posts_gdocs: 1kbgYBlCFFhD09uOg8kFG5U-SqbQTV6QH0MADiyqORlY
Data license: CC-BY
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| id | slug | type | content | published | createdAt | publishedAt | updatedAt | publicationContext | revisionId | breadcrumbs | markdown | title |
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"slug": "undefined-what-is-the-international-poverty-line-and-how-is-it-set",
"text": "What is the International Poverty Line and how is it set?",
"title": "What is the International Poverty Line and how is it set?",
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"text": "What are international-$ and why are they used to measure incomes?",
"title": "What are international-$ and why are they used to measure incomes?",
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"slug": "undefined-how-comparable-is-the-world-bank-data-on-household-incomes-across-time-or-between-countries",
"text": "How comparable is the World Bank data on household incomes across time or between countries?",
"title": "How comparable is the World Bank data on household incomes across time or between countries?",
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"text": "How does the World Bank produce global and regional estimates of poverty and inequality from national data?",
"title": "How does the World Bank produce global and regional estimates of poverty and inequality from national data?",
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"text": "Extreme poverty here is defined as living below the International Poverty Line of $2.15 per day.",
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"text": "The data is measured in international-$ at 2017 prices \u2013 this adjusts for inflation and for differences in the cost of living between countries.",
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"text": "Depending on the country and year, the data relates to either disposable income or consumption per capita, depending on the country and year.",
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"text": "What is the International Poverty Line and how is it set?",
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"text": "There is no single definition of poverty. Our understanding of the extent of poverty and how it is changing depends on which definition we have in mind.",
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"text": "In particular, richer and poorer countries set very different poverty lines in order to measure poverty in a way that is informative and relevant to the level of incomes of their citizens.",
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"text": "For instance, while in the United States a person is counted as being in poverty if they live on less than roughly $24.55 per day, in Ethiopia the poverty line is set more than 10 times lower \u2013 at $2.04 per day. You can read more about how these comparable national poverty lines are calculated in this footnote.",
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"text": "To measure poverty globally, however, we need to apply a poverty line that is consistent across countries.",
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"text": "This is the goal of the International Poverty Line of $2.15 per day \u2013 shown in red in the chart \u2013 which is set by the World Bank and used by the UN to monitor extreme poverty around the world.",
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"text": "We see that, in global terms, this is an extremely low threshold indeed \u2013 set to reflect the poverty lines adopted nationally in the world\u2019s poorest countries. It marks an incredibly low standard of living \u2013 a level of income much lower than just the cost of a ",
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"text": "How does the World Bank set the International Poverty Line?",
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"text": "The exact method used by the World Bank to set the International Poverty Line has changed somewhat over past updates. But each time the objective has been broadly the same \u2013 to find a \u201ctypical standard by which the poorest countries of the world judge their citizens to be impoverished.\u201d",
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"text": "The method used in the latest update to arrive at a figure of $2.15, measured in 2017 international-$, is based on a set of harmonized national poverty lines produced by ",
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"url": "https://documents1.worldbank.org/curated/en/353811645450974574/pdf/Assessing-the-Impact-of-the-2017-PPPs-on-the-International-Poverty-Line-and-Global-Poverty.pdf",
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"text": "Dean Joliffe and others",
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"text": " \u2013 shown in the chart here.",
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"text": "As you can see, there is a strong correlation between the poverty lines countries set, shown on the Y axis, and their income level \u2013 as measured here by GDP per capita, and plotted along the X axis.",
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"text": "The International Poverty Line is calculated as the median national poverty line adopted among low-income countries \u2013 using the World Bank\u2019s income classification system. These are the countries shaded in red in the chart and found in the bottom left corner.",
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"text": "Although the International Poverty Line is by far the most prominent international line, the same method is also used by the World Bank to set two higher poverty lines that reflect the national definitions adopted in lower-middle and upper-middle income groups shown in green and purple respectively. The median poverty line among these two groups of countries are $3.65 and $6.85, and these form the World Bank\u2019s lower-middle income and upper middle-income poverty lines.",
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"text": "You can read more about the methodology used to set these lines in the World Bank\u2019s flagship report on poverty, ",
