poverty lines around the world: a new methodology and internationally comparable estimates

International Labour Review

, Vol. 145 (2006), No. 4

Copyright © International Labour Organization 2006

Poverty lines around the world:A new methodology and internationally

comparable estimates

Richard ANKER

*

t the national level, poverty reduction is a major policy goal around

A

the world. At the international level, halving the world povertyrate by 2015 is arguably the most important of the United Nations Mil-lennium Development Goals. The allocation of resources in nationalbudgets and international development aid is therefore affected by theprogress and relative position of countries as regards poverty reduction.

Yet, despite the importance of poverty as a focus of policy, itsmeasurement at the international level remains problematic. The mostwidely used methodology – the World Bank’s poverty lines of US$1 aday and US$2 a day – raises serious problems, and even the WorldBank acknowledges that its methodology is not suitable for measuringnational poverty lines and is only appropriate for making regional andglobal estimates (World Bank; Ravallion, 2001). Several researchershave indeed questioned the relevance and accuracy of the WorldBank’s global estimates of poverty (e.g., Deaton, 2001; Reddy andPogge, 2003). And while an increasing number of countries now esti-mate a national poverty line, their estimates are not comparable.

This article describes and uses a new methodology the author hasdeveloped for measuring internationally comparable national povertylines, drawing on several disciplines and online data sources includingon economics, poverty, nutrition, statistics and demography. This newmethodology uses the same approach that many countries use to esti-mate their own national poverty line but does this in a consistent andinternationally comparable manner.

* Political Economy Research Institute (PERI), University of Massachusetts, Amherst, MA.Responsibility for opinions expressed in signed articles rests solely with their authors and

publication does not constitute an endorsement by the ILO.

280


The proposed new methodology offers a number of advantages,especially compared to the World Bank’s US$1 and US$2 a day povertylines.

●

The methodology has a normative basis.

It starts with the establish-ment of a low-cost nutritious diet – in contrast with the World Bankmethodology based on overall purchasing power parity (PPP),which is not conceptually appropriate for measuring poverty.

●

The methodology uses the same approach as that used by mostcountries to

estimate their own national poverty line

.

●

The methodology is relevant for all countries

and not just for low-income and lower middle-income countries as is the case with theWorld Bank’s methodology. This is important because povertyoccurs in all countries.

●

Estimates are easy to understand.

Poverty lines are based on modeldiets, food costs and non-food costs. This means that laypersonscan understand what poverty means in terms of living standards.This contrasts with the World Bank US$1 and US$2 a day PPPmethodology, which makes it very difficult for people to knowwhat the PPP of US$1 a day means, or what it means to express thisPPP for a particular year. For example, being poor in India accord-ing to the new methodology means only being able to afford a cupof milk every fourth day, an egg every ninth day, a serving of meatevery twelfth day, and only about US$16 at the official exchangerate each month (approximately US$100 in World Bank PPP) forall non-food needs for a household of four.

●

The basis for estimates is transparent.

The assumptions used to cal-culate national poverty lines in the new methodology are clearlystated. World Bank PPPs, by contrast, are based on complex calcu-lations and assumptions that are not readily available.

●

The assumptions used can be easily modified

, because estimates aremade in electronic spreadsheets. This also makes it possible toobserve how sensitive estimates are to changes in assumptions.

●

National estimates can be made for approximately 100 countries usingonline data

.

●

The methodology is relatively inexpensive to employ

, since the re-quired national data are available online for free, and

estimates canbe updated regularly at minimal cost

, because the necessary onlinedata are updated regularly. This contrasts with the World Bankmethodology that relies on PPPs that are not available for manycountries. In addition, because PPPs are expensive to estimate, theyare generally benchmarked only every several years and updatedannually using national consumer price indices (CPIs), which isproblematic especially in high-inflation countries. Also, PPPs are

Poverty lines around the world: A new methodology

281

subject to substantial changes when new benchmark estimates aremade.It is important to recognize that poverty measurement necessarily

involves subjectivity and judgment. In addition, the international com-parability of poverty line estimates is complicated by some unavoidableand difficult issues (such as differences across countries in the availabil-ity and value of free public goods and services, value of self-consump-tion of home production, taxes paid by the poor, and intra-countrydifferences in the prices paid by the poor and the non-poor). Althoughconsiderable effort was made to base assumptions in the new method-ology on empirical evidence (see Anker, 2005), improvements andrefinements are always possible, especially as additional relevant cross-national data become available.

