4. Bossale's Article

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ECONOMETRIC PARADIGM OF POVERTY: CHARACTERISTICS, CAUSES,

ALLEVIATION’S STRATEGIES IN DEVELOPING COUNTRY.

CASE OF CONGOLESE ECONOMY

Pierre Raymond August Bossale

Master’s degree in economics

INTRODUCTION

In wealth of Nations, Adam Smith said: no society can surely be flourishing and hay

of which the far greater art of the members are oor and miserable! Many decades ago,

go"ernments, international organisms, non go"ernment organi#ations, and

de"eloment agencies ha"e been in"ol"ed in heling households, and communities in

de"eloing countries manage with natural and economic shoc$s to alle"iate o"erty%nonetheless, it still a ma&or roblem in many arts of the de"eloing world so that the

main characteristic of de"eloing countries is o"erty! 'a#el ('addad, )**+ argue

that aroimately +!) billion eole li"e in o"erty!

-he case of African de"eloing countries and mainly the .ongolese economy is "ery

oignant!

/uring the colonial eriod, certainly, there was a distortion between the standard

li"ing of the colonialist and that of de"eloing countries citi#ens% but, the latter had an

accetable and decent li"ing condition ne"ertheless, and it was thus, some eriod after

indeendence!But, since then, any obser"er of good faith notes the increasing distortion eisting

between the li"ing condition of go"ernment members and citi#ens, as well as the

sudden modification of the social status and standard of li"ing of formerly oor,

becoming rich, simly by the closeness or the eercise of go"ernment resonsibilities!

It is li$e if, to ha"e a decent life, ones ha"e necessary to be located in the leading class

or in its roin0uity!

In .ongolese economy, the le"el of the urchasing ower of the leaders adats at the

seed of rices whilst, that of 123 of oulation erodes so much that the accetable

differences re"iously eisted between the socio4rofessional grous disaeared and

gi"e birth to the unaccetable distortions!

Remuneration of labour that had to ensure resources li$ely to guarantee households a

decent, worthy, and leasant life materially, socially, culturally, and economically

suorts and befit only 23 of oulation includes go"ernment members, leaders, and

decision ma$ers so that the remain dwell in indigence state!

Parallel to this ob"iousness, wor$ers undergo imortant delays in the ayment of their

thin wages while the abo"e 123 of oulation not only uncture oerating eenses

1



and other financial resources under their management but also, ta$e benefit of consent

statutory ad"antages for themsel"es and they do not recogni#e other rights! -he

.ongolese olitical decision ma$ers without any gene grant considerable wages and

remunerated themsel"es in riority! Such is the reality of the o"erty of the .ongolese

households! -his ob"iousness is also the case in many African de"eloing countries!

-he increasing richness of a small number of the households in comarison with the

increasing imo"erishment of the whole of the .ongolese households ro"o$es the

commitment to o"erty’s analysis as said Adam Smith in wealth of Nations, no

society can surely be flourishing and hay of which the far greater art of the

members are oor and miserable!

-his aer addresses a de"eloment of o"erty econometric model! Its ob&ecti"e is to

identify the main o"erty’s factors, the lin$age between the selected "ariables and the

o"erty of the households! It identifies o"erty socioeconomic "ariables and classified

them by imortance! Before that, it arises the understanding of why o"erty is still

stri$ing de"eloing countries, articularly .ongolese economy! At the end it ro"idesor determines ade0uate solution and suggestion to address this issue!

A. OVERVIEW OF POVERTY CHARACTERISTICS AND ITS CAUSES IN

DEVELOPING COUNTRIES

Po"erty is a multidimensional concet that affects many asects of the human

conditions, including hysical, moral and sychological! Po"erty can be

concetuali#ed as: a lac$ of basic needs% "iew that way, the oor is indi"idual or

household unable to urchase a secific bas$et of basic needs and ser"ices! -hese goodsand ser"ices include: nutrition, shelter or housing, water, health care, access to

roducti"e resources such as education, wor$ing s$ills and tools! 5A&a$aiye (

Adeyeye,)**)6!

Po"erty is characteri#ed by illiteracy, under nutrition and ill health! It tears down the

asirations, hoes of the future by ta$ing away the rights of an indi"idual to get

education, to li"e in good health 5Ray, )78, +1186! Po"erty is also characteri#ed by

high le"el of deri"ation 5disossession6, "ulnerability 5high ris$ and low caacity to

coe6, and owerlessness 59han, )***6!

-here is a relation between o"erty, economic growth and income distribution! Ray

5+1186 noted that o"erty is associated to ine0uality of income distribution within acountry or area! 9han 5)***6 noted also that o"erty can be reduced in a society only

when there is economic growth!

