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.
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 paper. To see the range of values from that paper expressed in $ a day terms, click here to download the table.