Global Data Lab

Institute for Management Research
Radboud University

International Wealth Index (IWI)

First comparable asset-based indicator of household wealth

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Frequently Asked Questions about IWI

What is IWI?

The International Wealth Index, or IWI, is a comparable asset-based wealth index that can be used to measure the level of material well-being or standard of living of households in low and middle income countries.

What does a household's IWI value mean?

A household's IWI value indicates to what extent the material basic needs of the household are met. IWI runs from 0 to 100. Households with an IWI value of 100 enjoy the possession of the durables, housing quality and public services that people across the globe consider basic requirements for a decent life. Households with an IWI value of 0 have none of the included durables, bad quality housing, and no access to public services.

To what extent does IWI differ from other wealth indices?

IWI differs from other wealth indices in its generality. IWI provides a universal scale that in principle can be used for all households across the globe. Most other wealth indices are made specifically for one country in one year. They can be used to compare the households within that country-year combination, but not for comparing households across time and space.

Does IWI indicate a household's economic status?

Asset-based wealth indices like IWI are considered effective indicators of a household's economic situation or standard of living. They are highly correlated with income or expenditure measures. As the included durables are typically bought for use over a longer time period and their availability is not much influenced by shocks, they best indicate the household's long-term economic situation.

How was IWI constructed?

IWI was constructed in the same way as most other asset-based wealth indices, by performing Principal Component Analysis on a database with asset information of households. However, whereas most other wealth indices use data for one country at one point in time, IWI is based on data for 2.1 million households derived from 165 datasets for 97 countries, covering a period of 15 years.

How can I add IWI to my data?

If information on all required assets, housing characteristics, and public services is available in your data, the IWI formula available at our website can be used to compute IWI for each household. To make things easier for you, we have created SPSS files that can be used to add IWI to your data after preparing the asset variables. These files can be found here.

If you want to add IWI to DHS or MICS data, an even better way is to use the files we have prepared for most of these surveys. These files contain the value of IWI for all households plus the DHS/MICS household IDs. On the basis of the IDs, IWI can be added to the households' records in the dataset. This saves much coding work and guarantees that the IWI values in your data are exactly the same as those used by other users. On our downloads page you find more information about this option.

You provide alternative formulas for computing IWI in case one or more assets are missing. Does this influence the comparability of IWI?

These formulas are meant to place households on the IWI scale as well as possible on the basis of the information that is available. When this is done with less information, the measurement is less precise. We have done test analyses to find out how sensitive IWI is to lack of one or more assets and found the reduced versions of IWI to be highly correlated with the version based on all assets.

The cheap and expensive utensil variables may be based on different assets in different surveys. To what extent does this influence comparability?

Comparability is of course best if exactly the same items are used for these variables. This is not always possible, as the utensils used for constructing these variables vary between surveys. The effect is however small, as the cheap utensil variable is only used to subdivide between the poor and the very poor and the expensive utensil variable to distinguish between the rich and very rich. These variables do not much affect the middle range of the distribution.

Will the asset weights on which IWI is based become less applicable over time, as they are based on data collected in the past?

This is to a certain extent true, but it will take a long time to have substantial effects. The many sensitivity tests we did showed that IWI is very stable and hardly depends on the region or time period for which the asset weights are computed. This is not surprising, as everywhere in the world people tend to buy the included assets if they have the possibility.

Why are the household assets not divided by the number of persons living in the household before constructing IWI?

Unlike income and consumption expenditure data, asset based wealth indices are generally not adjusted for household size. The reason is that the assets used for constructing these indices consist almost completely of household public goods. Housing characteristics, access to basic services and durables like a TV, fridge, clock or car tend to benefit all household members.
In some studies the number of sleeping rooms is divided by the number of persons in the household, to obtain an indicator of "crowding". For IWI this is not the case, as the number of rooms is meant to be an indicator of the size of the house and not of crowding. A house with three sleeping rooms is generally bigger and more expensive than a house with less sleeping rooms and this is independent of family size

In areas without electricity, having a TV or fridge does not make much sense. How does IWI handle this?

There is no need to handle this. IWI indicates to what extent the material basic needs of households are met, independent of the reason why they are (not) met. Whether a household lacks a TV or fridge because it is too poor to buy one, or because there is no electricity, in both cases the household members are deprived in that they cannot watch TV and have to spend more time on shopping than households with a fridge.