In addition, the rosects for growth and alle"iation of mass o"erty can be greatly

affected by the initial distribution of income! urthermore, a large income ine0uality is

not good for either economic growth or o"erty reduction!

2



Po"erty is also related to gender, ethnicity, ages and residence! 9ahn 5)***6 noted that

children and women suffer more than adult males in a household, minority ethnic or

religious grous suffer more than the ma&ority grous in a community, rural oor more

than urban! Po"erty can be chronic or transitory! ;n one hand, o"erty is chronic

when it is ersistent or ermanent! -his tye of o"erty may be related to limited

roducti"e resources, lac$ of s$ills for rofitable emloyment, endemic socio4olitical

and cultural factor, and gender! ;n the other hand, transitory o"erty is related to

artificial disasters! -his $ind of o"erty is more irre"ersible if not ersistent

otherwise it can become chronic or structural and lead to o"erty tra 5A&a$aiye (

Adeyeye,)**)6!

Po"erty can be a conse0uence of lac$ of or imaired access to roducti"e resources!

A&a$aiye ( Adeyeye5)**)6 argue that imaired access to roducti"e resources such as

agriculture land, hysical caital and financial assets% leads to absolute low income ,

unemloyment, undernourishment and so on! In addition, it shifts the focus on o"erty

and curtails the caability of indi"iduals to co"ert a"ailable roducti"e resources tohigher 0uality of li"e!

Po"erty can be an out come of inefficient use of common resources and a result of

eclusi"e mechanisms! <ea$ olicy en"ironment, inade0uate infrastructures, wea$

access to technology and credits can cause o"erty!

Po"erty can also result from the use of mechanisms by some grous in a society or

community to eclude others from articiating in democratic and economic

de"eloment rocess! A&a$aiye ( Adeyeye5)**)6! -his is what 'a#ell ( 'addad5 )**+6

0ualify as social deri"ation!

B. POVERTY MEASUREMENT

Po"erty is multidimensional that reflects deri"ation in income and non income

dimensions!

Po"erty is dynamic and its dimensions are sub&ect to fluctuation or "olatility! -hese

o"erty characteristics ma$e it hard to measure!

Nonetheless, o"erty line has become a standard measure of o"erty 59han, )***6!

Ray 5+1186 noted that o"erty line is at the heart of o"erty discussions! Po"erty line

is critical threshold of income, consumtion or more generally, access to goods and

ser"ices below which indi"iduals are declared to be oor! It reresents a minimum le"elof =accetable> economic articiation in a gi"en society at a gi"en oint of time!

A&a$aiye ( Adeyeye5)**)6 define the o"erty line as the monetary cost to a gi"en

erson , at a gi"en lace and time , of a reference le"el of welfare! Peole who do not

attain that le"el of welfare are deemed oor and who do are not!

In addition, a o"erty line should always be absolute in the sace of welfare in order

to ro"ide better information to anti4o"erties olicies!

3



;ther measurements such as head count, head4count ration, the o"erty ga ratio, the

income ga ratio are also used!

Po"erty is more a rural than urban henomenon! .omared to urban areas, o"erty is

significantly higher in rural areas! Ray 5+1186 noted that e"en countries with

substantial ad"ances in creating an e0uitable agriculture dislay higher rural o"erty

than their national a"erages!

In addition, the ma&ority of oor are found among the landless and near landless!

Po"erty is also strongly correlated with small4scale agriculture!

C. CAUSES OF POVERTY IN DEVELOPING COUNTRIES

/isarities obser"ed between the rural and urban sectors in de"eloing counties are an

imortant indicator of ine0uality in these countries! 9han 5)***6 noted that the

incidence of o"erty in rural areas is higher than in urban areas! In addition, the

conditions of the rural oor are far worse than those of the urban oor in terms of ersonal consumtion le"els and access to education, health care, otable water and

sanitation, housing, transort, and communication!

Rural oor are: small landowners, sharecroing tenants, laborers 5emloyees6,

"illages’ artisans and astoralists 5herders6! -hese different categories of oor are

largely deendent on agriculture which includes cro and li"estoc$% fishing, small4scale

industries and ser"ices 5 9han, )**)*6!

-he causes of o"erty in rural areas can be understood by loo$ing at the assets that the

oor own or to which they ha"e access and their lin$s to the economy! -he economic

conditions of the rural oor are affected by a "ariety of asset and their returns! -hedifferences among rural oor are more reflected in their lin$s to economy, using their

assets, and articiating in the roduction rocess! -he different assets can be

categori#ed as following 59han, )**)6:

a6 Physical assets

this tye of assets includes the natural caital 5 ri"ate and common roerty rights

in land, astures, forests and water6, machines and tools and structures, stoc$ of

domestic animals and food, and financial caital 5 insurance, sa"ings, and access to

credit6!

b6 'uman assets

-his category consists of ?abor ool with their age, gender, s$ills, and health in thehousehold and community!

c6 Infrastructural assets

-ransort and communications, access to schools and health centers, storage, otable

water, and sanitation constitute this category!