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"text": "Poverty and Shared Prosperity",
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"text": "What are international-$ and why are they used to measure incomes?",
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"text": "Much of the economic data we use to understand the world \u2013 for instance on the goods and services bought or produced by households, firms and governments, or the incomes they receive \u2013 is initially recorded in terms of the units in which these transactions took place. That means this data starts out being expressed in a variety of local currencies \u2013 as so many rupees, US dollars, or yuan, etc. \u2013 and without adjusting for inflation over time. This is known as being in \u2018current prices\u2019, or in \u2018nominal\u2019 terms.",
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"text": "Before these figures can be meaningfully compared, they need to be converted into common units.",
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"text": "International dollars (int.-$) are a hypothetical currency that is used for this. It is the result of adjusting both for inflation within countries over time and for differences in the cost of living between countries.",
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"text": "The goal of international-$ is to provide a unit whose purchasing power is held fixed over time and across countries, such that one int.-$ can buy the same quantity and quality of goods and services no matter where or when it is spent.",
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"text": "The price level in the US is used as the benchmark \u2013 or \u2018numeraire\u2019 \u2013 so that one 2017 int.-$ is defined as the value of goods and services that one US dollar would buy in the US in 2017.",
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"text": "The year 2017 here indicates two things, related to the two adjustments mentioned. Firstly, it tells us the base year used for the inflation adjustment within countries. This is the year whose prices are chosen to be the benchmark. If prices are higher than this benchmark year, nominal data will be adjusted downwards. If prices are lower, nominal data will be adjusted upwards. In the base year itself, the nominal and inflation-adjusted figures are the same by definition.",
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"text": "Secondly, 2017 indicates the year in which the differences in the cost of living between countries was assessed.",
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"text": "Purchasing Power Parity rates",
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"text": "Converting data in local currencies to international-$ means dividing the figures by a set of \u2018exchange\u2019 rates, known as Purchasing Power Parity (PPP) rates. Unlike the exchange rates between currencies you would see at the foreign exchange counter, these account for differences in the cost of living between countries.",
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"text": "If you have ever shopped or eaten in a restaurant abroad, you may have noticed a country as being a particularly expensive or particularly cheap place to live. A given amount of your own currency, when exchanged for another country\u2019s currency, may buy you considerably more or less there than it would have done at home.",
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"text": "The goal of PPP rates is to account for these price differences. They express, for each country, the amount of local currency that is needed to buy the same goods and services there as 1 US dollar buys in the US.",
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"text": "You can read more about this in our article ",
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"text": "What are PPP adjustments and why do we need them?",
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"text": "The \u2018rounds\u2019 of the International Comparison Program",
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"text": "The calculation of PPP rates is the task of the ",
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"text": " (ICP), which gathers data on the prices of thousands of goods and services in each country in a particular year.",
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"text": "The ICP does not calculate PPP rates every year, but rather conducts its work in \u2018rounds\u2019 that are several years apart. The most recent round was conducted in 2017 and the previous round was conducted in 2011.",
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"text": "In converting economic data to international-$, which round of PPPs are used to adjust for cost-of-living differences between countries is, in principle, a separate issue to the base year used to adjust for inflation over time. By convention, however, the same year tends to be chosen for both. When converted to 2017 international-$, nominal local currencies are first adjusted for inflation to local 2017 prices, and are then adjusted to US prices using the PPPs calculated in the ICP\u2019s 2017 round. Likewise, 2011 international-$ adjust for inflation using 2011 local prices, and then use the 2011 PPPs to adjust for cost-of-living differences.",
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"text": "How comparable is the World Bank data on household incomes across time or between countries?",
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"text": "Because there is no global survey of incomes, researchers need to rely on available national surveys. Such surveys are designed with cross-country comparability in mind, but because the surveys reflect the circumstances and priorities of individual countries at the time of the survey, there are some important differences. In collating this survey data the World Bank takes steps to harmonize it where possible, but comparability issues remain.",
