SITREP | Three Indexes Which Measure Asset Ownership

Can wealth indexes be used to measure changes in poverty?

 By The World Bank

Local girls from Babile fill yellow water jugs at the area's main water source,  May 26, 2012 / Source: Wikimedia Commons

Image Source: Local girls from Babile fill yellow water jugs at the area's main water source, 
May 26, 2012 / Source: Wikimedia Commons

The DHS Wealth Index

The Demographic and Health Survey (DHS) wealth index is the most commonly used asset index. It is constructed from a large set of household assets and utility services in the DHS and includes country specific items (Rutstein and Johnson 2004). This index is a standardized score with a mean of 0 and a standard deviation of 1. Principal component analysis is used to assign the indicator weights to each asset or service. Because the number of assets or utility services and the weights change over time and across countries, this index is not comparable across surveys within a country, over time, or between countries.

The International Wealth Index

To circumvent concerns about varying the assets included in an asset index across countries and years, the international wealth index is constructed from a small set of common assets. Principal component analysis is used to determine the asset weights (Smits and Steendijk 2015). Countries are weighted by the square root of population size; the weighted wealth score is rescaled to range between 0 and 100. If a new asset or a new country is introduced, the index needs to be recalibrated. Although not identical, this index is highly correlated with the DHS wealth index. Its correlation with consumption is low (0.5) for the two countries for which it was evaluated (Malawi and Niger) for this report.

The Comparative Wealth Index

The comparative wealth index aims to make existing country-specific DHS wealth indexes comparable with one another, to enable trend analysis within and across countries (Rutstein and Staveteig 2014). The approach adjusts households’ country-specific DHS wealth index based on the country-level relationship between some “unsatisfied basic needs” and ownership of four assets (car, refrigerator, fixed telephone, and television) relative to a reference country. For each survey, thresholds for ownership of the assets are determined using a logistic regression, and unsatisfied basic needs are estimated based on the cumulative distribution of unsatisfied needs. These thresholds are regressed against the thresholds for the reference country and the coefficients used to re-weight the national wealth index for each survey.

Comparative Inclusive Wealth Index

 Chart Attribute: UN's Inclusive Wealth Index / A detailed comparison 
Source: United Nations

Cite This Article:

“Box 2.3, Beegle, Kathleen; Christiaensen, Luc; Dabalen, Andrew; Gaddis, Isis. 2016. Poverty in a Rising Africa. Washington, DC: World Bank. © World Bank. https://openknowledge.worldbank.org/handle/10986/22575 License: CC BY 3.0 IGO.

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SITREP | Three Indexes Which Measure Asset Ownership
Can wealth indexes be used to measure changes in poverty?
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