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d6 Institutional assets

-his tye of assets comrises legally rotected rights and freedoms, and articiation

in ma$ing decisions at the le"el of household, community and sura4community!

In de"eloing countries, a significant ercentage of rural oor li"e in less4fa"ored

characteri#ed by difficult ago climatic conditions 5oor soil, low and unstable rain4

fall, stee slos, and short growing seasons6, inade0uate infrastructure and suort

ser"ices 5roads, irrigation, mar$ets, research and etension, credits, schools and health

centers 5'a#ell ( 'addad,)**+6!

/ue to asymmetric information, moral ha#ard and ad"erse selection roblems, rural

oor do not ha"e or ha"e a limit access to mar$ets in many de"eloing countries! -his

includes the ability to obtain credit, to sell labor or rent land for culti"ation 5Ray,

+1186! -hese roblems occur also in formal insurance mar$et! or eamle, Ray5+1186

noted that it is difficult to obtain formally "erifiable degree of cro failure on

indi"idual’s land or whether the cro on the land is determined by the "agaries of the

weather or the $ind of the wor$ aly on the land! As far as mar$et for credit is concerned, Ray5+1186 noted that due to lac$ of collateral

or ade0uate collateral and their limited incenti"e to ay bac$ the loans, oor are not

able to obtain loans that can allow them to in"est in roducti"e acti"ities in order to

imro"e their li"es!

According to 'a#ell ( 'addad,5)**+6, the assets controlled by indi"iduals, households

and communities are an imortant element in their ability to coe with "ulnerability

and establish secure li"elihoods!

In many de"eloing countries, oor are etremely deendent on natural resources! -he

lac$ of access to these assets can aggra"ate o"erty!Po"erty can result from olitical instability, and ci"il strife! In a society where

roerty rights are not well defined and enforced in agriculture or other natural

resources, resources can be wasted! -his situation can in turn eacerbate o"erty! In

addition, in some de"eloing countries, a large art of surlus roduced by rural oor

can be confiscated by rent4see$ing, ublic bureaucracy, ci"il ser"ices, olice or

&udiciary! urthermore they may not be able to ro"ide the ser"ices the oor need or

deser"e!

Natural disasters and economic crises are also among the causes of o"erty in

de"eloing country! /rought, floods and season fluctuations in outut can lead to

nutritional deri"ation and hunger in some arts of de"eloing world! urthermore, fluctuations in commodity rices, currency crises and the contagion effects of

worldwide recession can undermine growth and contribute to ermanent o"erty!

59han, )***+6 and 5/ercon, )**@6!

Many literatures ha"e found the "ulnerability of rural oor to "arious ris$s created by

di"ers shoc$s mentioned abo"e and the lac$ or limited ways to coe with them as an

imortant source or cause of chronic or o"erty that face de"eloing country!

5



Barnet, Barret ( s$ees 5uly )**6 noted that limited access to formal insurance and

credit mar$ets due to mar$et failures and high eosure to co"ariate ris$ is a rimary

cause of o"erty tras in de"eloing countries!

-he lac$ or limited access to formal mar$ets has led oor in de"eloing countries to

de"eloed informal mechanisms to coe with ris$s! -hese include income

di"ersification, ris$ a"oidance, and self insurance based on family sa"ings or

community4based mutual assistance! 'owe"er, these mechanisms are "ery limited

when faced to reeated indi"idual4 secific shoc$s, or co"ariate ris$s related to

drought, flood, or recession 5/ercon, )**@6!

/ercon5)**@6 has noted also that due to insurance and mar$et credit failures oor

may in"est in low ris$ acti"ities with low returns! -his situation affects their long4

term income and their caability to get out of o"erty!

In resence of shoc$s, households that ha"e access to financial and insurance mar$ets

can sustain their consumtion standard with out reducing their assets and reco"er0uic$ly!

'owe"er households without access to these mar$ets may either smooth their

consumtion by selling the few assets they ha"e or smooth their assets by decreasing

their consumtion! In case of ersistent shoc$s, this situation can ush these

households in o"erty tra 5.arter et al!, )**C6!

-hese formal systems are sometimes relaced by informal systems at the le"el of the

"illage! In these informal systems, moral ha#ard roblems are eected to be smaller!

