Assessing the Impact of Population Dynamics on Poverty Measures: A Decomposition Analysis

Abstract

Reducing income inequality is one of the seventeen Sustainable Development Goals recently announced by United Nations. A relative poverty concept adopted by Organization for Economic Co-operation and Development countries is that a household is defined as poor if the household income is below 50 % of the household size-specific median household income. By delineating the impact of different factors relating to poverty measures help to develop more focused efforts in alleviating poverty. The paper uses a decomposition analysis to examine the impact of population dynamics on changes in poverty measures in Hong Kong, a Special Administrative Region of China, over the period 2009–2014. The poverty rate, size, and gap are separately considered in the analysis. Decomposing the changes in poverty rate and size shows that demographic trends in the whole population (ageing and shrinking household size and population growth) contributed to the rise in the respective measures even though the overall poverty rate had declined during 2009–2014. For the decomposition of the change in the monthly total poverty gap, the majority of the overall increase was contributed by increases in the average gap within subgroups, with only a small contribution made by changes in age and household size within the poor population. The effectiveness of recurrent cash intervention by the Hong Kong government in poverty alleviation is assessed, and its positive impact in reducing poverty rate, size and gap is verified. The limitations in the use of the relative poverty line are also discussed.