Question

Suppose an international development bank is deciding whether to use the head-count index or the poverty gap to measure the effects of a country‘s poverty-reducing policies, as a criterion for additional lending. Explain how and why this decision might effect the nature of these policies.

Answer 1

Head Count Ratio:  It simply speaks about the number of people living under the poverty line. It is very easy to understand. It does not talks about the poor among the poor.

Poverty Gap Index:  It measures the extend of poverty from poverty line. It helps to measure the minimum cost that would be required to eliminate the poverty.

Head count ratio would not help policy makers to know the extend of poverty. it would simply helps to know number of poor people. Policy makers must have cost estimation to remove the poverty. Hence, Poverty Gap index can help policy makers to follow the pragmatic approach to eliminate the poverty.