D. POVERTY’S ECONOMETRIC PARADIGM

-he aim of this section is to resent households’ o"erty model that ta$es in

consideration .ongolese realities! -o do so, the methodological "iew is haloed by the

elanation of the o"erty which highlights the socio4economic factors or

characteristics of o"erty!

D.1. EXPLANATORY FACTORS OF POVERTY AND SELECTION OF REGRESSORS

Po"erty is a comle concet whose definitions "ary according to the authors and

organi#ationsD! <hilst the ones use monetary o"erty or the income er caita ofinhabitant% the others use human o"erty or the caacities of human oeration, and

others still use the basic needs, such as the food and housing!

A&a$aiye and Adeyeye state that o"erty is a multidimensional concet that affects

many asects of the human conditions, including hysical, moral and sychological!

Po"erty can be concetuali#ed as: a lac$ of basic needs% "iew that way, the oor is

indi"idual or household unable to urchase a secific bas$et of basic needs and

6



ser"ices! -hese goods and ser"ices include: nutrition, shelter or housing, water, health

care, access to roducti"e resources such as education, wor$ing s$ills and tools!

Being gi"en that the doctrines are dumb on o"erty econometric modeling, this aer

retains owerful factors that elain o"erty!

Such as:1. the large family or family with more than four childrenDD NDD,

)! the total monthly eenditure of householdDD /IDD,

3. the income indeingDD INDD or not,

4. the educational le"elDD NIDD of the head of household ,

2! the number of sonsored indi"idual in a household DD P.DD,

6. the gender D’SDD and

7. InflationDD EDD!

In ractice, the choice of se"eral candidate elanatory "ariables able to elain the

endogenous "ariable is not easy for any econometrist! Before roosing some

automatic techni0ues of identifying cometent "ariables to use in this aer, it is

crucial to oen a breach on the use of dummy "ariables in a regression!

D.2. DUMMY VARIABLES

Bourbonnais 5+11C6 underline that ’’dummyDD "ariable is a articular elanatory

"ariable that has the ower to formali#e the 0ualitati"e "ariable! It is made u only of

* or that of +!

-he use of dummy "ariable in this analysis stems from the use of 0ualitati"e "ariable

or 0ualitati"e elanatory "ariables to elain o"erty ’’ g i ’’! -hese "ariables are: ?arge families F!NF, Indeing income INF, ?e"el of instruction F

N!IF, gender S and the seed of the rices =E>! Some of these "ariables ha"e two

methods, and others ha"e three! -hey are eressed by the subscrited "alues attached

to the "ariables indeendently or indi"idually and symboli#ed below 5ohnston tome +,

econometric method6!

!N i % IN & % S &G + if the obser"ed henomena is &,&G+% )

!N i % IN & % S &G * if not

NI & % E iG + if if the obser"ed henomena is &,&G+% )% @

NI & % E iG* if not

7



D.3. MATHEMATICAL DEVELOPMENT

?et’s consider that the following linear model 5+6 suoses the eistence of a linear

relation between "ariables!

g i = 1 FN1 ! 2 FN2 ! "1 IN1 ! "2 IN2 ! 1S1! 2 S2 ! #1 NI1 ! #2 NI2 ! #3 NI3 ! 1 V1 ! 2 V2 !

! 3 V3 ! $DI !ϒ PC ! % (1)

Suose that:

FN1 ! FN2 = 1 FN2 = 1& FN1 IN1!IN2=1 IN2 =1&IN1 S1!S2=1

S2=1&S1 NI1!NI2!NI3=1 NI3=1&NI1&NI2 V1!V2!V3=1 V3= 1&V1&V2

'( = 1 FN1 ! 2 ) 1& FN1 * ! "1IN1! "2 IN2 ! 1 S1 ! 2 S2 !

!#1 NI1 ! #2 NI2 ! #3 NI3 ! 1 V1 ! 2 V2 ! 3 V3 ! $ DI ! ϒ PC ! % (2)

Suose that:

IN1 ! IN2 = 1

IN2 = 1& IN1

'( = 1 FN1 ! 2 ) 1& FN1 * ! "1 IN1 ! "2 ) 1& IN1 * ! 1 S1 ! 2 S2 ! #1 NI1 ! #2 !NI2 ! #3 NI3 !

1 V1 ! 2 V2 ! 3 V3 ! $ DI ! ϒ PC ! % (3)

Suose that:

S1 ! S2 = 1

S2=1&S1

'( = 1 FN1 ! 2 ) 1 + FN1 * ! "1 IN1 ! "2 ) 1& IN1 * ! 1 S1 ! 2 )1&S1* ! #1 NI1 ! #2 NI2 ! #3

NI3 ! 1 V1 ! 2 V2 ! 3 V3 ! $ DI ! ϒ PC ! % (4)

Suose that:

NI1 ! NI2 ! NI3 = 1

NI3 = 1& NI1 + NI2

'( = 1 FN1 ! 2 ) 1 + FN1 * ! "1IN1 ! "2 ) 1 + IN1 * ! 1 S1 ! 2 ) 1 & S1 * ! #1! !NI1 ! #2 NI2 !

