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Kernel Density Estimation Based on Grouped Data: The Case of Poverty Assessment

31 Pages Posted: 6 Jun 2007  

Camelia Minoiu

International Monetary Fund (IMF); University of Pennsylvania - Management Department; University of Pennsylvania - Wharton Financial Institutions Center

Sanjay G. Reddy

The New School - Department of Economics; Initiative for Policy Dialogue (IPD)

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Date Written: July 5, 2007

Abstract

Kernel density estimation (KDE) has been prominently used to measure poverty from grouped data (Sala-i-Martin, 2006, QJE). In this paper we analyze the performance of this method. Using Monte Carlo simulations for plausible income distributions and unit data from several household surveys, we compare KDE-based poverty estimates with their true and survey counterparts. We find that the technique gives rise to biases in poverty estimates the sign and magnitude of which vary with the bandwidth, the kernel, the number of data-points analyzed, and the poverty indicators used. We also demonstrate that KDE-based estimates of global poverty are highly sensitive to the choice of bandwidth. Depending on the choice of this parameter alone, the estimated proportion of '$1/day poor' in 2000 varies by a factor of 1.8, while the estimated number of '$2/day poor' in 2000 varies by 287 million people. These findings give rise to concern about the validity and robustness of kernel density estimation in poverty analysis.

Keywords: kernel density estimation, income distribution, grouped data, poverty

JEL Classification: I32, D31, C14, C15

Suggested Citation

Minoiu, Camelia and Reddy, Sanjay G., Kernel Density Estimation Based on Grouped Data: The Case of Poverty Assessment (July 5, 2007). Available at SSRN: https://ssrn.com/abstract=991503 or http://dx.doi.org/10.2139/ssrn.991503

Camelia Minoiu (Contact Author)

International Monetary Fund (IMF) ( email )

1700 19th Street, NW
Washington, DC USA 20431
United States
2026239731 (Phone)

HOME PAGE: http://https://sites.google.com/site/minoiucamelia/

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

University of Pennsylvania - Wharton Financial Institutions Center ( email )

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States
2026830807 (Phone)

Sanjay G. Reddy

The New School - Department of Economics ( email )

Room 1116
6 East 16th Street
New York, NY 10003
United States

Initiative for Policy Dialogue (IPD) ( email )

New York, NY
United States

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