Dynamic Poverty Decomposition Analysis: An Application to the Philippines

In this paper, we propose a new method of poverty decomposition. Our method remedies the shortcomings of existing methods and has some desirable properties such as time-reversion consistency and subperiod additivity. Our decomposition integrates the existing methods of growth-redistribution decomposition and sector-based decomposition, because it allows us to decompose the change in poverty into growth and redistribution components for each group (e.g., regions or sectors) in the economy. Our decomposition works well in cases where only partial data are available for some periods. It is also flexible and can be extended to have the following six components: population shift, within-region redistribution, between-region redistribution, nominal growth, inflation, and methodological change components. The empirical application of the six-way decomposition to the Philippines for the period 1985-2009 shows that important policies for poverty reduction may differ across regions. For example, the Autonomous Region in Muslim Mindanao would need growth-enhancing policies, whereas Eastern Visayas would need policies to improve the income distribution. Our decomposition method has a wide applicability and may complement the poverty profile approach.