Add another 400 Million People to the Global Poverty Numbers

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The World Bank has just upped its estimate for global poverty (go here). The Bank now estimates that 1.4 billion people in developing countries — one in four of the developing world’s population — were living on less than US$1.25 a day in 2005. The previous estimate was 985 million — the “bottom billion” (this was based on an international poverty line of $1 a day). The full paper by Shaohua Chen and Martin Ravallion is here.

What all this means is that poverty has been higher from 1981 to 2005 (the period covered by the Bank’s research). Poverty in 1981 is now estimated to have been 1.9 billion people (one in two of the developing world’s population at the time).

So why has the Bank changed its numbers? Mainly because the cost-of-living in the developing world is higher than previously estimated. The International Comparison Project (ICP) has been collecting price data for years, and has released new estimates. This led the Bank to recalculate its poverty numbers. Previously 1993 cost-of-living data was the latest available and was used to generate the 985 million number.

Comparing the prices of goods and services across countries is tricky. Using current exchange rates is unsatisfactory — because currencies move relative to each other for all kinds of reasons. Hence the ICP calculates ‘purchasing power parities’ (PPPs). So the release of new PPPs led to the revised poverty estimates. However, Sanjay Reddy reckons the Bank’s poverty estimates are still too low (go here for his critique). As Duncan Green says: “Pity the Poor Number Crunchers”.

All this is before the recent run-up in food prices which is driving many into chronic poverty. The Bank is taking urgent action in Bangladesh. But expect many more people to join the world’s poor by the end of the year.

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4 Responses to “Add another 400 Million People to the Global Poverty Numbers”

  1. Owen Barder Says:

    With respect, the change in the numbers of people in poverty is not “mainly because the cost-of-living in the developing world is higher than previously estimated.”

    In fact, the poverty line has been reduced in real terms, not increased. The poverty line has been reduced from $1.45 in 2005 prices to $1.25. If it were not for this, the increase in the numbers living in poverty would have gone from 985 million to 1.7 billion. But because the authors have revised down the poverty threshold, the estimated number of people in poverty is “only” 1.4 billion.

    It seems the reason that the numbers have increased is not the increase in the cost of living in developing countries, but because the old numbers were wrong.

    Owen

  2. Tony Addison Says:

    Many thanks Owen, we’ll check this one out, and put up another post.

    In the meantime check out the new chronic poverty report at: http://www.chronicpoverty.org

  3. Recent Links Tagged With "add" - JabberTags Says:

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  4. Vincent Wilmot Says:

    Maybe anti-poverty program resources will remain inadequate as long as the false view that ‘poverty is inevitable’ retains widespread support even among those running anti-poverty programs ? The issue seems to really need better ant-poverty arguments than those used to date.

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