Foster-Greer-Thorbecke Index

The Foster-Greer-Thorbecke (FGT) index is a generalized poverty measure developed by Erik Thorbecke, Joel Greer, and James Foster. It considers the inequality among the poor and allows one to vary the amount of weight on income levels when calculating poverty in the economy. The FGT index is also a decomposable poverty measure, which provides a link between overall poverty and the poverty levels in population subgroups. The change in the FGT index can be separated into a component resulting from the economic growth and a component resulting from the redistribution of income.

The FGT index is calculated as a weighted sum of normalized poverty gaps of the poor. The normalized income gap indicates the income shortfall as a proportion of the poverty line. For example, if ...