Poverty gap index
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The poverty gap index is a measure of the intensity of
poverty Poverty is the state of having few material possessions or little income. Poverty can have diverse social, economic, and political causes and effects. When evaluating poverty in ...
. It is defined as the average poverty gap in the population as a proportion of the
poverty line The poverty threshold, poverty limit, poverty line or breadline is the minimum level of income deemed adequate in a particular country. The poverty line is usually calculated by estimating the total cost of one year's worth of necessities for t ...
. The poverty gap index is an improvement over the poverty measure
head count ratio The head count ratio (HCR) is the population proportion that exists, or lives, below the poverty threshold. One of the undesirable features of the head count ratio is that it ignores the depth of poverty; if the poor become poorer, the head count ...
which simply counts all the people below a poverty line, in a given population, and considers them equally poor. Poverty gap index estimates the depth of poverty by considering how far, on the average, the poor are from that poverty line.


Definition

The poverty gap index sometimes referred to as poverty gap ratio or pg index is defined as average of the ratio of the poverty gap to the poverty line. It is expressed as a percentage of the poverty line for a country or region.


Significance

The most common method measuring and reporting poverty is the head count ratio, given as the percentage of population that is below the poverty line. For example, ''
The New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'' in July 2012 reported the poverty head count ratio as 11.1% of American population in 1973, 15.2% in 1983 and 11.3% in 2000. One of the undesirable features of the head count ratio is that it ignores the depth of poverty; if the poor become poorer, the head count index does not change. Poverty gap index provides a clearer perspective on the depth of poverty. It enables poverty comparisons. It also helps provide an overall assessment of a region's progress in
poverty reduction Poverty reduction, poverty relief, or poverty alleviation, is a set of measures, both economic and humanitarian, that are intended to permanently lift people out of poverty. Measures, like those promoted by Henry George in his economics clas ...
and the evaluation of specific public policies or private initiatives.


Calculation

The poverty gap index (PGI) is calculated as, :: = \frac \sum_^ \left( \frac \right) or :: = \frac \sum_^ \left( \frac \right) where N is the total population, q is the total population of poor who are living at or below the
poverty line The poverty threshold, poverty limit, poverty line or breadline is the minimum level of income deemed adequate in a particular country. The poverty line is usually calculated by estimating the total cost of one year's worth of necessities for t ...
, z is the poverty line, and y_j is the
income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. For ...
of the poor individual j. In this calculation, individuals whose income is above the poverty line have a gap of zero. By definition, the poverty gap index is a percentage between 0 and 100%. Sometimes it is reported as a fraction, between 0 and 1. A theoretical value of zero implies that no one in the population is below the poverty line. A theoretical value of 100% implies that everyone in the population has zero income. In some literature, poverty gap index is reported as P_1 while the head count ratio is reported as P_0.


Features

The poverty gap index can be interpreted as the average percentage shortfall in income for the population, from the poverty line. If you multiply a country's poverty gap index by both the poverty line and the total number of individuals in the country you get the total amount of money needed to bring the poor in the population out of
extreme poverty Extreme poverty, deep poverty, abject poverty, absolute poverty, destitution, or penury, is the most severe type of poverty, defined by the United Nations (UN) as "a condition characterized by severe deprivation of basic human needs, includi ...
and up to the poverty line, assuming perfect targeting of transfers. For example, suppose a country has 10 million individuals, a poverty line of $500 per year and a poverty gap index of 5%. Then an average increase of $25 per individual per year would eliminate extreme poverty. Note that $25 is 5% of the poverty line. The total increase needed to eliminate poverty is US$250 million—$25 multiplied by 10 million individuals. The poverty gap index is an important measure beyond the commonly used head count ratio. Two regions may have the similar head count ratio, but distinctly different poverty gap indices. A higher poverty gap index means that poverty is more severe. The poverty gap index is additive. In other words, the index can be used as an aggregate poverty measure, as well as decomposed for various sub-groups of the population, such as by region, employment sector, education level, gender, age or ethnic group.


