Socioeconomic Status Measurement: An Analysis of Incorporation of Mixed Variables into Principal Component Approach

Abstract

Socioeconomic status of a household in Bangladesh changes overtime for many reasons. The measurement of this change is a very important tool in many aspects. This paper aims to examine the dynamic nature of wealth status in Bangladesh. In particular, we want to capture the overall wealth transition in rural area of Bangladesh from year 2004 to 2015. To calculate this transition, we construct wealth index for each of the year 2004, 2009, and 2015 using the ‘poverty analysis survey data’. This survey has conducted on the same households in each three years. Nonlinear principal component analysis (PCA) with optimal scaling using gifi method as our PCA tool is used here for wealth index construction. This method is designed to use with a data set that contains both numerical and categorical variables jointly. Then the transition of wealth is calculated using these three-wealth index. Based on the transition result, we classified each of the households into four different social groups such as non-poor, ascending poor, descending non-poor, and chronically poor.