Ali, an FYMSc student at GIPE reached out with a couple of questions about poverty line estimates – their nature, are they adjusted for inflation, etc. That was in response to my post about the tricky nature of poverty lines. Ali’s comment is towards the bottom of that post.
Here’s my list of things to read in order to understand the concept of poverty lines better:
First, the World Bank itself:
Q: What is the new poverty line, and based on this new measure, how many people are living in extreme poverty in the world?https://www.worldbank.org/en/topic/poverty/brief/global-poverty-line-faq
A: The new global poverty line is set at $1.90 using 2011 prices. Just over 900 million people globally lived under this line in 2012 (based on the latest available data), and we project that in 2015, just over 700 million are living in extreme poverty.
Q: Why raise the poverty line? What was wrong with the $1.25 a day line that we are all used to?
A: As differences in the cost of living across the world evolve, the global poverty line has to be periodically updated to reflect these changes. The new global poverty line uses updated price data to paint a more accurate picture of the costs of basic food, clothing, and shelter needs around the world. In other words, the real value of $1.90 in today’s prices is the same as $1.25 was in 2005.
That answer’s at least one of Ali’s questions – the poverty line is indeed updated to account for inflation. But keep in mind that indices are tricky little devils at the best of times. When it comes to measuring inflation, particularly for a basket of goods that the poor are likely to consume across different countries over long time horizons, it is all but impossible.1 But still, to the extent possible, poverty lines are adjusted for inflation.
But Lant Pritchett has his reservations:
There is no line at dollar a day in income dynamics. One might think a poverty line exists that demarcates a “poverty trap” and that people “in poverty” have a hard time escaping poverty—except that it doesn’t. All of the available evidence that tracks households over time finds enormous fluidity across the dollar a day threshold–and no evidence that it is harder to increase incomes from just below than just above—there is no line.https://www.cgdev.org/blog/extreme-poverty-too-extreme
… and if you read the entire essay, it is hard to disagree with his point. He has an entire page on his website dedicated to talking about poverty lines, and the articles/videos deserve a closer look by any student of development economics.
I cheated a little bit while writing what I wrote above, because I wanted to give a chronological view of developments in the last decade or so. What’s written above is from 2013-14, and then this happened in 2017:
Starting this month, the World Bank will report poverty rates for all countries using two new international poverty lines: a lower middle-income International Poverty Line, set at $3.20/day; and an upper middle-income International Poverty Line, set at $5.50/day. This will be in addition to the $1.90 International Poverty Line – which remains our headline poverty threshold, and continues to define the Bank’s goal of ending global extreme poverty by 2030.https://blogs.worldbank.org/developmenttalk/richer-array-international-poverty-lines
Let us be completely clear: The World Bank’s headline threshold to define extreme global poverty is unchanged, at $1.90/day. The Bank’s goal of ending poverty by 2030, and the United Nations Sustainable Development Goal 1.1, are both set with respect to this line. However – as Amartya Sen noted early on, and the Atkinson Commission reminded us – poverty is not a uniquely defined concept. There is an inevitable element of arbitrariness in choosing any poverty line, no matter how carefully it is constructed.
Now, about India specific work on poverty lines.
Here is a short summary by PRS India on the work on poverty lines in India.
Here is a useful survey paper on measuring poverty in India:
Poverty can be measured relatively, but a measure of absolute poverty is more useful for making cross-cultural comparisons. Unfortunately, the measurement of absolute poverty is difficult, because of inter-individual and intra-individual variations in minimum needs over time. As a result, simplistic assessment methods and confusion have marked many of the estimates of absolute poverty in less-developed countries. Using Indian material as an example, this paper attempts to trace the progress of the methodology; to explain how widely varying poverty estimates have come about; and to draw some tentative conclusions about the extent and pattern of absolute poverty in India todayCutler, P. (1984). The measurement of poverty: A review of attempts to quantify the poor, with special reference to India. World Development, 12(11-12), 1119-1130.
Any GIPE student should know about Dandekar-Rath (part-II here), of course, but this paper goes a bit beyond, and is therefore a better introduction (in my opinion). Speaking of Dandekar, the original paper is worth reading, of course, but this is also an enjoyable read.
Finally, here is an excellent speech by Abhijit Banerjee on different (potential) ways to measure the poverty line.
- and with PPP considerations to boot!
- If I had to excerpt something, the bicycle passage would have been my choice, but without context it is quite confusing.
- The explanation about the cover to the book alone is worth a click-through