Constructing an Indicator of Consumption for the Analysis of Poverty: Principles and Illustrations with Reference to Ecuador »

This paper is concerned with the derivation of a welfare indicator for households from consumption data. It examines, illustrating with reference the data for Ecuador, several of the steps involved in constructing consumption aggregates and highlights some of the principles which should guide the analysis. The paper emphasizes that specific care is warranted where access is characterized by rationing. Simple methods are outlined to impute a hypothetical rent for owner-occupied housing, to include consumption of basic social services, and to calculate a stream of consumption derived from a stock of consumer durables. The paper demonstrates that the definition of consumption adopted can have a significant bearing on measured poverty, the profile of poverty might be quite robust to alternative consumption definitions. However, it argues that only after robustness has been firmly established should results be emphasized.