The World Bank has revised its international poverty line from $2.15 per person per day in 2017 purchasing power adjusted US dollars to $3.00 in 2021 purchasing power adjusted US dollars. The revision in part reflects inflation between 2017 and 2021, which increases the line from $2.15 to about $2.50. The step from $2.50 to $3.00 reflects an increase in the real value of the line, which means that, all else equal, more people fall short of the line and the count of people living in extreme poverty goes up.
This update may give the impression that the goalpost for ending extreme poverty has shifted, but from a global perspective, this interpretation is unwarranted. Let us explain why. Essentially, the increase from $2.50 to $3.00 reflects a recent, much-needed improvement in how consumption is measured in the poorer countries of the world. This improvement has resulted in higher measured consumption, even if living standards haven’t changed. From a global perspective, the increase in the international poverty line approximately offsets the increase in measured consumption.
Central to the World Bank’s mission is eradicating global extreme poverty, and as such, the organization set a target of decreasing the share of people living below the international poverty line to no more than 3% of the global population by 2030. This target remains unchanged following the revision of the international poverty line.
Methodologically-speaking, there are two ways this target could become harder or easier to achieve.
- 1) The value of the international poverty line could change, while all else is held equal. This would be the case, for example, if the $2.15 line were to be revised to $2.25, while still being expressed in 2017 US dollars. Using a sports analogy, this would be akin to moving the goalpost further away thus making it harder to score.
- 2) The consumption aggregates that are used to estimate poverty could change for measurement reasons unrelated to changes in living standards. This happens, for example, when countries include more components in their consumption aggregates, and as a result, measured consumption mechanically increases. This makes it easier for these countries to end poverty at a given poverty line: akin to moving the team’s top player (representing better surveys) closer to the goal, and increasing the chances of scoring.
The revision of the international poverty line from $2.15 in 2017 prices to $3.00 in 2021 prices brings both of these scenarios into play.
Let’s look first at the increase in the value of the line. A correction based on inflation between 2017 and 2021 increases the international poverty line to approximately $2.50. This does not change the real value of the line, yet the increase from $2.50 to $3.00 does. In this case, the goalpost is now further away and ending poverty becomes more challenging, all else being equal.
However, all else is not equal. In recent years, many countries have improved how they measure consumption, leading to mechanical increases in their measured consumption and mechanical declines in their measured poverty. This is evident, for example in India, where changes in recall periods mechanically increased the level of consumption captured and thereby lowered poverty (at a fixed line) by double digits.
This effect is embedded in the updated value of the international poverty line, which is the median national poverty line of the poorest countries in the world. When countries increase their measured consumption through improved household surveys, they also tend to increase their national poverty line. This leaves national poverty rates roughly unchanged, and makes sure that national poverty goalposts do not shift.
Hence, when countries improve how they measure consumption, the international poverty line tries to keep up, which works to offset the two effects, roughly speaking. Or, using the sport analogy, as several countries move closer to the goalpost, it moves further away, rendering the challenge of scoring unchanged.
Imagine for a moment that the improvements in consumption measurement were implemented without changing the poverty line from $2.15. Country after country would mechanically see their poverty rate fall, at times drastically, because of improved measurement. This would be reflected in regional and global poverty rates, which would decline even if countries made no real progress reducing poverty. Poverty eradication could suddenly become within reach, not because of real improvements in poverty reduction, but because countries mechanically are increasing their measured consumption.
Whether the increase of the line completely offsets the change in consumption aggregates, such that the two shifts balance out, cannot be answered with complete precision. If we were to ignore all the recent improved surveys and keep the $2.15 line, it is possible that we would get a global poverty rate close to what we have with the new surveys and the new line. Accurately estimating this would require having the data for countries that have adopted new survey methodologies, showing what their poverty rates would be today using the old survey methodologies, which is lacking.
The approximate global offsetting of the two effects does not apply to all countries. By having an international poverty line, there is now one field with one goal for all countries. However, only some countries have increased the standards by which they measure consumption. Countries that have not changed how they measure consumption now face a goalpost that is further away: poverty under the international poverty line will have been revised upwards.
With only one goalpost and countries adopting better measurement standards at varying times, the international poverty line is more ambitious for some countries than others. Ignoring the new, better consumption data and not changing the international poverty line would not solve the issue. Rather, it would imply that countries with improved consumption data have an easier time meeting the target, and as a result, that the global goalpost would shift. The new international poverty line embraces the fact that several low-income countries are now closer to the frontier of consumption measurement, while mitigating any shift of the goalpost to eradicate global extreme poverty.
The new poverty data can be accessed in WDI. The authors gratefully acknowledge financial support from the UK Government through the Data and Evidence for Tackling Extreme Poverty (DEEP) Research Program.