Shigeru Otsubo

Measurements and Determinants of Multifaceted Poverty:Absolute, Relative, and Subjective Poverty in Indonesia

The notion of ‘poverty’ is diversified and dynamic. It varies across countries with different socio-economic norms. It may also change over time even in the same society, with different stages of social and economic development. A country may be struggling with absolute poverty at the early stages of development, while it may well be more concerned with relative and/or subjective poverty as its average per-capita income increases. This article intends to conduct an exploration of multiple poverty measures by looking into the absolute, relative and subjective poverty incidence in Indonesia. Using the 2005 National Socio-Economic Survey (Susenas), we observed that there was a roughly 28 percentage-point difference in the poverty headcount ratios computed by applying absolute (14.47%) and subjective (42.03%) poverty. There were virtually no correlations among the poverty rankings in the provinces of Indonesia obtained by five poverty metrics. Results of logit model and ordered logit model estimations of the possible determinants of poverty indicate that the main determinants of poverty are educational attainment, number of household members, physical assets (land and house ownership), existence of migrant workers (possible remittances), negative shocks of layoffs and/or health problems, development of public services, and the availability of road infrastructure. A higher educational attainment increases the probability of never being poor in any of the five poverty metrics by almost 11 percentage points. This study also confirmed that households having less than society’s averages in terms of the physical asset of land and consumption of durable goods and fashion tended to subjectively asses themselves as poor. The study suggests that any poverty alleviation programs should consider relative impacts among beneficiaries and non-beneficiaries within each locality and across provinces.

Aid is good for the poor

Aid is good for the poor. This paper uses detailed aid data spanning 60 developing countries over the past two decades to show that social aid significantly and directly benefits the poorest in society, while economic aid increases the income of the poor through growth. This new and unequivocal finding distinguishes the current study from past studies that only utilized aggregate aid data and returned ambiguous results. The paper also confirms that none of the elements of globalization (trade, foreign direct investment, remittances), policies (government expenditure, inflation management), institutional quality, nor other plausibly pro-poor factors have systematic effects on the poor or any other income group, beyond their effects on average incomes. The paper finds that trade and foreign direct investment tend to benefit the richest segments of society more than other income groups. Therefore, the presented evidence suggests that aid can play a crucial role in enabling the poor to benefit more from globalization. These discoveries underscore the need to assist developing countries to find the mix of economic and social aid that jointly promotes the participation of the poor in the development process under globalization. In this manner, aid can make greater strides in spurring development.