Limitations

Poverty gap index ignores the effect of inequality between the poor. It does not capture differences in the severity of poverty amongst the poor. As a theoretical example, consider two small neighborhoods where just two households each are below the official poverty line of US$500 income per year. In one case, household 1 has an income of US$100 per year and household 2 has an income of US$300 per year. In second case, the two households both have annual income of US$200 per year. The poverty gap index for both cases is same (60%), even though the first case has one household, with US$100 per year income, experiencing a more severe state of poverty. Scholars, therefore, consider poverty gap index as a moderate but incomplete improvement over poverty head count ratio. Scholars such as
Amartya Sen Amartya Kumar Sen (; born 3 November 1933) is an Indian economist and philosopher, who since 1972 has taught and worked in the United Kingdom and the United States. Sen has made contributions to welfare economics, social choice theory, econom ...
suggest poverty gap index offers quantitative improvement over simply counting the poor below the poverty line, but remains limited at the qualitative level. Focusing on precisely measuring
income gap There are wide varieties of economic inequality, most notably income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of we ...
diverts the attention from qualitative aspects such as capabilities, skills and personal resources that may sustainably eradicate poverty. A better measure would focus on capabilities and consequent consumption side of impoverished households. These suggestions were initially controversial, and have over time inspired scholars to propose numerous refinements.


Related measures

The Foster–Greer–Thorbecke metric is the general form of the PGI. The FGT_\alpha formula raises the summands to the power alpha, so that FGT0 is the head count index, FGT1 the PGI and FGT2 the squared PGI. Squared poverty gap index, also known poverty severity index or P_2, is related to poverty gap index. It is calculated by averaging the square of the poverty gap ratio. By squaring each poverty gap data, the measure puts more weight the further a poor person's observed income falls below the poverty line. The squared poverty gap index is one form of a weighted sum of poverty gaps, with the weight proportionate to the poverty gap. Sen index, sometimes referred to P_, is related to poverty gap index (PGI). It is calculated as follows: :: = H*G_z + PGI*(1-G_z) where, H is the head count ratio and G_z is the income Gini coefficient of only the people below the poverty line. Watts index, sometimes referred to W, is related to poverty gap index (PGI). It is calculated as follows: :: = \frac \sum_^ \ln \left( \frac \right) The terms used to calculate W are same as in poverty gap index (see the calculation section in this article).


Poverty gap index by country

The following table summarizes the poverty gap index for developed and developing countries across the world.


See also

* Foster–Greer–Thorbecke indices * Gini coefficient *
Multidimensional Poverty Index Multidimensional Poverty Indices use a range of indicators to calculate a summary poverty figure for a given population, in which a larger figure indicates a higher level of poverty. This figure considers both the proportion of the population that ...
*
Human Poverty Index The Human Poverty Index (HPI) was an indication of the poverty of community in a country, developed by the United Nations to complement the Human Development Index (HDI) and was first reported as part of the Human Deprivation Report in 1997. It i ...
*
Human Development Index The Human Development Index (HDI) is a statistic composite index of life expectancy, education (mean years of schooling completed and expected years of schooling upon entering the education system), and per capita income indicators, whi ...
*
Gender Development Index The Gender Development Index (GDI) is an index designed to measure gender equality. GDI, together with the Gender Empowerment Measure (GEM), was introduced in 1995 in the Human Development Report written by the United Nations Development Program. ...
*
Gender Empowerment Measure The Gender Empowerment Measure (GEM) is an index designed to measure gender equality. GEM is the United Nations Development Programme's attempt to measure the extent of gender inequality across the globe's countries, based on estimates of women's ...
*
Education Index An Education index is a component of the Human Development Index published every year by the United Nations Development Programme. Alongside the Economical indicators and Life Expectancy Index, it helps measure the educational attainment, GNI ( ...


Notes


References


External links


Basics of Poverty Reduction & Inequality Analysis
A World Bank resource on latest data and reports on poverty measurement
Handbook on Poverty and Inequality
A handbook with examples, features and limitations of poverty measures

A continuously updated database with poverty gap index and other poverty analysis tools {{Deprivation Indicators Measurements and definitions of poverty