! #3 ) 1 + NI1 + NI2 * !

1 V1 ! 2 V2 !

3 V3 ! $ DI !ϒ

PC ! % (5)

Suose that:

V1 ! V2 ! V3 = 1

V3 = 1& V1 + V2

'( = 1FN1 ! 2 ) 1 + FN1 * ! "1 IN1 ! "2 ) 1 + IN1 * ! 1 S1 ! 2 ) 1 + S1 * !

8



!#1NI ! #2 NI2 ! #3 ) 1 + NI1 + NI2 * ! 1 V1 ! 2 V2 !

! 3 )1 + V1 + V2* + Г DI ! ϒ PC + u (6)

'( = 1FN1 ! 2 + 2 FN1 ! "1 IN1 ! "2 + "2 IN1 ! 1 S1 ! 2 & 2S1 !

! #1NI ! #2 NI2 ! #3 +#3 NI1 + #3 NI2 ! 1 V1 ! 2 V2 !

! 3 & 3 V1 + 3V2 ! $ DI ! ϒ PC ! % )*

'( = 2 ! ) 1 FN1 + 2 FN1 * ! "2 ! ) "1 IN1 + "2 IN1 * ! 2 !

! ) 1 S1 & 2 S1 * ! #3 ! ) #1 NI + #3 NI1* ! ) #2 NI2 + #3 NI2 * ! 3 !

!) 1 V1 & 3 V1 * ! ) 2 V2 & 3 V2 * ! $ DI ! ϒ PC ! % (8)

Suose the mathematical eeriment of oor households:

- = 2 ! "2 ! 2 ! #3 ! 3

'( = - ! ) 1 + 2 * FN1 ! ) "1 + "2 * IN1 ! ) 1 & 2 * S1 ! ) #1 + #3 * NI1 !) #2 + #3 * NI2 !

! ) 1 & 3 * V1 ! ) 2 & 3 * V2 ! $ DI ! ϒ PC ! % (9)

-he o"erty analysis e0uation arises conse0uently as follows:

g i = ε + * FN + b* IN + * S + Z* 1 NI + Z* 2 NI + θ* 1 V 1+ ( 10)

+ θ* V 2 + Г DI + ϒ PC + U

<here

g i , o"erty, it is the difference between the minimum income and the current income, N is the large family,

IN is the indeing of the income,

S is the gender of the head of household

N i is the educational le"el, it is le"el + if the head of household is secondary school

graduate, it is le"el ), if he has a degree and finally, it is le"el @, if he has a master’s

degree,

E is inflation,

/I is the monthly eenditure total,

P. is the number of sonsored indi"idual,ε = a 2 + b 2 + 2 + Z 3 + θ3

, is the mathematical eectation of oor households H’

56’’ within N ) % IN ) % S) % Ni@ % and E @ categories

J is the term of error!

9



<hile arameters:

F G a+ 4 a) catures the difference between the effects of N + and N )bF G b+ K b) caturing that between the effects of IN + and IN )

F G + 4 ) dictates that between the effects of S 1 and S 2

LF + G L + K L @ catures the difference between the effects of NI and NI @LF ) G L ) K L @, catures the difference between the effects NS and NJ

θF + G θ+ 4 θ@, catures that between the effects of E + and E @θF ) G θ) 4 θ@ , catures the difference between the effects of E ) and E @

D.. EXPLANATORY VARIABLES’ SELECTION METHODS

<e will eamine four methods which will enable to retain the most correlated

"ariables with the "ariable to elain% and the least correlated between them!

A// 0("/ 4'4(5

It is the simlest method: we estimate all ossible combinati"e regressions 5) $4+

ossible% 9 is the number of elanatory "ariables candidates6 and the referred model

is that shows both the R) is maimum and all elanatory "ariable significant!

B67849 E/((5;(5

Bac$ward elimination or rogressi"e elimination is a rocedure which consists on the

estimation of regression model with 9 elanatory "ariable by eliminating gradually

elanatory "ariables with low significant, and so on!

F4849 R'4(5 In the first stage is selected the elanatory "ariable whose simle coefficient of

correlation is the highest! -hen, the second stage consists in calculating the artial

coefficients of correlation R) y! & for & G i, and to retain the elanatory "ariable with

the highest coefficient! -he selection ends when all t of Student of the elanatory

"ariables are lower than the critic le"el!

