Inter-Temporal Decomposition of Poverty and Inequality in the Distibution of Living Standards in Cameroon

                                                 CHAPTER ONE
GENERAL INTRODUCTION
1.0 CONTEXT OF STUDY 
The problem of poverty is a major concern for all governments and the 
struggle to alleviate poverty is leaving no government indifferent. Poverty 
and inequality are actually a world wide phenomenon which is spreading in 
rich and underdeveloped countries in different ways and is destined to 
worsen unless new approaches are developed and new scientific knowledge 
about its causes are discovered   (Townsend, 1993). According to the figures 
in the World Bank development report (1993), nearly 50 percent of the 
world poor leaves in South Asia and sub Saharan Africa (SSA) with SSA 
accounting for a highly disproportionate number base upon a poverty level 
of less than 32 US dollars per month. 
In Cameroon, overall poverty deepened within the period 1984/1996 with 
rural poverty remaining more widespread, deeper and more severe than 
urban poverty (see Baye 2005a, Fambon et al, 2004). Despite the improve 
macro economic situation, public education and health indicators have 
remained poor and Cameroon is still perceived as a very corrupt country on 
the basis of surveys undertaken in 1998 and 1999 by transparency 
international.
The Poverty Reduction Strategy Paper PRSP, (2003) also confirms that, 
nearly 4 out of every ten Cameroonians in 2001 were living with an annual 
income below the poverty line of CFAF 232.547 (roughly equivalent to US
$1 per person, per day or FCFA 19000 a month). This represents the 
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MASTER’S THESIS PRESENTED BY:
TAMBI DANIEL M
University of Yaounde II
Faculty of Economics and Management Sciences
Yaounde - Cameroon
JUNE 2008
THEME:
INTER-TEMPORAL DECOMPOSITION OF POVERTY AND 
INEQUALITY IN THE DISTRIBUTION OF LIVING STANDARDS 
IN CAMEROON
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estimated annual income necessary for an individual in Yaounde to buy a 
‘minimal basket’ of essential food and non food items. In 2001, eight poor 
people out of ten were living in the country-side and the incidence of 
poverty there is more than double the incidence in the cities.
As observed by Baye and Amungwa (2002), the increasing level of poverty 
in rural communities induced many young people to migrate to large towns 
where they expected to find better conditions. They ended up in a net work 
of relatives and friends who initially support them against the worst 
hardships; eventually some succeed in making ends meet, while others are 
exposed to unemployment or under-employment, crime and social-
behaviour, which posed insecurity problems to both the authority and other 
city dwellers. 
More generally, as argued by Baye and Fambon, (2002), the joint effects of 
the economic crises and structural adjustment programmes (SAPs) forced 
many Cameroonians to adopt coping devices such as moonlighting, seeking 
for survival in the informal sector. Also, they engaged in occupational and 
geographical mobility, changing regional patterns of activities and 
productivities, and adopting ‘‘behavioural innovations’’ like corruption and 
other malpractices for survival. These adaptations are thought to have 
modified the pattern of welfare among households in the different regions 
and sectors of activities.
According to Baye (2006b), the adverse International environment as 
reflected in the overvaluation of the CFAF against the dollar and the sagging 
world market prices of commodity exports in the late 1980s and early 1990s, 
and its implications for government revenue, production, consumption and 
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relative prices, led to 50% of devaluation of the CFAF in January 1994. 
Being a centre-piece of adjustment, the devaluation was intended to perform 
two functions: (1) reduce expenditure on imports and (2) re-allocate 
resources away from non-tradable commodities with a view to propping up 
the global competitiveness of the economy subsequent to the 1994 
devaluation of the CFAF, Cameroon achieved macro-economic stability. Yet, 
rural incomes were slow to improve because much of the acreage under 
coffee and Cocoa had been abandoned, in addition to the typically low short 
run elasticities of supply of these commodities.
 
Also Baye et al (2001) analysis of demographic variables in 1996 revealed 
that poverty rates differ according to household size, gender and age of 
members. The incidence of poverty increases as household size increases 
with poor household having an average of 3.9 persons, compared to non-
poor household job with an average of 2.1 persons. Women represented 
about 51 percent of the total population and 52 percent of the poor. The 
incidence of overall poverty among the female headed households was lower 
(55%) than that of their male counterparts (70%).
More so, transparency international, (1998 and 1999) state that the index for 
the cost of living rose by 60% within 1998 and 1999, however, nominal 
wages remained unchanged. From December 1992 to December 1995, real 
wages of senior civil servant fell by 75/80 %, and this had a deleterious 
impact on civil servants motivation and fuelled corruption as well as poverty 
and inequality. 
