Analytical Tools for Measuring Poverty Dynamics: An Application Using Panel Data in the Philippines

This study reviews two methods of measuring poverty dynamics. The components approach uses the longitudinally averaged income to determine whether a household is chronically poor or not. On the other hand, the spells approach counts the number of poverty episodes experienced by a household. Using panel data from the Philippines, we examine the differences between these analytical methods of measuring chronic and transient poverty. Furthermore, the study also examines the sensitivity of estimates of poverty dynamics to measurement parameters. While I find that both the components and spells approaches suggest that most poverty experiences of Filipino households were persistent, my robustness analysis reveals that the relative importance of persistent and transient poverty are sensitive to the type of poverty measure used and the poverty line pecified. In particular, the relative importance of transient poverty increases dramatically as the poverty line decreases or as the poverty measure becomes more sensitive to the welfare of the poorest of the poor.