S;08( R'4(5

-he regression ste by ste is identical to the re"ious one, ecet that after

incororating a new elanatory "ariable we eamine t of Student of each one of

re"iously selected elanatory "ariables and we eliminate from the model any

elanatory "ariables with low t of student comared to the critic le"el! It is retained in this analysis! -he alication of this method, leads us to retain model

5++6 where o"erty is elained by three regressors: the seed of rice, the total

eenditure er month and the number of indi"idual sonsored% including other

ossible "ariables caable to influence o"erty included in the term of error!

10



D..1. ANALYSIS

-he selected model for the .ongolese case is the below eression retained after using

the rocedure ste by ste! It returns that only the "ariables inflation on le"el + D E +DD

and total eenditure er month DD /IDD eerts an elanatory ower on o"erty!

gi=15.66 + 556.47V1 + 0.38 DI

32.97 46.60 0.60

0.47 ) (11.94) (6.56)

SSR G @8*22!C

R) G *!1)

R4) G *!1*

/<4stat G +!87 4stat G +!)

N G )*

S!! off regression G 2*!@C

5!6 is t of student

D..2. STATISTIC TEST ON THE SIGNIFICANCE OF PARAMETERS

1. L(54(;< T;

-o test isolation or loneliness of arameters, test t of Student is used, by ma$ing the

bilateral test on the estimated straight line of regression! -his test enables to conclude

on the significance of a regression coefficient! -hus, null hyothesis which stiulates

that the coefficient is not significant is re&ects and the alternati"e hyothesis, the

coefficient is significant if t of Student comuted in absolute "alue is higher than that

of student table at level, t ( 1- /2.) ,n – (k+1).

In ractice the rofessional econometrist ha"e recourse to direct test which stiulates

that in theory t is e0ual to )! <hile the comose test or ma$e u test of arameters4the

test carried out simultaneously on intercets and the coefficients allow deciding on

their significance in the model! Statistic of fisher is used and, null hyothesis is

re&ected if the comuted statistic of isher is higher than that of isher table 59, N 4 5$+6!

or critical "alue!

As a whole, with only 23 of misleading ris$ the regression e0uation is statistically

significant and the coefficients ta$en together elain the linear relation better! -hus

the estimate is good! -hat wants to say that G +!) and table to @% )* 4 5)+6 i!e!, @%

+C degree of freedom! isher table is 8!2 so that ' o is re&ected because . O t !

11



D..3. ECONOMETRIC CRITERIA

D..3.1. AUTOCORRELATION TEST

-he test of /urbin and <atson ma$es easy the detection of an autocorrelation of the

errors of order +, as the below form shows:

C = ρU t-1 + vt

<ith "t Normally distributed, with a"erage #ero and the "ariance s0uare sigma!

-he test of hyothesis is:

Ho ρ = 0

H1 ρ ! 0

-o test the null hyothesis 'o, we calculate statistics /<4stat!

-he null hyothesis stiulates that errors are indeendent whilst alternati"e

hyothesis declares the resence of autocorrelation! In addition to that recision that

9D is the number of the elanatory "ariables or arameters estimated ecluded

regression intercet! <ith G23% N G )*% 9D G )% / +G +!+*% /) G +!27% and /<4stat G +!87,one accets the assumtion of absence of autocorrelation of the errors! -hus the errors

are indeendent either from or to each other! /< statG+!87 is obtained after correcting

autocorrelation of the errors!

/!7!@!)! HETEROSEDASTICITY TEST

'o: there is homos$edasticity

': there is heteros$edasticity

-o test the heteros$edasticity, Arch test which stiulates that the null assumtion is

re&ected when the robability of statistical is lower than the selected 5asignificance le"el of *!*26 is used! -he robability stat 5*!26 is higher than the

selected ! -hus there is homos$edasticity!

/!7!@!@! COLLINEARITY TEST

Qi"en that there is not a collinearity test, this aer ma$es use of the rule of 9lein! or

this test collinearity could be regarded as harmful on the "ariances of arameters, if

the s0uare of the multile coefficient of correlation between the elained "ariable and

the elanatory "ariables R)y 5*!1)6 is lower than one of the s0uares of the coefficients

of correlation multile R)i

-he matri omega or "ariance 4 co"ariance matri arises as follows:

gi V1 DI

gi 1 0.86 0.54

V 1 0"#$ 1 0"21

DI 0"%& 0"21 1

12



-he rule of 9lein shows that:

1. R)y is higher than one of the s0uares of the coefficients of correlation multile

5R)i6 and

2. R)y is higher than all coefficients of correlation multile!

-herefore, there is not a roblem of collinearity between the elanatory "ariables!

