Global Absolute Poverty, Present and Past since 1820

Abstract

The delineation of the global poverty measurement debate, the scrutinization of the dollar-a-day methodology, and the empirical implementation of the cost of basic needs approach over the long and the short run are the core substances of this thesis. Without a doubt, this thesis is not about addressing all problems related to global poverty measurement. Rather, this thesis aims at answering three main research questions: (a) identify the level and the evolution of global poverty (across all countries) over the long run since 1820 using the cost of basic needs approach; (b) estimate the uncertainty of the standard method and compare it with the uncertainty of the proposed cost of basic needs alternative; and (c) identify possible differences between the standard method and cost of basic needs implementations for the recent, more data abundant, period among developing countries. First, this research strongly indicates that the Purchasing Power Parity used by the standard approach in global poverty measurement does not hold at the level of consumption habits relevant to those living in conditions of extreme absolute poverty. This has long been suspected by the critics of that method, and this thesis provides the evidence that support this intuition. Second, the cost of basic needs approach is a feasible method for a global scale appreciation of poverty. It has the advantage of addressing some of the key points raised against the dollar-a-day standard. Third, the long run results of this thesis offer no easy material from an analytical perspective. Mostly due to the nature of its methodological contributions the general framework selected in this thesis is a descriptive one. Perhaps the most striking result of this exercise comes from the total number of people living in conditions of extreme absolute poverty globally. According to my findings the total number is 757 million people in 1820 and 764 million people in 2018 despite all the progress in lowering the global poverty rate in the years in between. In terms of long run poverty rates, in 1820 the global poverty rate stood at 76\%, by the turn of the 19th century this rate drops at 60\%, and by the turn of the millennium it drops at 25.5\%. By 2018 the CBN global poverty rate stands at 10\%. Finaly, this research has identified the substantial uncertainty in the global poverty estimates largely as the result of most likely unrealistic price data in the pre-1995 China. In short run estimates, my research suggests that accounting for various sources of uncertainty MDG1 obtains at a 77% using the dollar-a-day approach, and MDG1's poverty reduction target does not obtain with the cost of basic needs method.