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CPI Bias and its Implications for Poverty Reduction in Africa

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Abstract

International poverty estimates for countries in Africa commonly rely on national consumer price indexes to adjust trends in nominal consumption over time for changes in the cost of living. However, the consumer price index is subject to various types of measurement bias. This paper uses Engel curve estimations to assess bias in the consumer price index and its implications for estimated poverty trends. The results suggest that in 13 of 16 Sub-Saharan African countries in this study, poverty reduction may be understated because of consumer price index bias. With correction of consumer price index bias, poverty in these countries could fall between 0.4 and 5.2 percentage points per year faster than currently thought. For two countries, however, the paper finds the opposite trend. There is no statistically significant change in poverty patterns after adjusting for consumer price index bias for only one country.

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Acknowledgments

We thank Kathleen Beegle, Jennifer Cisse, Luc Christiaensen, Jed Friedman, John Gibson, an anonymous reviewer as well as participants at various conferences for invaluable comments. We are also grateful to the national statistical offices of the countries used in this study for sharing the price data. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. Of course, all errors are our own.

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Authors and Affiliations

  1. Poverty and Equity Global Practice, World Bank Group, 1818 H Street NW, Washington, DC, 20433, USA

    Andrew Dabalen & Nga Thi Viet Nguyen

  2. Gender Group, World Bank, 1818 H Street NW, Washington DC, 20433, USA

    Isis Gaddis

  3. Institute for the Study of Labor (IZA), Bonn, Germany

    Isis Gaddis

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  1. Andrew Dabalen
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  2. Isis Gaddis
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  3. Nga Thi Viet Nguyen
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Correspondence to Nga Thi Viet Nguyen.

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Dabalen, A., Gaddis, I. & Nguyen, N.T.V. CPI Bias and its Implications for Poverty Reduction in Africa. J Econ Inequal 18, 13–44 (2020). https://doi.org/10.1007/s10888-019-09429-3

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