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"text": "One important issue is that, whilst in most high-income countries the surveys capture people\u2019s incomes, in poorer countries these surveys tend to capture people\u2019s consumption.",
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"text": "Pooling the data available from kinds of survey data is unavoidable if we want to get a global picture of poverty or inequality. But it\u2019s important to bear in mind that, depending on the country or year, somewhat different things are being measured. In the chart below you can see the income and consumption data points separated. And this is also indicated in our ",
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"text": "The two concepts are nevertheless closely related: the income of a household equals their consumption plus any saving, or minus any borrowing or spending out of savings.",
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"text": "One important difference is that, while zero consumption is not a feasible value \u2013 people must consume something to survive \u2013 a zero income is a feasible value. At the bottom end of the distribution, people\u2019s consumption may be somewhat higher than their income. A common example here is retired people who are using their savings: they may have a very low, or even zero, income, but still have a high level of consumption.",
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"text": "Conversely, at the top end of the distribution, consumption is typically lower than income. The gap rises with income, with households generally saving a higher share of their income the richer they are.",
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"text": "For both these reasons, the distribution of consumption is generally more equal than the distribution of income.",
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"text": "There are a number of other ways in which comparability across surveys can be limited.",
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"text": "In collating this survey data the World Bank takes a range of steps to harmonize it where possible, but comparability issues remain. These affect comparisons both across countries and within individual countries over time.",
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"text": "To help communicate the latter, the World Bank produces a variable that groups surveys within each individual country into more comparable \u2018spells\u2019. These breaks are shown in the chart here.",
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"text": " provides a good summary of the comparability and data quality issues affecting this data and how it tries to address them.",
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"url": "https://ourworldindata.org/explorers/poverty-explorer?hideControls=true&Metric=Share+in+poverty&Poverty+line=%242.15+per+day%3A+International+Poverty+Line&Household+survey+data+type=Show+data+from+both+income+and+consumption+surveys&Show+breaks+between+less+comparable+surveys=true&country=BGD~BRA~CHN~KEN",
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"text": "How does the World Bank produce global and regional estimates of poverty and inequality from national data?",
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"text": "For its poverty and inequality data the World Bank relies on household surveys that are conducted nationally. In order to produce global or regional estimates, the survey data from different countries needs to be lined up and aggregated. For each year, the World Bank finds the closest survey for each country and projects the data forward or backwards to the year being estimated. This is necessary particularly since surveys are ",
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"text": "For a small number of country-year observations, the World Bank PIP data contains two estimates: one based on income data and one based on consumption data. In these cases we keep only the consumption estimate in order to obtain a single series for each country.",
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"text": "You can find the data with all available income and consumption data points, including these overlapping estimates, in our ",
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"text": "\u201cThe Poverty and Inequality Platform (PIP) is an interactive computational tool that offers users quick access to the World Bank\u2019s estimates of poverty, inequality, and shared prosperity. PIP provides a comprehensive view of global, regional, and country-level trends for more than 160 economies around the world.\u201d",
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1 | 2023-04-14 00:05:49 | 2023-06-16 14:33:02 | 2023-12-28 16:31:08 | unlisted | ANeT5PRXhQrI2s0E0lr4nYiRNu8vs3xYb7kwKqHRwihwMJJ9N7ZzUCBHnYYeP-63ZhTaAFXSh1q3kjNkWGyoBg | # keyInfoText * Extreme poverty here is defined as living below the International Poverty Line of $2.15 per day. * The data is measured in international-$ at 2017 prices – this adjusts for inflation and for differences in the cost of living between countries. * Depending on the country and year, the data relates to either disposable income or consumption per capita, depending on the country and year. * Non-market sources of income, including food grown by subsistence farmers for their own consumption, are taken into account. # descriptionFromSource # faqs** ** ### What is the International Poverty Line and how is it set? There is no single definition of poverty. Our understanding of the extent of poverty and how it is changing depends on which definition we have in mind. In particular, richer and poorer countries set very different poverty lines in order to measure poverty in a way that is informative and relevant to the level of incomes of their citizens. For instance, while in the United States a person is counted as being in poverty if they live on less than roughly $24.55 per day, in Ethiopia the poverty line is set more than 10 times lower – at $2.04 per day. You can read more about how these comparable national