In order to derive an international poverty line, the analysis begins with national poverty lines, which usually reflect the amount below which a person’s minimum nutritional, clothing, and shelter needs cannot be met in that country. Richer countries tend to have higher poverty lines than poorer countries.
When we want to identify how many people in the world live in extreme poverty, 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 $1.00 per day per person (in 1985 prices). This formed the basis for the first dollar-a-day international poverty line.
The international poverty line (IPL) of $1.90, which is going to be 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 data available 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).