This paper estimates multidimensional poverty in Bhutan applying a recently developed methodology by Alkire and Foster (2007) using the 2007 Bhutan Living Standard Survey data. Five dimensions are considered for estimations in both rural and urban areas (income, education, room availability, access to electricity and access to drinking water) and two additional dimensions are considered for estimates in rural areas only (access to roads and land ownership). Also, two alternative weighting systems are used: a baseline using equal weights for every dimension and another one using weights derived from the Gross National Happiness Survey (GNHS). Estimates are decomposed into rural and urban areas, by dimension and between districts. It is found that multidimensional poverty is mainly a rural phenomenon, although urban areas present non-depreciable level of deprivation in room availability and education. Within rural areas, when equal weights are used, deprivation comes at a second place, and deprivation in water at the last one. When GNHS weights are used, income deprivation has the highest contribution, followed by deprivation education, access to roads, room, electricity, land and, finally, water. Districts are ranked by their multidimensional poverty estimate and rankings are found to be robust for a wide range of poverty cutoffs. Then, the methodology is suggested as a potential formula for national poverty measurement as well as a tool for budget allocation among districts and, within them, among dimensions.

This paper analyses poverty reduction in Bhutan between two points in time -- 2003 and 2007 -- from a multidimensional perspective. The measures estimated include consumption expenditure as well as other indicators which are directly (when possible) or indirectly associated to valuable functionings, namely, health, education, access to electricity, safe water, improved sanitation, enough room per person in dwelling, access to roads and land ownership. Interestingly, most of these indicators have been identified as sources of happiness in the 2007 Gross National Happiness Survey. Twelve different measures are estimated with a variety of values for the different parameters involved for robustness analysis. Also, estimates are bootstrapped creating 95% confidence intervals. We find that over the study period there was an unambiguous reduction in multidimensional poverty regardless of the indicators' weights, deprivation cutoffs and identification criterion of the poor. This reduction was mainly led by a reduction in the proportion of the poor which was accompanied by a reduction in the intensity of poverty among those who were less intensively poor, although not among those who were more intensively poor. Rather than accomplishing this poverty reduction by improving achievements in one or two indicators, there were significant reductions in several deprivations, especially in access to roads, electricity, water, sanitation, and education. We also find that when income alone is used to target the poor, inclusion errors are marginal but exclusion errors are sizeable. Despite Bhutan's significant progress, challenges remain as poverty is still high in rural areas. A multidimensional measure in the lines proposed in this paper can prove useful for monitoring poverty reduction, prioritizing groups and evaluating upon investment.