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PROBLEM SET 2

General instructions: Submit a single Word document before February 17th at 11:00 AM via
CourseWorks (only one group member submits on behalf of the team). Please put the team
members’ names and group number at the top of your submission. Append (copy+paste) your do
file to the end of your answer sheet.

Total: 75 points

Question 1 (20 points).

Listen to Econofact Chats Podcast (22 minutes) from Feb. 15, 2021: Interview with Lant Pritchett
on “Understanding Global Poverty Reduction.” You can find the website at
https://econofact.org/podcast/understanding-global-poverty-reduction or you can find it on your
favorite podcast distributor by searching for “Econofact Chats” and then look up the date Feb. 15,
2021.

1) Discuss (3-4 sentences max) your thoughts on Lant’s comments about Vietnam’s
development experience, especially his comment that “when you have very high levels of
poverty, it isn't that you have poor people, it's that you have people trapped in low
productivity and hence poor places…” (10 points)

2) Discuss (3-4 sentences max) your thoughts on Lant’s response to the question of how
successful development agencies have been over the last 60 years. (10 points)

Question 2 (55 points).

The data file (HW2_data.dta) includes data to construct a poverty profile for the state of Andhra
Pradesh in India. Poverty line for rural areas is set at (Indian rupee) Rs 24 and the urban poverty
line is set at (Indian rupee) Rs 26.

1) Compute and describe the incidence, depth, and severity of poverty separately for rural and
urban areas. To do this, please:
a. Write the formulas for the poverty indices (head count, poverty gap, and poverty
gap squared). (6 points)
b. Compute the values of each of the three metrics in Stata and interpret them. Create
a table where you list the values for each of the three calculated poverty indices
(head count, poverty gap, poverty gap squared) for rural areas and urban areas.
Create a third column with the difference between rural and urban poverty rates
(this is a similar exercise to the one you did for Problem Set 1). Are there rural-
urban differences in the incidence, depth, and severity of poverty? Justify your
answers. (25 points)
[hint on relevant Stata commands: count, gen, replace, tab, sum]
[hint: remember to convert consumption expenditure from monthly to daily before you do
your analysis, you can assume each month has 30 days]

2) Examine the determinants of poverty using an OLS regression. (24 points). To do this,
please:
a. Take logs of per capita monthly consumption expenditure
b. Regress log of monthly per capita consumption expenditure on hhsize, daded,
mumed, tv, radio, hh_head, rural, elec, flush_toilet, cooking_fuel, use “, robust” at
end of regression command to correct for possible heteroskedasticity

Present your regression results in a table and interpret. As you interpret the coefficients,
are there any interesting or noteworthy policy implications? Please elaborate.

[hint on relevant Stata commands: regress y on x1 x2 x3 x4 …, robust]
[hint: you may use the command outreg2 to export a table of your regression to put into
your submission]

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