POVERTY-SPECIFIC PURCHASING POWER PARITIES (PPPs) IN AFRICA

## _5.2.2 Effect of moving from full-list PPPs to PPPs excluding branded clothing and footwear items_

For this scenario, poverty irrelevant items under the “garments” and “shoes and other footwear” basic headings were removed to calculate the reduced list PPPs. The “garments” basic heading contains 65 items among which 23 are _low_ stratum, while the “shoes and other footwear” basic heading contains 20 items among which 7 are _low_ stratum. Only _low_ stratum items were retained in our calculation of povertyspecific PPPs for this scenario.

The change from a full-list to a reduced-list with only _low_ brand stratum garment items resulted in a SD at the garment basic heading level of 6.33% across all countries, with no specific pattern. At the household consumption level, the SD of the PPP changes across all countries was 0.29%.

The extent of the changes in country consumption PPPs for this scenario can be observed in Figure 9. Botswana showed the largest increase in its PPP at 0.66%, whereas Togo had the largest relative decrease at 0.67%. No significant relationship was found between country income and the resulting change in country’s PPPs after excluding branded clothing and footwear items (see Table A4, annex).

## _5.2.3 Effect of moving from full-list PPPs to PPPs excluding premium food & nonalcoholic beverage items_

By assuming that the poor are less likely to consume those items that are relatively expensive across all countries (within each basic heading), we removed 61 out of the 367 food and nonalcoholic beverage items priced in Africa. The effect of removing these _premium_ food and nonalcoholic beverage items on the country PPP ratios is shown in Figure 9.

It is remarkable that the effect of moving from a full-list set of consumption PPPs to one without _premium_ food and nonalcoholic beverages was even smaller in this scenario than in the supermarket only scenario, despite removing 20 more items in the former. As with the other reduced-list scenarios, the effect of this shift was small and practically random in its outcome across countries. This is again evident by the regression results in Table A4 (annex).

As a final and general observation for the item-level section, we must add that there could be many factors affecting the price level of the poor and they could even work in opposite directions. For instance, without further analysis, it is impossible to quantify to which degree the poor benefit from economies of scale versus the rich. Similarly, we do not know how item availability in rural areas, where many of the poor live and where many items are not even available, affect the effective price level faced by the poor.

# **6.** **_Conclusions_**

With the new $1.90 IPL and new 2011 ICP PPPs, it was important to see if the Deaton and Dupriez (2011) conclusion on poverty-weighted PPPs being close to ICP PPPs still holds, especially given the changes in ICP methodology that occurred since 2005. This paper found that the conclusion does indeed hold: the deviation between the two is around 2.7–3.1% on average, which is below the expected precision of ICP consumption PPPs of ±5–10%.

In addition, the uniform kernel was employed alongside the bi-weight kernel, to study the effects of kernel shape. Those were contrasted with the below IPL plutocratic consumption PPPs. It was found that all the kernels with various bandwidths produced virtually identical results, and those results were very similar to the PPPs obtained with the below IPL plutocratic index.

All indexes based on kernels and the below IPL PPPs, converged fast in the practical sense, meaning that even though they sometimes oscillated, the degree of oscillation was immaterial. All the indexes employed exhibited a high degree of stability to the selection of countries.

At the same time, the overall effect of removing items from consumption PPPs has been shown to be negligible. Yet, it is important to acknowledge that by using the same set of prices in each of the calculations, it is implicitly assumed that the poor face the same prices as the non-poor. In addition, some critics have pointed out that poverty-specific PPPs should be constructed on the basis of prices paid by the poor. We do not address this issue, since unfortunately studying it fully would require a separate price 14