WORLD

Updating poverty’s price tag

PETER SHAWN TAYLOR June 23 2008
WORLD

Updating poverty’s price tag

PETER SHAWN TAYLOR June 23 2008

Updating poverty’s price tag

PETER SHAWN TAYLOR

There are few more prickly policy topics than poverty measurement. Even in a rich country such as Canada, estimates of what constitutes being poor for a single person range from the Fraser Institute’s bare-bones $10,520 per year to Statistics Canada’s oft-cited, though unofficial, low-income cut-off of $17,570. Of course the issue is even more contentious in countries facing poverty of the life-threatening kind.

The standard measurement for world poverty has traditionally been the “dollara-day” shorthand first created by the World Bank in 1990. Specifically, if a person in a developing country consumes less that US$1.08 a day, they are considered to be in extreme poverty and at serious risk of malnourishment. Using this minimum standard, optimists have pointed out that nearly 300 million people escaped absolute poverty between 1990 and 2004—an impressive achievement.

Recently, however, there is talk of updating the poverty indicator. Martin Ravallion, the World Bank economist who first picked US$1.08, has considered several options for the old standby. Simply changing the figure to reflect the U.S. inflation rate would push it to an unlikely US$1.45And the World Bank’s own field research suggests that prices do not move much in many poor countries. In Malawi, Bangladesh, India and even China, US$1.08 still appears to be a reliable indicator of daily basic needs (this before recent global food price increases). But to better match rising standards in a representative group of 15 developing countries, Ravallion settled on US$1.25 as his new best estimate for a world poverty line.

The move may prove controversial. If adopted widely, this higher figure will cancel out much of the apparent recent success in fighting world poverty. Applying US$1.25 to China, for example, will increase the number of people living in poverty by 130 million. Whether this is a good thing or not will probably depend more on if your belly is full than if you agree with the math. Nl