Asset based wealth indices are widely used instruments for measuring the economic situation of households in developing countries. Most household surveys currently available for these countries include such an index based on the possession of consumer durables and housing characteristics (e.g. all DHS Surveys and UNICEF MICS surveys).
Wealth indices owe this success to their intuitive appeal, wide availability, ease of computation, and reliability of measurement. However, in spite of these desirable properties, they suffer of one great problem: They are not comparable between surveys.
For each survey a new wealth index is constructed that is not related to indices used in other surveys. Hence, instead of one index for measuring household wealth there are many indices with different measurement scales. Studying wealth differences among countries or wealth changes over time is therefore not possible.
To solve this problem, a more general wealth index is needed that with the same scale measures the economic situation of households in all regions of the developing world. Our International Wealth Index is such a general index.
International Wealth Index
The International Wealth Index (IWI) is the first comparable asset based wealth index covering the complete developing world. It is based on data for over 2.1 million households in 97 low and middle income countries.
IWI is a stable and understandable yardstick for comparing the performance of societies with regard to wealth, inequality and poverty.
IWI runs from 0 to 100, with 0 representing households having none of the assets and lowest quality housing and 100 representing households having all assets and highest quality housing.
IWI is designed to be as general and flexible as possible. It can easily be added to existing and new survey data that include information on a basic set of assets. The instructions and tools needed to compute IWI can be downloaded from this website (under "Add IWI to your data").
IWI is constructed in the same way as most other wealth indices. Information collected in household surveys on the possession of consumer durables, access to basic services and housing characteristics is entered into a factor analysis (PCA) from which the first factor is selected as the wealth index.
However, whereas other indices are based on data from one or a few household survey, IWI is constructed on data from 165 surveys held over a period of 15 years in 97 countries. These surveys include information on nearly two million households, living in all regions of the developing world.
On this huge database a PCA analysis is performed. The asset weights derived from this analysis are brought together into the IWI Formula, which is the central component of the International Wealth Index. Using this formula, each household for which the asset values are known can be ranked on the IWI scale.
The IWI scale is additive; possession or higher quality of a certain item raises the household's IWI value with a specific amount (the re-scaled asset weight). If the household has all items and highest quality housing, its IWI value is 100. If it has none of the items and lowest quality housing, its IWI value is 0.
There is only one IWI formula and thus one IWI scale that can be used across the developing world. This distinguishes IWI from other wealth indices. A household with a certain combination of assets is ranked the same, independent of where they live. The property of comparability, in which the IWI distinguishes itself from other wealth indices, comes from the fact that to rank households on the IWI scale always the same formula is used.
To get an intuitive idea of how IWI works, you may fill in some asset combinations on our Play with IWI page. Under Using IWI you find information on how IWI can be used and included in your data. Under Downloads you find help files for constructing IWI yourself and for adding IWI to existing survey datasets of well-known data sources.
Detailed information about IWI can be found in the background paper:
Smits, Jeroen & Roel Steendijk (2015). The international wealth index (IWI). Social Indicators Research, 122(1), 65-85. DOI 10.1007/s11205-014-0683-x. Paper available here.