Exploring Alternative Measures of Welfare in the Absence of Expenditure Data

Abstract

We consider an asset‐based alternative to the standard use of expenditures in defining well‐being and poverty. Our motivation is to see if there exist simpler and less demanding ways to collect data to measure economic welfare and rank households. This is particularly important in poor regions where there is limited capacity to collect consumption, expenditure and price data. We evaluate an index derived from a factor analysis on household assets using multipurpose surveys from several countries. We find that the asset index is a valid predictor of a crucial manifestation of poverty—child health and nutrition. Indicators of relative measurement error show that the asset index is measured as a proxy for long‐term wealth with less error than expenditures. Analysts may thus prefer to use the asset index as an explanatory variable or as a means of mapping economic welfare to other living standards and capabilities such as health and nutrition.