The remainder of this article is structured into five sections. The firstis concerned with poverty line definitions, the necessary subjectivity in-volved in setting a poverty line, and sensitivity of the poverty rate to thesetting of a given poverty line. The second describes conceptual andmeasurement limitations of the World Bank poverty lines. The third sec-tion describes the new methodology proposed here for measuring inter-nationally comparable national poverty lines, including some limitations.The fourth section uses this methodology to estimate national povertylines for 12 countries and evaluates these estimates by comparing them tothe corresponding national poverty lines estimated by the World Bankand the poverty lines estimated by the countries themselves. The fifth sec-tion provides conclusions. For reasons of parsimony, reference is some-times made to a recent ILO working paper by the author (that can beobtained from the ILO) in which the new methodology and its applica-tion are described in detail (Anker, 2005).

Definition of poverty line, necessary subjectivity,and effect on reported poverty rate

Measurement of poverty dates back at least to the famous 1899study of the city of York in northern England by B. Seebohm Rowntree(1908). Definitions of poverty commonly refer to the need for a min-imum standard of living, and are generally measured by the resourcesor income required to achieve this. These are money- or consumption-based definitions of poverty. Typical definitions thus include:

●

“Earnings insufficient to obtain the minimum necessaries for themaintenance of merely physical efficiency.” (Rowntree, 1908)

●

“The inability to obtain a minimum standard of living.” (World Bank,1990).

A similar definition of poverty is used in the new methodology describedin this article, namely:

282


●

Income necessary to be able to afford a low-cost nutritious dietand non-food necessities at levels considered acceptable for thecountry.It is important to recognize that estimating a national poverty line

requires assumptions and judgment

(see below for a description of howthis is typically done by countries). Subjectivity

has

to be present,because every society has its own view of what constitutes an accept-able minimum standard of living. At the same time, national consensusis forever changing. This implies that what is considered acceptablechanges over time within countries and differs across countries. Forexample, television, recreation and high-tech medical care may be seenas necessary in high-income countries in the twenty-first century, butnot in low-income countries today or in high-income countries in themid-twentieth century. Also, some expenses may become necessary asa country develops and urbanizes. For example, it may be possible andacceptable to live in makeshift or mud housing in poorer countries butnot in higher-income countries. Even what is considered an acceptablediet in a given country changes over time with increasing per capitaincome, as people come to feel that greater quantities of higher-costfoods such as milk and meat are required.

The need for judgment also plays out when establishing inter-nationally comparable poverty lines. For example, it is necessary to estab-lish acceptable model diets for poor persons in countries at differentdevelopment levels and the amount of money the poor need for non-foodnecessities.

An important issue for the international comparability of nationalpoverty lines is whether or not they should have the same real value forall countries. The approach taken in this article is based on the view thatthe real value of national poverty lines should increase with economicdevelopment and per capita income, because social norms change withdevelopment. For this reason, the proposed new methodology esti-mates national poverty lines using the same principles for all countries,with some parameters varying by development level to reflect changingsocietal norms.

1

Thus, as long as a country stays at the same develop-ment level, its poverty line would change over time along with changesin food costs. But if the country changes its development level, therewould be an adjustment to its poverty line to reflect changes in themodel diet and non-food needs that are consistent with the norms of itsnew development level.

Countries face a similar dilemma about whether or not to use thesame real poverty line over time. While measuring the current povertyrate requires an up to date poverty line that reflects current norms about

1

The four development levels used in the new methodology are as defined by the WorldBank on the basis of per capita income.


283

basic needs, monitoring changes in the poverty rate over time requires afixed poverty line in real terms that only changes with inflation so thatsuccess in reducing poverty is not judged against a moving target (see, forexample, Deaton, 2001). Countries have faced this dilemma in differentways.

