The main objective of this paper was to depict poverty and inequality in Albania as multidimensional phenomena. Among the many methods used, we thought that the ’asset index’ approach fits well in the socioeconomic context of the country. Based on previous studies, we created the ’asset index’ using a multivariate statistical tech- nique called principal component analysis. Then, it is utilized as a ’proxy’ of long- term household wealth. Next, we examine whether these differences in wealth affect education or health conditions. The probit regression on children educational attainments shows interesting results. Being a child in a rich family, increases the prob- ability of school enrollment by 15,1% points compared to the poor. This difference slightly increases in rural areas. Maybe due to the fact that social inclusion practices are ineffective in rural communities. On the other side, the performance of the ’asset index’ in predicting chronic diseases did not exceed our expectations. The model needs significant improvements to adapt to general health circumstances. It must be noted that, our attempt is to present the index as a valid instrument in assessing the living conditions, not as the best one.
A reason that explains the extensive use of asset indices is its statistical coherent and robust performance. Although, the major shortcoming of the ’asset index’ is the lack of the theoretical background. It is still not clear why only the first principal component is used to assess household wealth. The assumption that economic status explains the maximum variance and covariance of the indicators needs theoretical basis. In addition, we do believe that using scoring factors to assign ’weights’ of assets doesn’t capture perfectly its quality.
However, it is widely accepted that the ’asset index’ is a good alternative mea- sure confront classical methods as consumption or income. It manages to capture characteristics of living standards that consumption or income fail to do so. As well, the data collecting process in this facet is quite simple. A lot of surveys based on the ’asset index’ were used as efficient tools in designing policies that support the poor.
Poverty in Albania should be seen not only as a lack of income, but as a lack of opportunities. This is what causes the so-called poverty trap. It is a situation where the poor become poorer due to the influence of their present income on the future. Thus, they lose their productivity and a vicious circle is created where the poor can not escape. A ticket to get away of poverty is education. But, poor people need help from external factors. Hence, it is a primary duty of the government to create equal opportunities to its people. A great effort must be put in developing policies that promote education. One that we would like to suggest is conditional cash transfers (CCT). The government should offer money to poor people provided their children attend secondary school regularly. A greater amount should be invested if poor children are pursuing university. Only by focusing in the development of human capacities, poverty can be eradicated in long term and the future generations would prosper.
Lastly, we hope that this modest study will encourage further research on poverty and inequality in Albania. We hope that the attention will shift toward the most marginalized part of the society. Only by doing so, we will build an egalitarian and wealthy nation without repeating the errors of the past.
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