From local basic-needs to global poverty measures Methods and context Imogen Halstead Senior Economist World Bank, Sydney Poverty concept Poverty as: “pronounced deprivation in well-being�? (World Development Report (2001), Attacking Poverty) Open questions: 1. What is well-being? 2. When is deprivation ‘pronounced’? Resilient against What is well-being? natural disasters Freedom from Social hunger inclusion Empowered Healthy through education Money? Money? Measuring well-being: Monetary measures Advantages Monetary • Indicate peoples’ means to well-being of their choosing measures favoured as ato • Naturally (and meaningfully) give a nice single number work with summary indicator Disadvantages • Mask character of problem we care about • Imperfect relationship between command over monetary resources and deprivations (e.g. public goods) Other indicators matter! Measuring well-being : Consumption vs Income Consumption Income • Measures achievement (+) • Measures command over resources (+) • No information on causes (-) • No information on direct welfare sources/choices (-) ‘Savings’ • Anchored to permanent income (+) • Potentially highly variable (-) • Potentially easier to measure? • Potentially difficult to measure? Measuring well-being : Consumption vs Income Personal ConsumptionClothing care EducationIncome Foodachievement (+) • Measures • Measures command over resources (+) • No information on causes (-) Health • No information on direct welfare Transport (-) sources/choices Culture/ • Anchored to permanent ceremonies But not income (+) • Potentially highly variable (-) • Potentially easier to measure? • Social/ Potentially difficult to measure? easy! Leisure Housing expenses Measuring well-being : Consumption Purchases vs Income Own- production Personal ConsumptionClothing care EducationIncome Foodachievement (+) • Measures • Measures command over resources (+) Gifts • No information on causes (-) Health • No information on direct welfare Transport (-) sources/choices Culture/ • Anchored to permanent ceremonies But not income (+) • Potentially highly variable (-) • Potentially easier to measure? • Social/ Potentially difficult to measure? easy! Leisure Housing expenses Measuring well-being : Consumption Purchases vs Income Own- Durable goods? Productive assets? production Personal Expenditure ConsumptionClothing EducationIncome (stoves, Foodachievement real vsAdult (tools, care television sets, consumption? equipment and • Measures (+) Method• Measures command over equivalence? resources (+) Gifts • No informationrefrigerators, merchandise on causes (-) mobile for • Health family No information on direct welfare transparency phones,…) sources/choices business, (prices…) livestock, ….) Transport (-) matters Culture/ • Anchored to permanent ceremonies But not income (+) • Potentially highly variable (-) • Potentially easier to measure? • Social/ Potentially difficult to measure? easy! Leisure Housing expenses Data set Data set Data set T$0 T$5 T$10 T$15 T$20 T$0 T$5 T$10 T$15 T$20 T$0 T$5 T$10 T$15 T$20 T$0 T$5 T$10 T$15 T$20 T$0 T$5 T$10 T$15 T$20 T$0 T$5 T$10 T$15 T$20 T$0 T$5 T$10 T$15 T$20 Consumption distribution Number of people T$0 T$5 T$10 T$15 T$20 Welfare indicator Consumption distribution Number of people T$0 T$5 T$10 T$15 T$20 Consumption Consumption distribution Number of people Consumption Number of people Poverty line Number of people “the poor� Poverty line Initial population Number of people 50 100 people people Headcount poverty rate = #poor / total population = 50/150 = 33% Poverty line Program A Number of people 50 100 people people Headcount poverty rate = #poor / total population = 50/150 = 33% Poverty line Initial population Number of people Poverty line Program B Number of people 44 106 people people Headcount poverty rate = #poor / total population = 44/150 = 29% Poverty line Defining a poverty line: national benchmarks Cost of basic needs - meaningful local benchmark Method - cost of basic food bundle + non-food basic needs transparency matters Different approaches, e.g.: Different approaches, e.g.: - Based on consumption of people - Generally fixed calories consuming food (costs) equivalent to - Composition based on diets of the minimal food bundle ‘poor’ - Based on average non-food - Nutritionist recommended expenditure of bottom [30]% - … - … Number of people Basic needs poverty line Number of people “the poor� Basic needs poverty line Defining a poverty line So what is the point of PPP US$1.90/$3.10 per person per day poverty lines? - Higher standards of living in wealthier populations tend to be reflected in higher standard of ‘basic needs’ - Better quality food (for a given energy intake) - Larger basket of (better quality) non-food basic needs - mobile phones - more frequent travel from town to villages - etc. - Reflects the ‘relative’ nature of what it means to be poor – and also methodology Population A Number of people Basic needs poverty line A Population B Number of people Basic Basic needs needs poverty poverty line A line B Defining a poverty line: global benchmarks • PPP benchmarks attempt to define consistent benchmark standards of living for comparison of ‘poverty’ across countries • Methodology: How to enhance comparability of welfare distributions? • ‘Exchange rate’: International Comparison Program (ICP) • Price comparison to compare welfare in real terms • Equivalence scales • Revert to per-capita analysis • Fix level of benchmark level of well-being (poverty line) across countries Defining a poverty line: global benchmarks • Why $1.90 and $3.10? • Meaningful benchmarks NOT at the local level, but from a cross-country perspective Buys, on average, the Median poverty line of same bundle of good lower middle income that could have been countries purchased for $1.25 in 2005 in 15 poorest countries in the world Concluding remarks - Monetary measures can be useful summary indicators of welfare - Other indicators matter! - Basic needs poverty measures are anchored to a meaningful localised minimal standard of welfare - PPP-based measures allow for cross-country comparisons - $1.90 and $3.10 poverty lines are global benchmarks - Demand for a Pacific regional benchmark? Multi-dimensional Poverty Index (MPI) Share of acute deprivations experienced &