The United States and India, for example, have opted to setnational poverty lines that are increased over time by inflation, therebyleaving them unchanged in real terms over time. The official povertyline in the United States was first accepted in 1969,

2

based on informa-tion from 1955 and 1961, and India’s official poverty line was firstaccepted in 1979,

3

based on information from 1972-73. Indonesia, incontrast, changes its poverty line over time based on new data andobserved behaviour. Analysis from the United States and India demon-strate the large impact that changing the poverty line to reflect currentnorms would have on the poverty line itself and on the observedpoverty rate. According to the National Academy of Science, theUnited States poverty line would have been between 14 and 33 per centhigher than the official poverty line in 1992 (Fisher, 1999). IndianNational Sample Survey (NSS) data reported in Joshi (1997) show thatadjusting the diet and the food/non-food expenditure ratio to changesin observed behaviour would have raised India’s poverty line byapproximately 49 per cent in rural areas and 23 per cent in urban areascompared to the official poverty lines between 1973-74 and 1993-94.This, in turn, would have increased the poverty rate in India from 42 percent to 75 per cent in urban areas and from 42 per cent to 58 per cent inrural areas.

There is clear evidence that the national poverty rate is sensitiveto changes in the value of the national poverty line (see Anker, 2005).For a large increase in the poverty line of around 50 per cent, elasticitiesrange from about 1.4 for India to about 2 for Armenia and China, forexample.

4

For a small increase in the poverty line of about 3 per cent,elasticities range from around 3 in the United States to about 4 in Egypt,for example.

2

The poverty line food basket originally used in the United States was based on a food plandeveloped in 1961 by the Department of Agriculture for emergency purposes (Cofer, Grossmanand Clark, 1962), and the ratio between food and non-food expenditures was based on results froma 1955 expenditure survey.

3

The official poverty line in India, which was originally established on the basis of behav-iour observed in a 1972-73 National Sample Survey (NSS), was set at the income level of house-holds which consumed the number of calories per capita that was felt to be required (2,400 caloriesper day for rural areas and 2,100 calories per day for urban areas). This definition of poverty is notequivalent to having low income. For example, according to 1999-2000 NSS data, 38 per cent ofhouseholds in the top income quintile in West Bengal do not have sufficient calories. One reasonfor this is that the 2,400 calorie requirement used for rural areas was probably too high.

4

Elasticity is the ratio of the percentage change in one variable (e.g. poverty rate) to thepercentage change in another variable (e.g. poverty line).

284


Conceptual and empirical problems with the World Bank methodology

Before describing the new methodology, it is useful to discuss someof the conceptual and empirical issues and problems that arise withnational poverty lines based on the World Bank definitions of US$1 PPPa day and US$2 PPP a day in light of their widespread use. The WorldBank’s original definition of US$1 PPP a day was selected by “eyeball-ing” a graph (i.e. using visual approximation) with only six poverty linesfor “poor” countries in 1985 PPP (World Bank, 1990).Values rangedfrom US$0.61 PPP to US$1.14 PPP. The current US$1 PPP a day defin-ition is expressed in 1993 PPP and was estimated by taking the median ofthe ten lowest national poverty lines of the 33 countries for which datawere available to the World Bank in 1999 (Chen and Ravallion, 2004).The US$2 a day definition in both instances was obtained in an ad hocmanner simply by multiplying US$1 per day by 2 (World Bank, 2001).

First, the most fundamental problem with the World Bank meth-odology is that it is inappropriate conceptually to use PPPs to estimatenational poverty lines. According to Ravallion (2001) of the WorldBank, “... at the country level, poverty monitoring is based on povertylines considered appropriate in each country. The PPP rates arerequired only for forming regional or global aggregates. …

PPPexchange rates were not designed for the purpose of making internation-ally comparable poverty lines, but rather for making comparisons ofaverage national income and consumption”

.

5

Deaton (2003) elaborateson this:

“PPPs price a representative bundle of goods in each countryand compare the local cost of the bundle with the U.S. dollar cost of thesame bundle. ... Although it might be argued that changes in the pricesof beans and rice ought to change the relative poverty lines of Brazil-ians and Indians, it is much harder to make the case for changes in theworld price of oil. Even in theory, PPP exchange rates as currentlydefined are not designed to convert poverty bundles”. This means thatit would be wrong to place confidence in particular national povertyline estimates based on the World Bank’s PPP methodology. This isconsistent with the World Bank observation that national poverty linesof low-income countries vary greatly around an approximate US$1 PPP

average

(World Bank, 1990).Second, as mentioned already, the World Bank’s current definition

of US$1 at 1993 PPP reflects the median of ten poverty lines. Yet it is diffi-

5

(Italics added for emphasis.) Although, as indicated in this quote, the World Bank feelsthat its PPP methodology is appropriate for making regional and international estimates becauseUS$1 PPP and US$2 PPP are supposedly correct on average, relying on counterbalancing over-estimates and underestimates of national values for making regional and global estimates isundesirable in my opinion.


