countries of the former Yugoslavia. Exclusion of homeless populations occurs across ECA countries, as well as the rest of the world. They are a notoriously difficult population to include in a survey. Finally, countries in the region that have experienced conflict (notably, the Caucasus and the countries of the former Yugoslavia) typically under-sample IDP/refugee populations, although these populations are generally found in urban areas. As a result of under-representation of these groups, the true level of poverty in urban areas is likely underestimated.

**Peri-urban areas.** These are typically not treated adequately in household surveys because they are excluded from explicit consideration when setting up the sampling strata.  Formally established urban areas are covered in one strata.  Rural areas are covered in one or more strata which make use of sampling units selected from around the entire country.  Unless a peri-urban area happens to be chosen by random selection as one of the sampling units in the rural strata, it will not be included at all.  This random inclusion in the rural sample strata does not ensure proper coverage of peri-urban issues.  (For example, in Albania in the last ten years, ten percent of the national population has migrated to Tirana and is largely housed in peri-urban areas on the outskirts of the capital.)

**Internal structure of the city.** Similarly to the sampling problem of peri-urban areas is the issue of adequate understanding of specific sub-areas or neighborhoods within a city.  Urban activities take place in such intensity, concentration, and with substantial externalities that many different household welfare situations can exist in close proximity and yet be leading to different welfare outcomes.  This could be corrected through better sample strata design and higher numbers of households surveyed.  Alternatively, and to prevent over-burdening the national sample, separate urban surveys could be undertaken before the poverty analysis for the country is attempted.

**Capital city.** A related example of the inadequacy of the traditional approach to setting up the urban strata is the problem of analysis when the capital city is combined with other urban areas in the country.  Since the capital city has better access to national decision makers and international connections it is often better off than other cities.  This can introduce an overall upward bias in the urban welfare measures which can mask major problems in non-capital cities.  This effect is demonstrated by the analysis within this study.  Most household surveys undertaken within the last three years have solved this by providing separate strata for the capital city and other urban areas.  The poverty analysis work based on these surveys needs to consistently make use of this greater specificity and avoid lumping together the capital and other cities.

# **2.3.2. Poverty indicators are not necessarily comparable between urban and rural areas**

Since there is no single definition of what is a rural and urban settlement, great care needs to be given when comparing poverty indicators from LSMS and HBS data across urban and rural areas in different countries. The choice of a particular country-specific threshold for a rural/urban setting can have a non-negligible implication for the observed incidence of income and non-income poverty by rural-urban areas and makes comparison across countries problematic.

**One poverty line.** Generally poverty lines are calculated for the country as a whole.  A common problem with many poverty estimates derived from household surveys is that they do not take into account ruralurban price differences.  In the ECA region, out of the 20 countries investigated, only 12 had a welfare aggregate and/or a poverty measure which had been adjusted for price differences between rural and urban households.  Since the cost of living is usually higher in urban areas than in rural areas, in an income-based poverty measure, ignoring the relative price differences would lead to an overestimate of the true level of economic well-being in urban areas.  In addition the underlying "basket" of consumption used to estimate price differences generally does not reflect the larger differences in urban and rural consumption patterns. This exacerbates the underestimation of urban and the overestimation of rural poverty.  Also the regions used for the price calculations may correspond to administrative units which are inappropriate for isolating capital city, other urban, and rural differences such as whole provinces, states, or districts.

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