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While the global extreme poverty rate may not be dramatically different after the adoption of the new PPP and poverty line, some regional and country rates may fluctuate considerably.
It is important to note, however, that the global poverty line is used primarily to track global extreme poverty and to measure progress on global goals set by the World Bank, the United Nations, and other development partners. A country’s national poverty line is far more appropriate for underpinning policy dialogue or targeting programs to reach the poorest.
We start with the poverty line defined by each country, which usually reflects the amount below which a person’s minimum nutritional, clothing, and shelter needs cannot be met in that country. Not surprisingly, richer countries tend to have higher poverty lines, while poorer countries have lower poverty lines.
However, when we want to identify how many people in the world live in extreme poverty across countries, we cannot simply add up the national poverty rates of each country. This would be the equivalent of using a different yardstick in each country to identify who is poor. That’s why we need a poverty line that measures poverty in all countries by the same standard.
In 1990, a group of independent researchers and the World Bank examined national poverty lines from some of the poorest countries in the world and converted those lines into a common currency by using purchasing power parity (PPP) exchange rates. The PPP exchange rates are constructed to ensure that the same quantity of goods and services are priced equivalently across countries. Once converted into a common currency, they found that in six of these very poor countries around the 1980s the value of the national poverty line was about $1 per day per person (in 1985 prices). This formed the basis for the first dollar-a-day international poverty line.
The IPL of $1.90, which was used until fall 2022, was derived as the mean of the national poverty lines of 15 poor countries in the 1990s, expressed in 2011 PPPs. The selection of these 15 poor countries was based on limited data at the time. With the gathering and analysis of new data from other low-income countries, we have expanded the reference group. The IPL is now derived as the median of the national poverty lines of 28 of the world’s poorest countries, expressed in 2017 PPPs. For more details about the methodology used in deriving and updating the IPL, see this blog and working paper. For how the IPL has been updated in the past, see Ferreira et al. (2016) and Ravallion et al. (2009).
The 2017 PPPs do not change global poverty in a substantial way. Yet there are meaningful changes at the regional level. For example, extreme poverty is reduced in Sub-Saharan Africa and increased slightly in each of the other regions, which nets out to almost zero at the global level. Sub-Saharan Africa still has the highest levels of people living in extreme poverty.
With the 2017 PPPs, poverty estimates for a few countries change considerably, changing their relative rankings with other countries. Most of these country-level changes reflect improvements in the quality of price data. For more details about the changes in global, regional, and country-level poverty profiles, see this working paper, this blog and this blog.
The World Bank has different poverty lines to measure monetary poverty. First, the international poverty line (IPL) is used to measure extreme poverty. This line is most relevant for measuring poverty in low-income countries. For richer countries, two higher lines are more relevant for measuring poverty. With 2017 PPPs, these lines are $3.65 for lower-middle-income countries and $6.85 for upper-middle-income countries. For more technical details, see Jolliffe and Prdyz (2016) and Jolliffe ⓡ al. (2022) for the derivation of the international poverty line and higher lines with the 2011 and 2017 PPPs, respectively.
The World Bank also uses a societal poverty line (SPL) that reflects a more relative concept of poverty. With 2011 PPPs, the SPL is defined as $1.00 plus half the median level of consumption in a country, or the international poverty line if $1.00 plus half the median level of consumption is lower than the international poverty line. This line increases as a country grows (and the median increases). The societal poverty line with the 2017 PPPs is $1.15 plus half the median level of consumption in a country, or the international poverty line if $1.15 plus half the median level of consumption is lower than the international poverty line.
As a result of the PPP update, the global extreme poverty rate for 2019 (the last year for which we have global poverty data) will decrease marginally, from 8.7% to 8.4%, reducing the count of people who live in extreme poverty by 20 million and bringing the total to 648 million. At the $3.65 line (used for lower-middle-income countries), the number of people living in poverty will increase by 35 million in 2019. At $6.85 (used for upper-middle-income countries), the number of poor will increase by 319 million in 2019. The larger increase at $6.85 occurs because the upper-middle-income country poverty line increased in real terms. In other words, since we last updated the global lines, upper-middle-income countries raised the standards by which they determine people to be poor, and hence the global population that fails to meet the standard is higher.
You may wonder how the international poverty line can increase by a quarter of a dollar and yet the global number of poor can decrease marginally. The reason is that in some poor countries, individuals’ purchasing power has risen marginally. It is important to note though that the real value of the international poverty line is virtually unchanged – it is simply expressed in different prices now.
In 2015, the World Bank convened a group of eminent economists led by Prof. Sir Anthony Atkinson to advise the Bank on the best methodology to measure and monitor global poverty until 2030, the target date of the World Bank’s first corporate goal to end extreme poverty.
The Report of the Atkinson Commission on Global Poverty makes a number of recommendations concerning how to improve the data and methodology used in measuring global poverty. Recommendation 10 of the Report states that the Bank should not revise its global poverty estimates with future PPP rounds until 2030. Atkinson was motivated by methodological changes in previous PPP updates causing large swings in global poverty estimates.
In its response at the time, the World Bank stated it planned to follow this recommendation, but left open the possibility that future PPP rounds would be used before 2030, if International Comparison Program (ICP) methods stabilized, so that changes in PPPs reflected real changes in prices.
Researchers within and outside the Bank have broadly found stability in the ICP methods between the 2011 and 2017 rounds. Therefore, the Bank has decided to adopt the 2017 PPPs to monitor global poverty in fall 2022. The decision to use the more recent 2017 PPP data is also consistent with a practice of using newer and higher-quality data when available.