Income, education, and other poverty-related variables: a journey through Bayesian hierarchical models

TL;DR

This paper explores the application of Bayesian hierarchical models to analyze income and poverty-related variables across regions in Thailand, demonstrating improved performance over traditional models and highlighting education's mediating role.

Contribution

It introduces a Bayesian hierarchical modeling approach for poverty data, showing how it outperforms simpler models and provides insights into education's impact on income across regions.

Findings

Hierarchical models outperform pooling and no-pooling models.

Adding education variables improves model explanation.

Higher education levels significantly increase household income.

Abstract

One-shirt-size policy cannot handle poverty issues well since each area has its unique challenges, while having a custom-made policy for each area separately is unrealistic due to limitation of resources as well as having issues of ignoring dependencies of characteristics between different areas. In this work, we propose to use Bayesian hierarchical models which can potentially explain the data regarding income and other poverty-related variables in the multi-resolution governing structural data of Thailand. We discuss the journey of how we design each model from simple to more complex ones, estimate their performance in terms of variable explanation and complexity, discuss models' drawbacks, as well as propose the solutions to fix issues in the lens of Bayesian hierarchical models in order to get insight from data. We found that Bayesian hierarchical models performed better than both complete pooling (single policy) and no pooling models (custom-made policy). Additionally, by adding the year-of-education variable, the hierarchical model enriches its performance of variable explanation. We found that having a higher education level increases significantly the households' income for all the regions in Thailand. The impact of the region in the households' income is almost vanished when education level or years of education are considered. Therefore, education might have a mediation role between regions and the income. Our work can serve as a guideline for other countries that require the Bayesian hierarchical approach to model their variables and get insight from data.