How to Monitor Poverty for the Millennium Development Goals

Abstract

I consider two issues concerning how to monitor global poverty for the Millennium Development Goals, the selection of poverty lines, and the data sources for monitoring poverty over time. I discuss the choice of a single international line, converted using purchasing power parity exchange rates, versus the use of country-specific poverty lines. I note the difficulties in constructing purchasing power parity exchange rates but argue in favor of a single international line, converted at PPP rates, but which would be regularly updated using domestic price indexes. Re-basing, using updated PPP rates, would be done infrequently. For example, if the global poverty numbers were estimated annually, the PPP rates might be updated once a decade. In any case, it is important that the poverty estimates be calculated much more frequently than the PPP rates are revised. I discuss whether monitoring should be done using national accounts data on income or consumption, supplemented by distributional data so as to make inferences about poverty, or from household survey data. I argue that data from the national accounts are not suitable for measuring poverty and that their use requires assumptions that are unlikely to hold. In particular, monitoring poverty through the national accounts runs the risk of prejudging important issues that are properly the subject of measurement, not assumption, such as the extent to which aggregate growth benefits the poor. I argue that poverty should be directly measured using household survey data, and discuss what needs to be done to enable such monitoring to be placed on a sounder basis.