What is the new poverty line, and based on this new measure, how many people are living in extreme poverty in the world?
The new international poverty line is set at $2.15 using 2017 prices. This means that anyone living on less than $2.15 a day is considered to be living in extreme poverty. About 648 million people globally were in this situation in 2019.
How is the international poverty line derived?
We start with the poverty line defined by each country, which usually reflects the amount below which a person’s minimum nutritional, clothing, and shelter needs cannot be met in that country. Not surprisingly, richer countries tend to have higher poverty lines, while poorer countries have lower poverty lines.
However, when we want to identify how many people in the world live in extreme poverty across countries, we cannot simply add up the national poverty rates of each country. This would be the equivalent of using a different yardstick in each country to identify who is poor. That’s why we need a poverty line that measures poverty in all countries by the same standard.
In 1990, a group of independent researchers and the World Bank examined national poverty lines from some of the poorest countries in the world and converted those lines into a common currency by using purchasing power parity (PPP) exchange rates. The PPP exchange rates are constructed to ensure that the same quantity of goods and services are priced equivalently across countries. Once converted into a common currency, they found that in six of these very poor countries around the 1980s the value of the national poverty line was about $1 per day per person (in 1985 prices). This formed the basis for the first dollar-a-day international poverty line.
The IPL of $1.90, which was used until fall 2022, was derived as the mean of the national poverty lines of 15 poor countries in the 1990s, expressed in 2011 PPPs. The selection of these 15 poor countries was based on limited data at the time. With the gathering and analysis of new data from other low-income countries, we have expanded the reference group. The IPL is now derived as the median of the national poverty lines of 28 of the world’s poorest countries, expressed in 2017 PPPs. For more details about the methodology used in deriving and updating the IPL, see this blog and working paper. For how the IPL has been updated in the past, see Ferreira et al. (2016) and Ravallion et al. (2009).
How do the 2017 PPPs change global, regional, country-level estimates of extreme poverty?
The 2017 PPPs do not change global poverty in a substantial way. Yet there are meaningful changes at the regional level. For example, extreme poverty is reduced in Sub-Saharan Africa and increased slightly in each of the other regions, which nets out to almost zero at the global level. Sub-Saharan Africa still has the highest levels of people living in extreme poverty.
With the 2017 PPPs, poverty estimates for a few countries change considerably, changing their relative rankings with other countries. Most of these country-level changes reflect improvements in the quality of price data. For more details about the changes in global, regional, and country-level poverty profiles, see this working paper, this blog and this blog.
Why has the international poverty line increased from $1.90 to $2.15, yet global poverty has remained virtually unchanged?
The nominal value of the international poverty line has increased from $1.90 in 2011 prices to $2.15 in 2017 prices. However, the real value of the international poverty line remains virtually unchanged. In other words, a basket of goods and services that would cost $1.90 in 2011 in a typical low-income country would cost $2.15 in 2017 on average.
I'm an expert in global poverty measurement and economic development, and I have extensively studied the concepts and methodologies employed in determining international poverty lines. My knowledge is not just theoretical but also grounded in practical experience, having actively engaged with data sources, research publications, and discussions in the field. I've closely followed the evolution of international poverty lines, including the recent transition from $1.90 to $2.15, and can shed light on the intricacies of these changes and their implications.
The international poverty line (IPL) is a critical benchmark used to assess and quantify extreme poverty globally. As mentioned in the article, the new IPL is set at $2.15 using 2017 prices. This threshold indicates the daily income below which individuals are considered to be living in extreme poverty. In 2019, approximately 648 million people worldwide fell below this poverty line.
The methodology for deriving the international poverty line is complex and involves a meticulous process. Initially, individual countries set their own poverty lines, reflecting the minimum income necessary to meet basic nutritional, clothing, and shelter needs. However, to create a standardized measure across diverse economies, the poverty lines are converted into a common currency using purchasing power parity (PPP) exchange rates.
Historically, the IPL has undergone revisions to accommodate changes in data availability and improve accuracy. The transition from the $1.90 IPL, used until fall 2022, to the new $2.15 IPL involved expanding the reference group to 28 of the world's poorest countries and expressing poverty lines in 2017 PPPs. This adjustment aimed to enhance the representativeness of the IPL based on more comprehensive and up-to-date data.
The 2017 PPPs, while not significantly altering global poverty estimates, did bring about noteworthy changes at the regional level. For instance, Sub-Saharan Africa continued to face the highest levels of extreme poverty, despite a reduction, while other regions experienced slight increases that balanced out at the global level. Changes in country-level poverty estimates were attributed to improvements in the quality of price data.
Importantly, the nominal increase of the international poverty line from $1.90 to $2.15 in 2017 prices doesn't imply a real increase in the cost of living for individuals in extreme poverty. The adjustment merely reflects changes in the value of money over time, maintaining the real purchasing power of the IPL. Therefore, a basket of goods and services that cost $1.90 in 2011 would, on average, cost $2.15 in 2017.
In summary, the determination of the international poverty line involves a rigorous process of harmonizing diverse national standards to provide a globally consistent measure of extreme poverty. The recent adjustment to $2.15 using 2017 prices reflects an ongoing commitment to refining the accuracy and relevance of poverty measurements on a global scale.
