Estimating Wealth effects without expenditure Data: Evidence From rural Ethiopia
2017
Dekker, Marlieen
In economic studies, household economic status is usually proxied by measuresof consumption or income. In recent years, several studies have advanced anasset-based index as an alternative measure of wealth status. In most studies,the asset-based wealth index is constructed with a standard list of assetscomprising household ownership of consumer durables, the characteristics of thehousehold’s dwelling and sometimes household landownership.Although a standard list may be useful when comparing households acrosscountries or urban and rural residents in one country, the assets included may notalways be relevant for studies focussing on rural areas or a particular rural areaonly. This paper addresses the question what assets should be included in thewealth index to the best reflect long-term economic status in rural Ethiopia. Weuse data from the Ethiopian Rural Household Survey (ERHS) collected in 1994and 1995 to construct several asset-based wealth indices. We find not allstandard assets are relevant locally and signs and heights of factor loadings differsubstantially between localities, supporting the case of specified (local) assetlistings. The specified asset index performs best compared to other asset indiceswhen considering the distribution of food security across wealth quintiles and is atleast as good a predictor of food security as per capita consumption measure forthe same households
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