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Considering official data from World Bank (2001), CAS (1996), PRSP 
(2003) and ECAM 1 and 11, the above issues led to the following ‘Great 
problems’: 
Cameroon suffers from very high transportation costs, in particular for 
transiting through the port of Douala which is the key entry and exit point 
for international trade (see, 1996 CAS report). About half the population fell 
below the poverty line and 86% of the poor live in rural areas. It is clear that 
poverty increased massively during the depression and with the drastic wage 
cut in public services, pushed urban poverty to become a major problem. 
While less than 1% of households in Yaounde and Douala fell below the 
poverty line in 1983, 20% of households in Yaounde and 30% in Douala did 
so in 1993.
The rural environs had no sizable investment in agriculture, research and 
infrastructure (fewer feeder roads). The agricultural sector (forestry and 
fisheries included) received only 5% of budgetary allocations in 1995/96 and 
8% in 1999/2000, even the approved agricultural projects of 1999, 
accounted for only 5% of  international development authority (IDA) 
commitment on active projects.
The deterioration of the purchasing power of civil servants and rising 
unemployment caused urban poverty to increase considerably since 1992. 
The problem was aggravated by the dilapidated state of urban infrastructure 
resulting from the collapse of public investment in the last 15 years. Bank 
lending was very small, HIV prevalence was estimated at 7% of the adult 
population in 1998 and an experience in South Africa indicates that once 
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prevalence has reached such a level, HIV spread very rapidly and the 
epidemic can reach catastrophic proportions within 5 years.
The World Bank (1993) observes that the above situations is caused by ills 
such as corruption, poor governance, poor judicial system, the prevalence of 
HIV/AIDS pandemic, arm conflicts, heavy debt burden, low investment, 
mismanagement of human and material resources which tend to plague 
African countries into poverty and inequality in general and Cameroon in 
particular.
1.1 PROBLEM STATEMENT
Many authors have approached the study on poverty and inequality change 
in the living standard of Cameroon. Among these, are pioneer authors such 
as Araar (2003), Chameni (2006), Baye (2005), NIS (2002), Baye et al, 
(2002), Fambon et al (2004), Njinkeu et al (1997) just to sight a few.
In this regard, the determinants of changes in poverty, channels of share 
growth, intra and inter sector contributions to changes in welfare are among 
the attention-grabbing aspects in distributive analysis in this period of 
substantive policy changes.
It should be noted that despite all these studies, knowledge on how 
inequality and poverty changes by socio-economic characteristics such as 
employment status, occupation, sector of activities, zone of residence and 
region of a country is vital for policy, but unfortunately, still under exploit in 
Cameroon. The only studies that tackle some aspects of the dynamics of 
monetary poverty are national institute of statistics, NIS (2002), Baye (2004, 
2006) and Fambon et al (2004) as well as Araar (2006), Baye, (2007) for the 
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case of inequality. Very little is known about the exact contributions of intra 
and inter sectoral components to changes in aggregate poverty and 
inequality using the 1996 and 2001 household survey. Yet, such knowledge 
is required for public policy, especially in an era when poverty eradication is 
gaining prominence in the policy menu. 
This work is therefore building on existing knowledge in the sense that it 
performs exact decomposition of changes in aggregate measured poverty 
and inequality into within and between sector components that hinge on the 
Shapley Value, a solution concept that is well known in the theory of 
cooperative games. 
1.2 RESEARCH QUESTION
MAIN RESEARCH QUESTION
The main research question is, what is the marginal contribution of the 
within and between sector decomposition of poverty and inequality in the 
distribution of living standards in Cameroon.
SPECIFIC RESEARCH QUESTIONS.
I) How did poverty and inequality evolve between 1996 and 2001?
2) What is the relative importance of the Within and Between sector effects 
to changes in aggregate poverty?
3) What is the relative Contributions of the Within and Between sector 
effects to levels and changes in inequality?
4) What policy implications can be derive on the basis of our analysis?  
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1.3 OBJECTIVES 
MAIN OBJECTIVES
The main objective of this study is to examine how poverty and inequality 
have changed and to decompose these changes into mobility and sector-
specific effects in the distribution of living standards in Cameroon.
SPECIFIC OBJECTIVES OF THE STUDY 
I) To examine the evolution of poverty and inequality between 1996 and 
2001.
2) To assess the relative importance of the Within and Between sector effects 
to changes in aggregate poverty.
