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Macroeconomic Fundamentals of Poverty and Deprivation: An Empirical Study for Developed Countries

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Abstract

This study provides a relevant contribution to literature on the macroeconomic determinants of multidimensional deprivation in developed countries; this type of analysis is not as frequent in the literature as that explaining poverty stricto sensu. After a review of the macroeconomic mechanisms of poverty, we propose a composite index to capture multidimensional poverty as to allow a comparative assessment of deprivation across European Union countries. Relying on the macroeconomic transmission mechanisms that influence poverty, a panel data econometric approach is implemented to study the relation between the proposed composite index and macroeconomic variables. Results show that a multidimensional poverty concept is relevant for assessing deprivation in Europe and that the dynamics of main macroeconomic variables crucially affect deprivation performances. The latter result is robust, holding for different poverty measures.

Abstract

Cette étude contribue de manière pertinente à la littérature sur les déterminants macroéconomiques de la pauvreté multidimensionnelle dans les pays développés; dans la littérature économique, ce type d’analyse n’est pas aussi fréquent que celle qui cherche à expliquer la pauvreté au sens strict. Après une revue des mécanismes macroéconomiques de la pauvreté, nous proposons un indice composite qui reflète la pauvreté multidimensionnelle afin d’effectuer une évaluation comparative de la pauvreté dans les pays de l’Union Européenne. En se basant sur les mécanismes macroéconomiques de transmission qui influencent la pauvreté, une approche économétrique longitudinale est utilisée pour étudier la relation entre l’indice composite proposé et des variables macroéconomiques. Les résultats montrent que le concept de pauvreté multidimensionnelle est pertinent dans l’évaluation de la pauvreté en Europe et que les dynamiques des principales variables macroéconomiques affectent de façon significative les manifestations de la pauvreté. Ce dernier résultat est robuste et est valable pour différentes mesures de la pauvreté.

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Notes

  1. For a detailed analysis of the evolution of the concept of poverty, see, for example, Misturelli and Heffernan (2008) and Lomasky and Swan (2009).

  2. In the sections ‘Multidimensional Poverty across Selected EU Countries’ and ‘Deprivation and macro mechanisms: A panel data analysis’, we use the terms ‘poverty’ and ‘deprivation’ interchangeably.

  3. Since the seminal contribution of Yitzhaki (1979), the Gini coefficient has been a common method to measure relative monetary poverty.

  4. Corruption Perceptions Index (2013) http://cpi.transparency.org/cpi2013/results/, accessed 24 February 2014.

  5. The rate of severe material deprivation is defined as the percentage of the population facing four of the nine material deprivation items: (i) Inability to face unexpected financial expenses; (ii) Inability to afford a 1-week annual holiday away from home; (iii) Arrears (mortgage or rent payments, utility bills or hire purchase); (iv) Inability to afford a meal with meat, chicken or fish every second day; (v) Inability to keep the home adequately warm; (vi) Enforced lack of a washing machine; (vii) Enforced lack of a colour TV; (viii) Enforced lack of a telephone; and (ix) Enforced lack of a personal car.

  6. Belgium, the Czech Republic, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Slovenia, Slovakia, Finland and the UK.

  7. In our study, the maximum value in the ranking (R) is 24 (the total number of countries). If two countries or more have the same domain ranking, the maximum score (R) is not 24, but lower.

  8. Due to data restrictions, namely, for the output gap, Latvia and Lithuania were excluded from the sample used in the section ‘Multidimensional Poverty across Selected EU Countries’.

  9. See methodological notes in Eurostat (2012).

  10. All data, with the exception of WGI and OUTPUT_GAPR, are from the Eurostat database, http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/themes. The governance index was computed using data from the World Bank, http://info.worldbank.org/governance/wgi/index.aspx#home (both accessed in December, 2013).

  11. Recently, Bossert et al (2013) apply a measure to EU countries, based on a popular index of multidimensional poverty, but focused on material deprivation. They reveal that the results differ substantially from poverty measures based exclusively on income.

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Authors and Affiliations

  1. Universidade do Porto, Porto, Portugal

    Ana Paula Ribeiro, Sandra Tavares Silva & Duarte Guimarães

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  1. Ana Paula Ribeiro
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  2. Sandra Tavares Silva
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  3. Duarte Guimarães
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Appendices

Appendix A

Transformed Ranking Per Deprivation Dimension

Table A1

Table A1 Income deprivation
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Table A2

Table A2 Employment deprivation
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Table A3

Table A3 Health deprivation and disability
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Table A4

Table A4 Education, skills and training deprivation
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Table A5

Table A5 Barriers to housing and service
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Table A6

Table A6 Crime
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Table A7

Table A7 Living environment deprivation
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Appendix B

Index of Multiple Deprivation for Developed Countries

Table B1

Table B1 Index of Multiple Deprivation for Developed Countries
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Table B2

Table B2 Index of Multiple Deprivation for Developed Countries (data-driven)
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Appendix C

Correlation Matrixes between Variables in Specification (III)

Table C1

Table C1 Correlations between variables in Specification (III) for IMD_D (data-driven)
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Table C2

Table C2 Correlations between variables in Specification (III) for IMD_D
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Table C3

Table C3 Correlations between variables in Specification (III) for AROPE
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Ribeiro, A., Silva, S. & Guimarães, D. Macroeconomic Fundamentals of Poverty and Deprivation: An Empirical Study for Developed Countries. Eur J Dev Res 27, 37–66 (2015). https://doi.org/10.1057/ejdr.2014.16

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