STATISTICS

SSR R) R4) 4 stat S!!of Regr! /<4stat NR

@8*22!C *!1) *!1* +!) 2*!@C +!87 )*

D.4.3.4. INTERPRETATION

rom the analysis of results, it aears clearly that the coefficient F + is significant

with G 23% ecluded the coefficient gamma for which the null assumtion is

acceted!

9nowing that a multile coefficient of regression is regarded as measuring the neteffect of studied elanatory "ariable, the effect of the other elanatory "ariables

being neutrali#ed, we affirm that o"erty is elained by the inflation which comared

eerts a higher net effect of about 22!7C to the other factors retained in the elanation

of o"erty!

-he effect obser"ed of the elanatory "ariable inflation on o"erty is much higher in

the resence of the "ariable total eenditure er month of household!

In other term, this last "ariable has an effect much wea$er in the resence of the

"ariable inflation! -he selected criterion is that where the statistics t4Student in

absolute "alue must be e0ual to or higher than )% additionally the arameter F + that

cature the difference between the effects of the 0uantitati"e "ariable inflation to le"el

+ and on le"el @ is ositi"e and is located between * and the infinite% what confirms the

awaited sign! It is the same for the coefficient gamma! <hat about the 0uality of o"erall ad&ustment thenT

If the recision of a model of regression is erfect, all the oints reresenting the

obser"ations will be on the line, the differences between the actual "alues and the

comuted "alues of the deendent "ariable would be null and the sum of the s0uares of

these "ariations would be also null! 'owe"er, in ractice the recision of a model of

regression is ne"er erfect 5!! ?ambin +11*6, all the oints are not on the line and this

sum is larger than #ero, it is @8*22!C! It is too large that ones can thin$ that theo"erall recision of the model is worse! But the econometric doctrines refer the R ) or

the R4s0uared because the "alue of the SSR’’ Sum s0uared resid’’ deends directly on

the number of obser"ations and the absolute si#e of the obser"ations themsel"es!

-herefore, the Sum s0uared resid is not the "alid criterion to &udge the absolute

recision of regression model! -he high "alue of the coefficient of determination

13



5R4s0uared6 R) translates the fact that ad&ustment of the model to the data is thus

erfect! -his translated a strong elanation of o"erty by the elanatory factors

selected! -o chec$ u if R) obser"ed is significantly different from #ero, test which

constitutes a second measure of the 0uality of ad&ustment is used! A glance to our

results, the Ad&usted R4s0uared R4) and . are con"incing, and the test testifies the

large significance of the relation Po"erty 4 Inflation K enditure er month, i!e!

regressors ha"e an influence of 1)3 on regressing! In this case, the found correlation is

not dictated randomly, it also eists for the uni"erse! -hat aears true because

o"erty when e"en though, it is a comle henomenon which changes according to

circumstancesD of the laces and times! It is also, a state of insufficiency to be

well resulting in the incaacity for an indi"idual to carry out a decent eistence or to

reach "iable erformances!

It is a henomenon of de"eloing economies where households in site of the

wea$ness of their income and of the reasonableness of their eense monthly are

"ictim of inflation eroding unceasingly their income and thus utting them in a rimary situation of o"erty!

-hus li$e other de"eloing countries under economic effect of inflation, in .ongolese

economy many are the stried, imo"erished households because of inflation,

insufficiency of remunerations and other "ariables included in the term of error, such as

the large family, no indeing of the wages, gender, numbers of indi"idual sonsored by

the head of household ,U

?astly, the fourth measurement of the ad&ustment 0uality is the standard error of regression!

Its interest is to e"aluate the 0uality of the ad&ustment! In this aer, the coefficient of "ariable

thus defined is S! of regression di"ide by arithmetic mean of g i G 52*!@CV+)C!)6 F+**G 7* 3! -hiserror is lower than half 52*36% then the model is better! -he "alue of /< close to ) units entails

the absence of error autocorrelations! ;b"iously G 23, nG )*, 9 ’ G), /+G+!+*, /)G+!27! -he /<G

+!87 and located in the critical area of accetance! <hat means that there is no autocorrelation

of errors! After analy#ing, the abo"e model, it arises that o"erty is elained by the

socioeconomic "ariables classified by imortance:

1. ?arge family

2. eenditure er month

@! indeing of the wages

7! Qender

5. Numbers of sonsored indi"idual

! Inflation

-he door is largely oen to criticisms from researchers for the imro"ement of this

model of o"erty!

