How is the global poverty line derived? How is it different from national poverty lines?

In order to derive an international poverty line, the analysis begins with national poverty lines, which usually reflect the line 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.


In order to identify how many people in the world live in extreme poverty, however, we cannot simply add up the national poverty rates of each country, because this would mean using a different yardstick to identify who is poor in each and every country. We therefore 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 proposed to measure the world’s poor using the standards of the poorest countries in the World.  They examined national poverty lines from some of the poorest countries in the world, and converted the lines to 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 the value of the national poverty line was about $1 per day per person, and this formed the basis for the first dollar-a-day international poverty line.

 

After a new round and larger volume of internationally comparable prices were collected in 2005, the international poverty line was revised based on 15 national poverty lines from some of the poorest countries in the World. The average of these 15 lines was $1.25 per person per day (again in PPP terms), and this became the revised international poverty line (*). 

 

In 2015, we used the poverty lines of those same 15 poorest countries from 2005 (holding steady the yardstick against which we measure) to determine the new global poverty line of $1.90 in 2011 PPP.

 

(*) Note: In the paper “Dollar a Day Revisited” (Ravallion et al. 2008), many national poverty lines were converted from local currency units into international dollars (2005 PPP, $ per month). To find out exactly how this is done, click here to read the paperTo see the range of values from that paper expressed in $ a day terms, click here to download the table.

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