Comparing Alternative Measures of Poverty: Assets-Based Wealth Index vs. Expenditures-Based Poverty Score

Agency for International Development (USAID) through cooperative agreement associate award number GPO-A-00-09-00003-00 and is implemented by the Carolina Population Center at the University of North Carolina at Chapel Hill, in partnership with Futures Group, Management Sciences for Health, and Tulane University. The organization's primary focus is on assessing the comparability of different measures of poverty, specifically the assets-based wealth index and expenditures-based poverty score. The assets-based wealth index is a standard indicator in Demographic Health Surveys (DHS) and other similar national surveys. It is constructed by introducing household assets, utilities, and housing construction variables into a principal components analysis (PCA) and computing a wealth index for each household. National wealth quintile cut-points are determined from the weighted frequency distribution of households, and each household member is assigned their household's quintile category. In contrast, most poverty reduction programs and development efforts focus on absolute poverty, which is measured by individuals and households living below an expenditure-based poverty threshold such as $1.25 a day purchasing power parity (PPP). The assets-based wealth index can be used to analyze absolute poverty line differences by replacing the quintile cut-points with the percentage distribution of the population living in poverty. A study comparing the assets-based wealth index and expenditures-based poverty score in three countries - Bangladesh, Ethiopia, and Malawi - found that the estimated proportions of people living below the poverty line of $1.25 a day PPP were comparable between the DHS and the expenditures surveys. However, when comparing individuals' assets-based wealth quintile with their expenditure-based poverty scorecard quintile, marked differences between countries were found. In Ethiopia, more than a third of the individuals in each assets-based wealth index quintile were ranked two or more quintiles above or below that quintile on the expenditures-based poverty scorecard.