14



E. CONCLUSION – SUGGESTION

rom the different reasons mentioned abo"e in relation with o"erty in de"eloing

countries, it is clear that strategies to alle"iate o"erty and hel oor eole must aim

at imro"ing the roducti"ity and the li"ing conditions of smallholder farmers and

landless agriculture wor$ers who constitute the ma&ority of oor eole!

urthermore, agriculture is seen as central to rural de"eloment! It is the ma&or

economic dri"er, the hub of rural acti"ities, and ermanent estate 5IRQ, )**)6! -he

imro"ement in agriculture roducti"ity is based on agricultural research and

imro"ed technologies! In many de"eloing countries go"ernment must lay an

imortant role in this domain! 'owe"er oor eole may benefit from agriculture

roducti"ity only if fa"orable macroeconomic and trade olicies good infrastructure

and access to credit, land, and mar$ets is in lace 5Swaminathan ( Rosegrant6!

As far as land is concerned, go"ernment in many de"eloing countries must underta$e

land reform rogram not only for a better distribution of land but also to createmechanism caable to define and enforce roerty right!

Access to mar$ets 5financial and insurance6 is a "ery imortant issue in many

de"eloing countries! Since financial mar$ets do not eist or are limited in these

countries, go"ernment, de"eloment agencies and non go"ernment organi#ations will

lay an imortant role in this mar$et! -hey will hel organi#e informal mar$ets and

create microfinance institutions that can oerate at low transaction costs, reduce

asymmetric information and moral ha#ard roblems!

In addition, these financial institutions will ro"ide credit access to oor who lac$ or

ha"e limited collateral!

In insurance mar$ets, the informal mar$et can continue to lay its role! 'owe"er, the

informal mar$et fails when shoc$s hit many members of the household or community

at the same time or in case of co"ariate ris$s!

Many go"ernment and de"eloment agencies ha"e ro"ided e ost assistance term of

food aid or in echange of wor$ 5ood Kfor4<or$6! -his $ind of inter"ention is a good

solution for transitory shoc$s! It can be effecti"e if used as a cargo net!

In Addition, targeting roblem must be minimi#ed to a"oid eclusion 5of oor who

really are in needing hel6 or the inclusion of those who do not really need it 5Berret,

'olden, ( .lay6! An e ante 5anticiated6 insurance rogram is the best solution for

co"ariate ris$ in de"eloing countries! -he inde4based ris$ transfer roduct is on thetyes of insurance that can lay this role! Based on reali#ation of an underlying inde

relati"e to a re4secified threshold, this tye of insurance is not sub&ect to asymmetric

information and has low transaction costs 5Barnet, Barret( S$ees6!

Qo"ernments in artnershi with donors and de"eloment agencies can ma$e this in

insurance a"ailable in de"eloing countries!

15



-his aer suggests micro4finance inter"ention! As said by Jnited Nations .hronicle,

5+11C6, microfinance can contribute to income and asset generation of oor eole and

increase their household food security!

Second as stiulated by <heat 5+11C6 microcredit encomasses emowerment of

women and financial sustainability, as well as wor$ing on free mar$et rinciles!

or 9elly 5+116, he claims that: the combination of this low4cost, wor$ing caital, the

romotion of family sa"ings and indi"idual and grou emowerment ma$es u the

winning formula!

/ignard and 'a"et 5+1126 argue that the emowerment is not &ust an auiliary to

microcredit but is re0uisite to a microenterrise! -hey define a women’s micro4 and

small4scale enterrise in terms of three functions: the economic acti"ities of the

enterrise must contribute significantly to household income% some degree of women’s

emowerment must be achie"ed% and women’s status and ersonal freedom must

imro"e! Microcredit seems to be the best solution to imro"e the condition of

households in"ol"ed in micro enterrises following the ractical cycle en"isioned by Muhamed Wunus , the credits ro"ided by microcredit to oor households or "ery small

entrereneurs allow them to in"est in income4generating assets and imro"e their

income le"els with direct conse0uences the imro"ement of housing and food 0ualities,

and o"er the time sa"ings accumulate will ro"ide either a net safety in the e"ent of

family crisis or the otential to in"est in either further income generation acti"ities or

0uality4of4life imro"ements!

16



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Barry ! Barnett, .hristoher B! Barret, erry R! S$ees ! =>Po"erty -ras and

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Programmes reduce EulnerabilityT

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o!cit !++

/ebra& Ray 5+1186! /e"eloment conomics! New ersey, Princeton Jni"ersity

Press!

li#a Robinson "ans5)**+6,<omen, Microcredit and .aability in Rural India,

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ean &ac0ues ?ambin, Recherche Mar$eting @) Xdition M. QRA< 'I?? PARIS

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'onduras>, <orld /e"eloment, Eol! @2, No 2,

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A&a$aiye /!;, Adeyeye E!A

htt:VVwww!cenban$!orgV;J-VPJB?I.A-I;NSVRVR/V)**)VRE;?@14742!P/

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