Poverty and inclusive growth in the light of the quintile income statistic.

Author:Subramanian, S.
 
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1 Introduction

It appears that the World Bank is planning to maintain and disseminate systematic information on a version of what Kaushik Basu (now a Vice-President of the World Bank) had some years ago advanced as the 'quintile income statistic'. The quintile income--which we shall find convenient to refer to simply as Q--is just the average income of the poorest quintile (that is to say, poorest 20 per cent) of a population. The quintile income statistic is a very simple, but also very versatile, welfare indicator--one which can be employed to cast light, admittedly in a somewhat elementary way, on aspects of both income poverty and the 'inclusiveness' of growth. The World Bank aims to track, subject to the availability of data, country-specific performance with respect to the average income of the poorest 40 per cent of the population (rather than 20 per cent, as Basu had proposed in his original version of the statistic).

Notice that the quintile income, as well as the Bank's proposed measure, are specific instances of a more general formula that pertains to the average income of the poorest x per cent of a population. As x goes toward 100, we move closer and closer toward that old work-horse summary indicator of welfare, the income per capita of a population. To ensure that some sensible distinction from per capita gross national product (GNP) is maintained, there is a case for pitching x 'low' rather than 'high'. As such, one wishes the World Bank had stuck to Basu's original recommendation of concentrating on the bottom 20 percent, instead of focusing on the bottom 40 percent. Having said this, it is nevertheless welcome that the Bank proposes to implement a version of the quintile income index, and, for specificity, it is this measure Q that I shall refer to in the rest of this article. In what follows, I shall attempt to describe as simply as I can how the Q statistic can be employed to reveal something about an economy's poverty and dynamic inequality.

1.1 The poverty line

As is well known, extant protocols of money-metric poverty measurement follow what one may call the route of 'identification-um-aggregation'. The identification exercise is concerned with specifying an income 'poverty line' designed to distinguish the poor segment of a population from its non-poor segment. The aggregation exercise is concerned with combining information on the distribution of income and the poverty line in order to come up with a single real number which is supposed to signify the extent of poverty in the society under review. A particularly simple aggregate measure of poverty, and one which is very widely employed, is the so-called headcount ratio, or proportion of the population in poverty (that is to say, the proportion of the population with incomes or consumption expenditure levels below the poverty line).

It is important to recognize that the language of a 'poverty line' is ill-suited to treating income as anything but a means to an end--specifically the end of avoiding deprivation in the space of human functionings. After all, what is the common sense meaning of the term 'poverty line'? Is it not a reference to that level of income which...

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