Working Paper 122 - Welfare Analysis Using Data from the International Comparison Program for Africa

Abstract

This paper uses data from the International Comparison Program 2005 to recover income and price elasticity estimates for the African continent using the Extended Linear Expenditure System for 13 broadly defined commodities. The results can be used for aggregate welfare comparison in such global models as GTAP (Global Trade Analysis Project) and exercises to infer welfare impact of relative price shocks at the continental level. In a heuristic way also, it is possible to derive a “utility-consistent” global poverty line from the demand function that could be compared with the popular international poverty lines. Results generally indicate that changes in the price of food items could lead to greater welfare loss compared to changes in the price of energy or other commodities. Income elasticity estimates generally fell within bounds usually found from household surveys. At the continental level, the estimated utility-consistent subsistence expenditure is close to 1.12 dollar a day per person, which is quite close to the 1.08 dollar a day global (international) poverty line used in 2005 to measure absolute poverty.