3) To evaluate the relative Contributions of the Within and Between sector 
effects to levels and changes in inequality.
4) To derive policy implications on the basis of the analysis.
1.4 HYPOTHESIS
MAIN HYPOTHESIS.
Poverty and inequality can be explained more by the marginal contribution 
of the Within group than the Between group components.
SPECIFIC HYPOTHESIS 
The specific hypotheses of this study are;
1) Inter – temporarily, poverty and inequality trends may not necessarily 
depict the same tendencies.
2) The Within sector effects are relatively more important in accounting for 
changes in aggregate poverty than the Between sector effects.
3) The Within sector effects contribute relatively more to trends in inequality 
compared to between sector effects.
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1.5 SIGNIFICANCE OF THE STUDY
The added value of this paper lies in its contribution to empirical literature 
on poverty and inequality analysis. Unlike other studies, this work highlights 
the particular impact of poverty and inequality through the uncovering of the 
incidence, intensity and inequality of poverty in both the rural and urban 
regions systematically. 
Baye (2005), state that “to better inform public debate in the aftermath of or 
during policy changes that affect living standards, it is necessary to measure 
the evolution of poverty and its components”. Associated to this statement, 
this paper has gone a long way to decompose poverty and inequality in view 
of assessing the factors explaining these phenomena hence showing its 
importance in terms of public policy and nation building.
This work is motivated by personal interest. That is to understand the 
unfolding events of poverty and inequality in Cameroon and the global 
world, also this work is motivated by the conclusion of Professor Carmen Li 
(2000), who argued that “poverty can not be eliminated but alleviated and 
that new methods of measurements should be developed in order to 
understand really why people are poor”. Therefore, in terms of policy and 
decision making, this decomposition frame work can be used to reassess 
Cameroon poverty and sub-group inequality trends in this era of new 
millennium goals which are very important for policy setting and 
entitlements.
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1.6 METHODOLOGY
In this study, we decompose poverty and inequality. Thus, following Baye 
(2005), the methodology proposed here, performs exact decomposition of 
changes in aggregate measure poverty into within and between sector 
components that hinge on the Shapley value. This is a well known solution 
concept in the theory of cooperative games. In these analyses income and its 
associated components could be viewed by households, as important 
channels by which inequality is transmitted. The application of the Shapley 
value to population subgroups decomposition problem presents some 
attractive features even though it is more questionable. On the other hand, 
the Shapley decomposition satisfies a number of nice properties.
We measure inequality using members of the generalised Gini class of 
indices (see Donaldson and Weymark, 1980, Yitzhaki, 1983). The 
conventional Gini coefficient which is perhaps the most commonly used 
inequality index is a member of this class and associated with other 
members incorporate different ethical judgements.
The influence of population sub groups should not be left out such as those 
defined by age, sex, or race (see Bourguignon, (1979), Cowel, (1980) and 
Shorrocks, (1980, 1984 and 1999). It is legitimate to ask for the contribution 
of each sub group to the overall inequality. In this case, we use an additive 
decomposable property which requires that the overall inequality in a cross 
section to be the sum of two terms: a weighted sum of within group 
inequalities and a between group term computed as if each person within a 
given group received the group mean income.
We use data from two Cameroonian Household surveys (ECAM 1 and 
ECAM 11) that were conducted nation wide in 1996 and 2001. They 
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provided a clear picture of the status of poverty, inequality and living 
conditions in Cameroonian households.
 
According to Deaton and Muellbauer (1980), we proceed by adopting a 
measure of household size in terms of adult-equivalence, in which case, an 
adult equivalence scale is used to weight each household member on the 
basis of age and/or gender while an overall poverty line of 185.490 per day 
per adult equivalent is use.
1.7 DEFINITION OF TERMS:
The key words of this research work are: poverty, inequality, inters- 
temporal decomposition, Shapley value, living standard, adult equivalence 
and Cameroon. We are going to define the principal terms that will 
consequently help us in the analysis and comprehension of this work.
Poverty
As observed by PRSP (2003), in assessing the poverty status of a person or 
groups of individuals is a complex undertaking. However, within any human 
group, the poor are schematically, that portion of the population whose 
living conditions are manifestly below the observed averaged. This allows us 
to identify a kind of demarcation line between the “poor” and the “non-
poor”, one that varies in space and in time. In Cameroon, it is now possible 
to identify the “poor” population using a variety of sources and a broad 
range of characteristics that are often closely linked to the socio cultural 
setting.  
Inequality
In the context of our study and according to Cavendish (1999), inequality 
measured is simply an index number characterising a relevant feature of a 
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