poverty lines are calculated in this footnote. To measure poverty globally, however, we need to apply a poverty line that is consistent across countries. This is the goal of the International Poverty Line of $2.15 per day – shown in red in the chart – which is set by the World Bank and used by the UN to monitor extreme poverty around the world. We see that, in global terms, this is an extremely low threshold indeed – set to reflect the poverty lines adopted nationally in the world’s poorest countries. It marks an incredibly low standard of living – a level of income much lower than just the cost of a [healthy diet](https://ourworldindata.org/diet-affordability). <Image filename="Five-income-distributions-national-poverty-and-IPL-2.png" alt=""/> #### How does the World Bank set the International Poverty Line? The exact method used by the World Bank to set the International Poverty Line has changed somewhat over past updates. But each time the objective has been broadly the same – to find a “typical standard by which the poorest countries of the world judge their citizens to be impoverished.” The method used in the latest update to arrive at a figure of $2.15, measured in 2017 international-$, is based on a set of harmonized national poverty lines produced by [Dean Joliffe and others](https://documents1.worldbank.org/curated/en/353811645450974574/pdf/Assessing-the-Impact-of-the-2017-PPPs-on-the-International-Poverty-Line-and-Global-Poverty.pdf) – shown in the chart here. As you can see, there is a strong correlation between the poverty lines countries set, shown on the Y axis, and their income level – as measured here by GDP per capita, and plotted along the X axis. The International Poverty Line is calculated as the median national poverty line adopted among low-income countries – using the World Bank’s income classification system. These are the countries shaded in red in the chart and found in the bottom left corner. Although the International Poverty Line is by far the most prominent international line, the same method is also used by the World Bank to set two higher poverty lines that reflect the national definitions adopted in lower-middle and upper-middle income groups shown in green and purple respectively. The median poverty line among these two groups of countries are $3.65 and $6.85, and these form the World Bank’s lower-middle income and upper middle-income poverty lines. You can read more about the methodology used to set these lines in the World Bank’s flagship report on poverty, [Poverty and Shared Prosperity](https://www.worldbank.org/en/publication/poverty-and-shared-prosperity). <Chart url="https://ourworldindata.org/grapher/national-poverty-line-vs-gdp-per-capita"/> ### What are international-$ and why are they used to measure incomes? Much of the economic data we use to understand the world – for instance on the goods and services bought or produced by households, firms and governments, or the incomes they receive – is initially recorded in terms of the units in which these transactions took place. That means this data starts out being expressed in a variety of local currencies – as so many rupees, US dollars, or yuan, etc. – and without adjusting for inflation over time. This is known as being in ‘current prices’, or in ‘nominal’ terms. Before these figures can be meaningfully compared, they need to be converted into common units. International dollars (int.-$) are a hypothetical currency that is used for this. It is the result of adjusting both for inflation within countries over time and for differences in the cost of living between countries. The goal of international-$ is to provide a unit whose purchasing power is held fixed over time and across countries, such that one int.-$ can buy the same quantity and quality of goods and services no matter where or when it is spent. The price level in the US is used as the benchmark – or ‘numeraire’ – so that one 2017 int.-$ is defined as the value of goods and services that one US dollar would buy in the US in 2017. The year 2017 here indicates two things, related to the two adjustments mentioned. Firstly, it tells us the base year used for the inflation adjustment within countries. This is the year whose prices are chosen to be the benchmark. If prices are higher than this benchmark year, nominal data will be adjusted downwards. If prices are lower, nominal data will be adjusted upwards. In the base year itself, the nominal and inflation-adjusted figures are the same by definition. Secondly, 2017 indicates the year in which the differences in the cost of living between countries was assessed. #### Purchasing Power Parity rates Converting data in local currencies to international-$ means dividing the figures by a set of ‘exchange’ rates, known as Purchasing Power Parity (PPP) rates. Unlike the exchange rates between currencies you would see at the foreign exchange counter, these account for differences in the cost of living between countries. If you have ever shopped or eaten in a restaurant abroad, you may have noticed a country as being a particularly expensive or particularly cheap place to live. A given amount of your own currency, when exchanged for another country’s currency, may buy you considerably more or less there than it would have done at home. The goal of PPP rates is to account for these price differences. They express, for each country, the amount of local currency that is needed to buy the same goods and services there as 1 US dollar buys in the US. You can read more about this in our article [What are PPP adjustments and why do we need them?](https://ourworldindata.org/what-are-ppps) #### The ‘rounds’ of the International Comparison Program The calculation of PPP rates is the task of the [International Comparison Program](https://www.worldbank.org/en/programs/icp) (ICP), which gathers data on the prices of thousands of goods and services in each country in a particular year. The ICP does not calculate PPP rates every year, but rather conducts its work in ‘rounds’ that are several years apart. The most recent round was conducted in 2017 and the