Constructing an indicator of consumption for the analysis of poverty: principles and illustrations with reference to Ecuador

With reference to data from Ecuador this paper examines several of the steps involved in constructing consumption aggregates and highlights some of the principles which should guide the analysis. The paper emphasizes that specific care is warranted where access is characterized by rationing. Simple methods are outlined to impute a hypothetical rent for owner-occupied housing, to include consumption of basic social services, and to calculate a stream of consumption derived from a stock of consumer durables. The paper demonstrates that the definition of consumption adopted can have a significant bearing on measured poverty, sending an important caution against comparisons of poverty based on different underlying consumption definitions. The paper illustrates that unlike specific measures of poverty, the profile of poverty may be quite robust to alternative consumption definitions.