Long run trails of poverty, 1925\u20132010

Abstract

What use has a poverty line when we do not know what it actually allows for? I exploit this weaknesses of the dollar-a-day methodology to motivate a relatively more consistent alternative in global poverty measurement. Poverty lines targeting well-defined welfare levels are constructed as consumption baskets, following recommendation 15 of the World Bank Commission on Global Poverty which promotes the use of a cost of basic needs approach in global poverty measurement. Those baskets are priced locally and separately for each year, and account for basic nutrition, heating, housing, health, education and other expenses. This transparent method is here applied on long run poverty measurement for a group of eight countries. A second contribution is the error accounting approach using Monte Carlo technique for micro-simulations. This is in line with recommendation 5 for “total error” accounting, published in the recent Commission on Global Poverty report. Thus, statistical analysis of global poverty becomes possible. The evolution of the poverty profile in five key western countries along with three countries from Africa, seen from a broader global perspective, allows for a comparative analysis. Among this small group of countries, the Netherlands appear to be the champions in fighting extreme absolute poverty, with all poverty lines producing zero absolute poverty rates since 1987. An important caveat in interpreting these results is the use of sub-optimal distributional data for these estimates, in order to keep the quality of the underlying data comparable throughout the estimation period.