Poverty PPPs


Poverty PPPs are an important key research area for the ICP. Using the PPPs as calculated by the ICP for the purposes of the global poverty count faces two main shortcomings. Firstly, the price indexes that underlie the PPPs are constructed for purposes of national income accounting, using weights that represent patterns of aggregate consumption, not the consumption patterns of the global poor. Second, the basket of goods and services used for collecting prices for the ICP is not geared towards the consumption of the poor per se. However, in order to obtain meaningful poverty lines it is important that the PPPs used for conversion incorporate the prices paid by the poor, and the relative importance of different goods and services they consume, as reflected by the expenditure share weights of the poor households.

To address the first shortcoming, research was carried out by Angus Deaton and Olivier Dupriez (2011), where they used household surveys from 62 developing countries to calculate global poverty-weighted PPPs and to calculate global poverty lines and new global poverty counts. They noted though that their research did not attempt to use separate prices for the poor. Instead, they reweighted the same ICP-collected prices to match the expenditure patterns of households near the global poverty line.

Another research was conducted by the Asian Development Bank (2008) to examine whether the prices collected under the ICP are appropriate for poverty uses, using data from the ICP 2005 for 16 Asian countries.

More recently, research was carried out by Yuri Dikahnov et al (2016) and examined, with the latest poverty line update by the World Bank and new 2011 PPPs, whether the Deaton and Dupriez (2011) conclusion on poverty PPPs being close to ICP PPPs still holds, especially given the changes in ICP methodology occurred since 2005. The research found that the conclusion does indeed hold. At the same time, the overall effect of removing premium items from consumption PPPs has been shown to be negligible. Yet, it is important to acknowledge that by using the same set of prices in each of the calculations, it is implicitly assumed that the poor face the same prices as the non-poor. Some critics have pointed out that poverty-specific PPPs should be constructed on the basis of prices paid by the poor. Unfortunately, to study it fully would probably require a separate price collection, parallel to the ICP.