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Abstract
Poverty profiles are a useful way of summarizing information on the levels of
poverty and the characteristics of the poor in a society. They also provide us with
important clues to the underlying determinants of poverty. However, important as they
are, poverty profiles are limited by the bivariate nature of their informational content.
The bivariate associations typical in a poverty profile can sometimes be misleading; they
beg the obvious question of the effect of a particular variable conditional on the other
potential determinants. While there may be certain contexts where unconditional poverty
profiles are relevant to a policy decision (see Ravallion 1996), often one would be
interested in the "conditional" poverty effects of proposed policy interventions. It is not
surprising therefore that empirical poverty assessments in recent years have seen a
number of attempts at going beyond the poverty profile tabulations to engage in a
multivariate analysis of living standards and poverty. This study for Egypt has a similar
motivation.
For Egypt, while there has been some work on a descriptive analysis of the
characteristics of the poor, to our knowledge, there is no precursor to an empirical
modeling of the determinants of poverty using nationally representative data. To a large
extent, this has been due to the nonavailability of unit-record data from the Household
Income, Expenditure and Consumption Survey (HIECS), the primary source of data on
living standards in Egypt. However, this constraint has been recently alleviated with the 1997 Egypt Integrated Household Survey (EIHS). Using the EIHS data, it is now
possible to conduct a household-level multivariate analysis of living standards. The
EIHS, being an integrated, multimodule survey, also offers the potential of a richer
analysis of this issue than may have been possible from other data sources.
In this paper, we have sought to extend the descriptive analysis of the Egypt
poverty profile presented in Datt, Jolliffe, and Sharma (1998) by modeling the
determinants of poverty, using data from the 1997 Egypt Integrated Household Survey.
Our approach to modeling the determinants of poverty is to model the determinants of the
individual welfare indicator, namely, consumption per person, used to define poverty
measures. Model predictions for the individual welfare indicator have direct implications
for predicted levels of poverty.
We estimate separate governorate-level fixed effect models for the urban and rural
sectors. In our preferred model for the urban sector, we include interaction effects
between schooling characteristics, measures of unemployment, and landownership. In
our preferred rural model, we include interaction effects between schooling
characteristics, measures of unemployment, landownership, and community
characteristics including irrigation, distance to railroad, and indices of social and
economic capital. We use both the urban and rural regression models to predict changes
in consumption levels and hence poverty from simulated policy changes.
A key conclusion of our study has to do with the important instrumental role of
education in alleviating poverty in Egypt. Increasing average years of schooling, as well as improving the level of parents education, is indicated to have large impacts on average
living standards and poverty levels. Our simulation results suggest that a two-year
increase in household average school attainment would result in an 18 percent decline in
the number of individuals living in poverty. A two-year increase in school attainment
would also result in a reduction in the depth of poverty (as measured by the poverty gap
index) and the severity of poverty (as measured by the squared poverty gap index) of 22
and 25 percent, respectively. We find that the estimated beneficial effect of improved
school attainment is robust whether we consider the rural or urban sector, Upper or Lower
Egypt, and regardless of which poverty index we examine.
While the beneficial effects of improvements in school attainment are significantly
larger than the predicted effects from any other policy changes, we do find fairly large and
positive effects from improvements to irrigation and reducing the number of unemployed
individuals. Improved irrigation is estimated to reduce the national incidence of poverty
by 6 percent, while reducing unemployment levels is estimated to reduce the incidence of
poverty by 2 to 3 percent.
It is in the nature of these poverty simulations that the results have a reduced form
character. The observed effects are nevertheless important, even if the particular
pathways are difficult to identify. In interpreting the importance of these results for
poverty reduction, one should also not assume these effects to be instantaneous, even
though they are estimated from static models. Educational investments, for instance, have inherently long gestation; what our results indicate is that they can be powerful
instruments for long-term poverty reduction.