Multidimensional Poverty Index (MPI)

Economic Development – Measuring Living Standards (Cambridge AS & A‑Level 9708)

1. Why we need different indicators

Economic development is not just about how much a country produces; it is about how that production is distributed and whether it improves people’s health, education and living conditions. The syllabus expects you to:

• Scarcity & choice: A single‑dimensional measure (e.g., GDP per‑capita) cannot capture all the ways resources are scarce.
• Progress & development: Development = improvement in quality of life, not merely higher output.
• Time: Indicators are tracked year‑by‑year to show short‑run fluctuations and long‑run trends.

2. Monetary (national‑income) indicators

3. Non‑monetary (development) indicators

4. The Multidimensional Poverty Index (MPI)

4.1 Definition

The MPI is a composite, household‑level measure that records:

• The proportion of people who are deprived in multiple dimensions of well‑being (the head‑count, H).
• The intensity of those deprivations (the average share of possible deprivations experienced by the poor, A).

It answers the question: “Are people living a life they consider to be decent?” and complements income‑based measures.

4.2 Dimensions, indicators and deprivation thresholds

4.3 Weighting system (Alkire‑Foster method)

• Each of the three dimensions (Health, Education, Living‑standard) receives an equal weight of 1/3.
• Within a dimension the weight is split equally among its indicators:
  • Health: 2 indicators → each weight = 1/3 ÷ 2 = 1/6 ≈ 0.1667
  • Education: 3 indicators → each weight = 1/3 ÷ 3 = 1/9 ≈ 0.1111
  • Living‑standard: 5 indicators → each weight = 1/3 ÷ 5 = 1/15 ≈ 0.0667
• A person is counted as multidimensionally poor if the sum of the weights of the indicators in which they are deprived is **≥ 1/3** (i.e., 33 % of the total possible deprivation score).

4.4 Calculating the MPI – step‑by‑step

1. Identify deprivation: For every individual (or household) record a ‘1’ if the deprivation threshold is met, ‘0’ otherwise.
2. Apply weights: Multiply each ‘1’ by its indicator weight and sum across the ten indicators to obtain the deprivation score (range 0–1).
3. Classify the poor: If the deprivation score ≥ 1/3, the person (or household) is counted as poor.
4. Aggregate:
   • Headcount ratio (H): \(\displaystyle H=\frac{\text{Number of poor people}}{\text{Total population}}\)
   • Intensity of poverty (A): \(\displaystyle A=\frac{\sum_{i=1}^{q}c_i}{q}\) where \(c_i\) is the deprivation score of poor person \(i\) and \(q\) is the number of poor people.
   • MPI: \(\displaystyle \text{MPI}=H\times A\)

4.5 Worked example (simplified)

Five households (10 individuals) are surveyed. “✓” indicates deprivation in the listed indicator. The weighted score for each household is calculated using the weights above.

Calculations

• Total population = 10.
• Number of poor people = 2 + 1 + 2 = 5 → \(H = 5/10 = 0.5\).
• Sum of deprivation scores for the poor = (0.33 × 2) + (0.56 × 1) + (0.78 × 2) = 2.70.
• Average intensity \(A = 2.70 / 5 = 0.54\).
• MPI = \(H \times A = 0.5 \times 0.54 = 0.27\).

4.6 Interpreting the results

• H (headcount): Share of the population that is multidimensionally poor.
• A (intensity): Average proportion of the ten possible deprivations experienced by the poor.
• MPI: Combines breadth and depth of poverty; a higher MPI means more people are poor, the poor are more deprived, or both.
• Tracking MPI over time shows progress even when GDP growth is modest, because it reveals whether growth translates into reduced deprivations.

4.7 Strengths and limitations (exam‑style checklist)

• Strengths
  • Captures health, education and living‑standard simultaneously.
  • Clear cut‑off (≥ 1/3) aids policy targeting.
  • Decomposable – analysts can see which dimension contributes most to a country’s MPI.
  • Cross‑country comparability thanks to a uniform methodology.
• Limitations
  • Data‑intensive – relies on recent, high‑quality household surveys (DHS, MICS).
  • Choice of indicators and thresholds involves normative judgments; alternative choices would alter the MPI.
  • Aggregated at household level – intra‑household inequalities (e.g., gender) are hidden.
  • Infrequent surveys mean short‑term shocks (e.g., natural disasters) may be missed.

4.8 Policy relevance

Governments use MPI results to design and evaluate poverty‑reduction programmes such as:

• Conditional cash‑transfer schemes (targeting education and health deprivations).
• Universal access to clean water and sanitation.
• Subsidised cooking fuel or electrification projects.
• School feeding and nutrition programmes to address the health dimension.

5. Linking MPI to the rest of the Cambridge syllabus

5.1 AS‑Level topics 1‑6 (quick refresher)

1. Basic economic ideas – scarcity, choice, opportunity cost, production possibilities frontier.
2. Micro‑economics – demand & supply, elasticity, market equilibrium.
3. Government intervention in markets – taxes, subsidies, price controls, market failure.
4. Macroeconomics – circular flow, aggregate demand & supply, multiplier.
5. Macroeconomic policy – fiscal & monetary policy objectives, tools and limitations.
6. International economics – balance of payments, exchange‑rate regimes, trade protection.

5.2 A‑Level micro‑economics (topic 7) – relevance to MPI

• Market failure (public goods, externalities) justifies government provision of health, education and basic services – the three MPI dimensions.
• Utility & indifference curves illustrate why individuals value non‑monetary goods (e.g., clean water) even when income rises.
• Cost‑benefit analysis can be applied to evaluate poverty‑reduction projects.

5.3 A‑Level government micro‑intervention (topic 8)

5.4 A‑Level macro‑economy (topic 9) – interaction with MPI

• Economic growth: Higher GDP per‑capita can provide resources for health, education and infrastructure, but without equitable distribution H may stay high.
• Unemployment: Persistent joblessness raises the risk of deprivation in the living‑standard dimension.
• Inflation: Reduces real purchasing power, potentially increasing deprivations related to food and fuel.
• Multiplier effect: Government spending on health and education generates additional income, helping to lower MPI.

5.5 A‑Level macro‑policy (topic 10) – effects on MPI

5.6 A‑Level international issues (topic 11) – broader development context

• Balance of payments: Persistent deficits can limit a country’s ability to import essential medicines or technology for education.
• Exchange‑rate regimes: Fixed vs. flexible rates affect the cost of imported inputs for health and education services.
• Development classifications: Low‑income countries often have higher MPI values; classification guides eligibility for aid.
• Foreign aid and debt relief: Targeted aid (e.g., the World Bank’s “Human Capital Project”) can directly fund MPI‑related programmes.
• Globalisation: Trade can raise incomes (potentially lowering H) but may also increase inequality, affecting the intensity A.

6. Exam‑style checklist and tips

1. When a question asks you to compare development between two countries, structure your answer:
   • Monetary indicators – GDP per‑capita (PPP), GNI, growth rates.
   • Non‑monetary indicators – HDI, MPI, MEW, Kuznets curve.
   • Explain why the indicators may give different pictures (e.g., high GDP but high MPI).
2. For calculation questions:
   • Show the identification of deprivations (1/0 table).
   • Apply the correct weights (list them before multiplying).
   • Calculate H, A and MPI clearly, using the formulas provided.
   • If asked, decompose the MPI to show which dimension contributes most.
3. When discussing policy, link the policy tool to the specific MPI dimension(s) it targets and state the expected effect on H and/or A.
4. Remember the three key concepts throughout: scarcity & choice, progress & development, and time. Use them to evaluate whether a change in a monetary indicator truly reflects development.