Abstract
The 2014 release of a new set of purchasing power parity conversion factors (PPPs) for 2011 has prompted a revision of the international poverty line. In order to preserve the integrity of the goalposts for international targets such as the Sustainable Development Goals and the World Bank’s twin goals, the new poverty line was chosen so as to preserve the definition and real purchasing power of the earlier $1.25 line (in 2005 PPPs) in poor countries. Using the new 2011 PPPs, the new line equals $1.90 per person per day. The higher value of the line in US dollars reflects the fact that the new PPPs yield a relatively lower purchasing power of that currency vis-a-vis those of most poor countries. Because the line was designed to preserve real purchasing power in poor countries, the revisions lead to relatively small changes in global poverty incidence: from 14.5 percent in the old method to 14.1 percent in the new method for 2011. In 2012, the new reference year for the global count, we find 12.7 percent of the world’s population, or 897 million people, are living in extreme poverty. There are changes in the regional composition of poverty, but they are also relatively small. This paper documents the detailed methodological decisions taken in the process of updating both the poverty line and the consumption and income distributions at the country level, including issues of inter-temporal and spatial price adjustments. It also describes various caveats, limitations, perils and pitfalls of the approach taken.
Highlights
The estimated number of people in the world that live in extreme poverty has become an increasingly important indicator for measuring development progress
The first Millennium Development Goal (MDG) aimed to halve the share of people living in extreme poverty between 1990 and 2015
This paper provides a new set of global poverty estimates from 1990 to 2012, using the 2011 purchasing power parity (PPP) and an international poverty line that was revised in accordance with these three principles
Summary
The estimated number of people in the world that live in extreme poverty has become an increasingly important (inverse) indicator for measuring development progress. Incorporating the new information on relative price levels that is contained in these conversion factors has implications for the measurement of global poverty and, for the definition of the international poverty line. This value is obtained by taking the average value in USD of the same fifteen national poverty lines that RCS (2009) used to estimate the $1.25 poverty in 2005 PPPs, after those lines have been inflated to 2011 prices in local currency units, and converted to dollars using 2011 PPP conversion factors.4 By construction, this $1.90 line maintains, on average, the purchasing power of the national poverty lines from these 15 very poor countries. The fourth section describes how the $1.25 line was updated to $1.90 based on the 2011 PPPs, and the final section presents the 2012 count and reports on the revised global poverty numbers from 1990 to 2012
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