previous round was conducted in 2011. In converting economic data to international-$, which round of PPPs are used to adjust for cost-of-living differences between countries is, in principle, a separate issue to the base year used to adjust for inflation over time. By convention, however, the same year tends to be chosen for both. When converted to 2017 international-$, nominal local currencies are first adjusted for inflation to local 2017 prices, and are then adjusted to US prices using the PPPs calculated in the ICP’s 2017 round. Likewise, 2011 international-$ adjust for inflation using 2011 local prices, and then use the 2011 PPPs to adjust for cost-of-living differences. ### How comparable is the World Bank data on household incomes across time or between countries? Because there is no global survey of incomes, researchers need to rely on available national surveys. Such surveys are designed with cross-country comparability in mind, but because the surveys reflect the circumstances and priorities of individual countries at the time of the survey, there are some important differences. In collating this survey data the World Bank takes steps to harmonize it where possible, but comparability issues remain. #### Income vs consumption data One important issue is that, whilst in most high-income countries the surveys capture people’s incomes, in poorer countries these surveys tend to capture people’s consumption. Pooling the data available from kinds of survey data is unavoidable if we want to get a global picture of poverty or inequality. But it’s important to bear in mind that, depending on the country or year, somewhat different things are being measured. In the chart below you can see the income and consumption data points separated. And this is also indicated in our [data download](https://github.com/owid/poverty-data) of the World Bank poverty and inequality data. The two concepts are nevertheless closely related: the income of a household equals their consumption plus any saving, or minus any borrowing or spending out of savings. One important difference is that, while zero consumption is not a feasible value – people must consume something to survive – a zero income is a feasible value. At the bottom end of the distribution, people’s consumption may be somewhat higher than their income. A common example here is retired people who are using their savings: they may have a very low, or even zero, income, but still have a high level of consumption. Conversely, at the top end of the distribution, consumption is typically lower than income. The gap rises with income, with households generally saving a higher share of their income the richer they are. For both these reasons, the distribution of consumption is generally more equal than the distribution of income.**** #### Other comparability issues within countries There are a number of other ways in which comparability across surveys can be limited. In collating this survey data the World Bank takes a range of steps to harmonize it where possible, but comparability issues remain. These affect comparisons both across countries and within individual countries over time. To help communicate the latter, the World Bank produces a variable that groups surveys within each individual country into more comparable ‘spells’. These breaks are shown in the chart here. The PIP [Methodology Handbook](https://datanalytics.worldbank.org/PIP-Methodology/) provides a good summary of the comparability and data quality issues affecting this data and how it tries to address them. <Chart url="https://ourworldindata.org/explorers/poverty-explorer?hideControls=true&Metric=Share+in+poverty&Poverty+line=%242.15+per+day%3A+International+Poverty+Line&Household+survey+data+type=Show+data+from+both+income+and+consumption+surveys&Show+breaks+between+less+comparable+surveys=true&country=BGD~BRA~CHN~KEN"/> ### How does the World Bank produce global and regional estimates of poverty and inequality from national data? For its poverty and inequality data the World Bank relies on household surveys that are conducted nationally. In order to produce global or regional estimates, the survey data from different countries needs to be lined up and aggregated. For each year, the World Bank finds the closest survey for each country and projects the data forward or backwards to the year being estimated. This is necessary particularly since surveys are [less frequently available](https://ourworldindata.org/grapher/data-deprivation-poverty-surveys-per-decade) in poorer countries and for earlier decades. **** These projections are generally made on the assumption that incomes or expenditure grow in line with the growth rates observed in national accounts data. You can read more about the interpolation methods used by the World Bank in [Chapter 5](https://datanalytics.worldbank.org/PIP-Methodology/lineupestimates.html) of the Poverty and Inequality Platform Methodology Handbook. # datasetDescription # variableProcessingInfo For a small number of country-year observations, the World Bank PIP data contains two estimates: one based on income data and one based on consumption data. In these cases we keep only the consumption estimate in order to obtain a single series for each country. You can find the data with all available income and consumption data points, including these overlapping estimates, in our [complete dataset](https://github.com/owid/poverty-data#a-global-dataset-of-poverty-and-inequality-measures-prepared-by-our-world-in-data-from-the-world-banks-poverty-and-inequality-platform-pip-database) of the World Bank PIP data. # sourceDescription1 _“The Poverty and Inequality Platform (PIP) is an interactive computational tool that offers users quick access to the World Bank’s estimates of poverty, inequality, and shared prosperity. PIP provides a comprehensive view of global, regional, and country-level trends for more than 160 economies around the world.”_ More details are available at the PIP website: [https://pip.worldbank.org/about](https://pip.worldbank.org/about) | Data pages texts – Share in extreme poverty | PIP |