Question

Explain how MPI differs from other measurements of economic growth.

Answer 1

Answer:

The Multidimensional Poverty Index (MPI) as an indicator to quantify poverty traps in countries, as it allows us to measure the impact and intensity of poverty for those lacking in various basic areas simultaneously. The MPI is interesting for this purpose, both because it serves to complement measures of poverty by income over time, and because it may be a more viable tool for periodic use in the absence of panel data.

The concept of poverty traps has long existed in development theory, with fundamental works by Young (1928), Rosestein-Rodan (1943), Nurske (1952), Myrdal (1957) and Leibenstein (1957). These ideas were revisited decades later and formalized in a variety of macroeconomic (economic growth models) and microeconomic models (focused on individual agents). Both types of models sought to explain different accumulation paths, some of which have inherent self-reinforcing poverty trap mechanisms, including: economies of scale, positive externalities, the presence of complements, imperfect competition, the failure of some markets (principally capital markets) and the recognition of the importance of an institutional framework to regulate economic transactions.

The MPI reflects the multiple deprivations that people face at the same time. We have described the MPI as a measure of “acute” poverty because it reflects overlapping deprivation in basic needs and also to avoid confusion with the World Bank’s measure of “extreme” poverty that captures those living on less than $1.90 a day.

The MPI measures acute poverty, defined by two features.

•           First, it refers to people living in conditions that do not meet the internationally defined standards for basic functions, such as good nutrition and access to drinking water.

•           Second, it describes people that do not meet the minimum standards for various aspects simultaneously, that is, people that experience multiple deprivations..