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Properties of Index of Inclusion

Abstract

The paper discusses some properties of Index of Inclusion defined earlier by the author in his paper titled “Measuring Inclusive Growth”. It is argued that the Index satisfies properties of monotonicity, decreasing marginal returns as one factor is held constant and universal applicability. The Index can be used for testing and measuring the degree of inclusiveness in the development process of particular social groups e.g. castes, ethnic minorities, linguistic groups in addition to that of the poor.

The Index of Inclusion (IoI) has been defined in an earlier paper 1 by the author as :

IoI =

K * (y p /z) α (SoI) β ;

0<α<1 and 0<β<1

------------ (1)

Where K >0 is the normalization factor so that 0<IoI< 1 and z is the poverty line based on income / consumption y p is the mean income / consumption of people below poverty line SoI represents the Social Opportunity Indicator and is defined as :

SoI = (EI*HI*BNI) 1/3

------------(2)

where EI , HI, BNI represent respectively the comparative access / achievements in social opportunities like education, health and basic needs of people below the poverty line as a proportion of those above the poverty line.

The Index thus defined attempts to examine specifically the condition of the poor as compared to non-poor in both economic and non-economic spheres. We shall now discuss some of the properties of IoI.

a) Normalization and applicability : It may be noted that in principle, the IoI can be used for assessing the inclusiveness of any particular social group in comparison to the general population and not only that between poor and non- poor. To achieve this z is redefined as the mean income / consumption of the general population and y p is the mean income / consumption of the particular social group in consideration. Thus for example, for India y p could refer to mean income / consumption of the Scheduled Caste population while z could refer to that of general population. Similarly, Social Opportunity Indicator (SoI) measures the relative opportunity for the particular group –e.g. scheduled caste - as compared to the general population.

However the notion of inclusiveness by its very definition assumes that certain groups / class of individuals are not part of the mainstream development process and hence the degree to which they are included or not included in the development process needs to be measured. Thus if we put

K=1

……………………….(3)

Electronic copy available at: http://ssrn.com/abstract=2013234

in equation (1) then a value of less than 1 signifies that the particular social group is discriminated against and is not on equal footing as others in the development process. On the other hand a value of 1 indicates that the social group in question is not lagging behind, while a value of more than 1 indicates that the concerned group is better off than others and hence by definition value of IoI has no specific significance in this case.

Thus IoI can be seen both as a test and as a measure of degree of inclusiveness of various social groups e.g. poor vis-à-vis non-poor, minority versus the rest, a particular ethic group as compared to general population and so on. A value greater than or equal to 1 means that the concerned group suffers from no discrimination, while a value less than 1 indicates non-inclusiveness and also measures the extent of non-inclusion.

b) Monotonicity - The Index of Inclusion is monotonic in y p , the mean income of the poor and also in social opportunity indicator. For larger values of y p and SoI the index increases monotonically.

c) Decreasing marginal returns - The income factor and social opportunities factor

respectively capture the relative economic and non-economic resources of well- being. It is based on the premise that both the factors are necessary for growth. The income factor is in a way an outcome measure while the non-income factor captures the potential for future growth – it is some sort of process measure. Holding any one factor constant and increasing the other factor results in decreasing marginal returns to inclusiveness.

d) Elasticity of income and non-income factors : The coefficients α and β

respectively are the elasticities of Index of Inclusion w.r.t changes in income and non-income factors. The precise values of α and β are unknown a priori. However its is reasonable to argue that IoI is more sensitive to changes in income than to non-income factors so that we have :

 

α

>

β

……………………

(4)

Also we will assume that

 

α

+

β

= 1

………………………(5)

i.e. constant returns to scale

and further let

 

α

= 2 β

 

……………………

(6)

then using equations (3) to (6), the Index of Inclusion becomes :

 
 

IoI =

 

(y p /z) 2/3 (SoI) 1/3

……………………

(7)

Electronic copy available at: http://ssrn.com/abstract=2013234

Conclusion

The Index of Inclusiveness defined in equation (7) satisfies the properties of monotonicity, constant returns to scale, decreasing marginal returns as one factor is held constant and universal applicability. This measure can be used for testing and measuring the degree of inclusiveness in the development process of particular social groups e.g. castes, ethnic minorities, linguistic groups in addition to that of the poor.

Reference

1. Badgaiyan, Bhupendra, Measuring Inclusive Growth (May 6, 2011). Available at SSRN: http://ssrn.com/abstract=1833602 or

http://dx.doi.org/10.2139/ssrn.1833602

Bhupendra Badgaiyan is an independent Consultant. He has earlier worked with UNDP and UNICEF, India. E-mail – bdbadgaiyan@yahoo.co.in Address – 135 A Pocket B, Mayur Vihar, Phase – II, Delhi – 110091, India

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