1. Annual and monthly poverty threshold for a family of five: 2000, 2003, and 2006

2000 Philippines NCR

57,290 78,610

Annual 2003 61,545 83,685



75,285 102,830

4,774 6,551

Monthly 2003 2006 5,129 6,974

6,274 8,569

Source: National Statistical Coordination Board (NSCB).

1997 and 2000, but it was not included in the list of 10 poor provinces with severe poverty. This implies that while there are more poor families in Sulu as compared to Masbate, their incomes are closer to the poverty threshold. Therefore, it will be relatively easier for poor families in Sulu to get out of poverty than their counterparts in Masbate (NSCB 2003). Poverty is a multidimensional and intrinsically complex phenomenon. Thus, despite ongoing efforts to improve poverty estimation, it is riddled with issues of comparability and reliability.2 To address these, the NSCB, the sole agency tasked to do poverty monitoring activities, has been undertaking various activities to improve estimation methodologies. In the meantime, getting people to understand basic poverty concepts is one sure step of stimulating healthier debate and increasing appreciation for ongoing efforts to improve the generation and estimation of the country’s poverty statistics. N

References Chambers, R. 2006. What is poverty? Who asks? Who answers? [online]. Poverty in Focus. International Poverty Center. Kanbur, R. and L. Squire. 1999. The evolution of thinking about poverty: exploring the interactions [online]. http://siteresources. Wikipedia. 2008. Capability deprivation [online, accessed June 27]. http:/ / The_Capabilities_Approach_-_Philosophical_and_Policy_Context. Zakaria, F. 1999. Beyond money [online, accessed July 24]. The New York Times. 9907E2DC163CF93BA15752C1A96F958260. United Nations Development Programme (UNDP). 2006. Human Development Report 2006. National Statistical Coordination Board (NSCB). 2003. Factsheet [online].

The Economic Issue of the Day is one of a series of PIDS efforts to help in enlightening the public and other interested parties on the concepts behind certain economic issues. This dissemination outlet aims to define and explain, in simple and easy-to-understand terms, basic concepts as they relate to current and everyday economics-related matters. This Issue was written by Fatima Lourdes E. del Prado, Research Analyst II at the Institute. She acknowledges the comments of Dr. Aniceto C. Orbeta Jr. and Ms. Aubrey D. Tabuga, Senior Research Fellow and Supervising Research Specialist at PIDS, respectively. The views expressed are those of the author and do not necessarily reflect those of PIDS and other member agencies and sponsors. N Philippine Institute for Development Studies NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, Makati City z Telephone Nos: (63-2) 8942584 and (63-2) 8935705 z Fax Nos: (632) 8939589 and (63-2) 8161091 URL:

Summing Up: Some Basic Poverty Notes