Challenges of Global Poverty Measurement: Methodology and Standards

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There is a lot of misunderstanding surrounding global poverty statistics. This article addresses the differences between the dollar-a-day measure of global poverty and the World Bank’s version of the same. We’ll also cover the impact of the COVID pandemic and the different ways to measure mean incomes within countries. Here are some of the main challenges associated with global poverty measurement. Hopefully, this article will help shed some light on these issues.

World Bank’s dollar-a-day measure

The World Bank’s dollar-a-day measurement of global poverty is a controversial concept. The figure represents the amount of income a person needs to survive. Unlike other poverty indicators, it accounts for non-food items, housing, and education. The basic needs of people living in extreme poverty are different across countries. This is reflected in a chart comparing the poverty levels in 17 countries. Developing nations are shaded blue while the pink area represents middle-income countries, and high-income countries are green.

The World Bank’s dollar-a-day poverty measure has changed a few times over the last two decades. In 2016, it showed that four percent of the world’s population lived in extreme poverty. But by 2005, the ratio had fallen below the global poverty line. The poverty rate in China increased from 6.7 million to 16 million, which is still a large number compared to other countries.

While the dollar-a-day measure is used for tracking progress against the Millennium Development Goals, the controversy over poverty measurement is still alive in low and middle-income countries. In this article, I examine Vanuatu’s poverty levels using two alternative poverty measures. Using the ‘income versus deprivation’ ratio, the data show that 5% of children in Vanuatu lived below the global poverty line, suggesting a high level of deprivation among children.

The new basic needs poverty line takes three categories of spending into account. The new line incorporates Nobel laureate George Stigler’s work in linear programming to account for the differences in climate and housing costs. In the World Bank’s new report, the poverty line has higher poverty thresholds than its predecessor. In other words, the poverty line is now more reflective of national poverty thresholds in lower and middle-income countries.

The dollar-a-day measure of global poverty is not an accurate representation of the extent of global poverty. The measure only approximates living standards, and fails to capture the needs of those living in extreme poverty. Many people may be unable to imagine a life on such a low income. Furthermore, economists may not understand the conditions of people living in extreme poverty on a dollar-a-day basis.

Differences in calculation of mean incomes within countries

Gini coefficients are a simple measure of inequality, but can be confusing when comparing the wealth of populations. For example, Bangladesh’s per capita income is $1693, while the Netherlands’ was $42,183. Although their Gini coefficients are the same, these countries’ absolute wealth is vastly different. In a developed economy, most people have access to basic necessities, while in an undeveloped one, these items are inaccessible to most people.

When countries compare their incomes, the median is often higher than the mean, which makes it difficult to judge the level of inequality in their society. The two figures are very different, but both tell a similar story. In the United States, the median income was $26,988 in 2018, while the GDP per capita was $63,000. GDP per capita accounts for government spending, investments, and net exports. However, people in extreme poverty don’t have enough money to cover basic needs.

Impact of COVID pandemic

While the impact of COVID pandemic on global inequality has been widely reported, a new report shows that the impact of the disease on low and middle-income countries is disproportionately severe. In fact, the report shows that COVID-19 has caused the loss of jobs in 45% of low and middle-income countries and destroyed more than 10% of businesses in high-income countries. As a result, the pandemic has caused the worst economic shocks in many countries, particularly those in lower and middle-income countries that depend on tourism and commodities to generate their economies.

Most of the losses were concentrated in sub-Saharan Africa and South Asia. Similarly, the effect on urban areas was significantly greater than in rural areas. While most of the impact was on rural households, urban household losses were primarily concentrated among the bottom 40 percent. In addition, 29 out of 34 countries reported higher losses among the bottom forty percent than among the top 60 percent. The pandemic is particularly severe in urban areas, which may have increased inequality.

The impact of COVID-19 on global poverty is likely to depend on a variety of factors. Many of these factors remain uncertain, such as whether the disease will re-emerge during northern winter or spring, how effective new vaccines are, and who will adopt them. These uncertainties do not warrant taking these results as exact predictions. Rather, they offer an approach to evidence-based “what if” scenario analysis.

The impact of a COVID pandemic on global poverty depends on the number and type of people affected. The disease has a variety of causes, including health effects, socioeconomic factors, and political responses. Although it has a small impact on agricultural production, it has a major impact on global food security. However, the mortality rate from COVID-19 is highest in older people, indicating that it is less severe than the 1918 “Spanish Flu” pandemic.

However, the estimated impacts are largely proportional to the level of baseline multidimensional poverty. Thus, simulated impacts are generally larger than observed impacts on global MPI, indicating a more sensitive response to additional deprivations in poorer countries. The magnitude of simulated impacts decreases at the highest baseline poverty levels, including Ethiopia. As previously mentioned, the high baseline poverty levels are reflected in the high incidence of multidimensional poverty among households in these countries. Therefore, additional deprivations would only increase the intensity of poverty, and not decrease the total number of multidimensional poverty.

Challenges to measuring global poverty

The challenge of determining a reliable definition of global poverty is not insurmountable. The issue of poverty can be defined in absolute or relative terms. Several factors affect estimates of poverty, such as purchasing power parity and underlying assumptions. Using a dollar per day poverty line for the global poor is a useful benchmark to compare countries and the world’s poverty levels. This article examines the challenges of establishing a global poverty line.

Currently, the World Bank’s Policy Research Department compiles data from multi-period surveys of over 30 developing countries. However, these surveys are not entirely reliable. Developing countries do not have markets for public goods and rural credit markets often do not reflect the true value of goods. This makes it difficult to accurately estimate poverty levels in such situations. To overcome these issues, the UN has devised the multidimensional poverty index (MDP).

The World Bank’s actions illustrate the political economy of overoptimism in estimating global poverty. By emphasizing a low poverty line, the World Bank is able to maximize the perceived success of its programs since the end of the Cold War. On the other hand, a higher poverty line would mean less progress and perhaps even regress. Further, higher poverty lines would imply substantial redistribution and a different economic development model.

In addition to the data gaps, the lack of comparable data in rural areas impedes regional advances in estimating global poverty. For this reason, the World Bank began compiling international data in 2003. However, many challenges remain. Despite the advances in methodology, it is difficult to quantify the level of poverty in global terms. With the help of the World Bank, these issues can be overcome. There are still challenges in measuring global poverty, but the efforts are worth making.

Although global poverty has decreased, the methodology and standards of calculating these statistics are highly technical. Changing the poverty line also changes the geographical distribution of global poverty. Lower poverty lines push more people into sub-Saharan Africa, while higher ones force people into Asia. This shift in geography explains the widely held belief that global poverty is concentrated in sub-Saharan Africa. However, these results should be interpreted with caution.

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