Global Poverty is falling, right? Errrm, we’re not entirely sure

December 18, 2008

     By Duncan Green     

Pity the poor number crunchers. Politicians, academics and NGOs argue to and fro about what does or doesn’t reduce poverty, but they all think they can more or less agree on the numbers – about 1 billion out of the world’s 6.7 billion people live on less than $1 a day.

At least that was true until the World Bank’s International Comparison Program weighed in last December. The ICP compares actual levels of wealth between countries, known as ‘Purchasing Power Parities (PPP)’, by allowing for the difference in prices – $10 gets you a lot more food and haircuts in, say Dhaka, than it does in Rekyavik. Last December it published a major new revision of global PPP levels, and it turns out that China and India both have economies 40% smaller than previously thought. Oops.

So poverty in China is 40% higher than we thought, right? Wrong. Problems arise when trying to translate these findings into the numbers of people below the poverty line. Clearly, if the economy is smaller than we thought, there will be more people below the poverty line, but poor people consume different things in different quantities to the average (e.g. food takes up a larger part of their budget), so you can’t simply copy across from the 40% figure, especially when (in China at least), the price surveys were only carried out in 11 urban areas.

So for months, the Bank’s number crunchers have been labouring not only to come up with new poverty figures, but to backdate them to 1981. They have a pretty important deadline, too – the UN’s Ban Ki Moon is hosting a high level meeting in New York on the Millennium Development Goals  on 25 September, and will certainly be asked if the first and best known MDG – halving world poverty by 2015 – is on track or not. Replying ‘we’re not exactly sure’ isn’t going to impress too many journalists.

So far the Bank’s data wizards have dealt with China. In a new paper, Shaohua Chen and Martin Ravallion propose a new international poverty line of $1.25 a day, and find that the number of poor people in China (on their preferred measure of consumption poverty) is 204 million, not 72 million as previously thought. The good news is that the starting point in 1981 was 839 million poor people, not 638 million, so improvements have been even more rapid, and MDG 1 looks safe for now, at least in China.

Still trebling the number of people below the poverty line is quite a trick. All eyes now turn to India, home to the largest number of poor people in the world. Pre revision, it stood at 368 million. Robert Wade at the LSE thinks that could now double.

Oh, and one other twist. There are suspicions that the Chinese authorities deliberately designed the price surveys to find higher prices, and so reduce the apparent size of the Chinese economy. Perhaps they hoped that a suddenly shrunken dragon would arouse fewer protectionist sentiments during a US election year. If true, these PPP figures will themselves have to be recalculated along with the poverty numbers. As I said, pity the poor number crunchers!


December 18, 2008
Duncan Green