285

cult to understand the appropriateness of basing an international povertyline on an average of official national poverty lines when these povertylines are not comparable because they are based on different methodol-ogies – and some of them are clearly wrong (e.g. China’s) – and the tencountries used are at different development levels. Also, it is not clearwhy the ten countries with the lowest official poverty lines in 1993 PPPwere used and not some other number of countries, or why the povertylines of countries that were not poor were included (e.g. the poverty linesof Thailand and Tunisia were used while those of Burundi and Kenyawere not).

Third, when national PPPs are revised as improved data becomeavailable, changes in values are common and sometimes inexplicablylarge. In addition, when a national PPP is updated over time using theCPI (as is done between PPP benchmark years), errors may be intro-duced since the inflation rates of goods and services consumed by thepoor and the non-poor may differ. This is most likely to be a problemin high-inflation countries. National PPP values for specific historicalyears often differed even between World Bank sources (

World Devel-opment Report

and

World Development Indicators

database); andnational PPP values for historical years often changed over time in theWorld Bank’s

World Development Indicators

online database. Whilesuch discrepancies were generally small, several were quite large.

Fourth, while the World Bank’s poverty lines of US$1 a day andUS$2 a day are superficially compelling for communicating to the pub-lic about poverty, they lack the transparency and ease of understandingthat statistics on poverty should have for this purpose. For example,World Bank estimates use 1993 PPP and this is not the same as 1985PPP (original poverty line) or the current 2006 PPP. Moreover, theWorld Bank actually uses US$1.08 PPP and US$2.15 PPP and not theUS$1 PPP and US$2 PPP referred to in the media. Indeed, it is not easyto understand what US$1 PPP can actually buy. Furthermore

,

fewknow that a 1993 PPP does not have the same value as the current PPPeven though most might naturally assume that they are the same, giventhat PPP is supposed to provide a measure of relative purchasing powerunaffected by exchange rates.

Fifth, it is surprising to find that the national poverty rates estimatedby countries and reported in the 2004

World Development Report

areconsistently higher than those estimated by the World Bank in the samesource. The national sources give higher poverty rates for over 80 per centof the countries in figure 1 (44 out of 53 countries), and for approximately90 per cent of low-income countries (25 out of 28 countries). On average,

poverty rates were approximately one-third lower according to the WorldBank than according to countries.

This consistent and large underestima-tion of poverty rates around the world by the World Bank is due to a con-sistent underestimation of national poverty lines.

286


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The proposed new methodology

The methodology developed in this article for estimating inter-nationally comparable national poverty lines is described briefly in thissection. A general description is followed by discussions on how foodand non-food costs are estimated. Also discussed briefly are somelimitations of the new methodology. For more detail, readers arereferred to Anker (2005). Before beginning, it is useful to point out thatas with any new methodology and its application, refinements andimprovements in parameters are always possible and desirable.

General description of the methodologyand estimation of food costs

There is a traditional and generally agreed approach in the pov-erty literature and in national practice on how to measure and estimatenational poverty lines. This is the approach used in this article anddescribed below.

6

Figure 2 illustrates the new methodology schematically. In the firststep, food costs are estimated by establishing and then costing a modeldiet that: (i) is acceptable nutritionally, (ii) is low cost, (iii) includes tenmajor food groups, and (iv) includes specific food items within eachmajor food group that are consistent with national food preferences andrelative unit food prices.

In the words of Rowntree (1908), one wants “astandard diet that gives adequate nutrition at the lowest practical cost”.WHO/FAO (2003) recommendations on diets are used to ensure thatnational model diets are acceptable nutritionally (i.e. 10-15 per cent oftotal calories from proteins, 15-30 per cent from fats, and 55-75 per centfrom carbohydrates). Unpublished FAO estimates of per capita calorierequirements for an average person in each country – a function of aver-age body size and the age distribution of the population – are used to setcalorie requirements. The FAOSTAT database on observed nationalfood consumption is used to help determine quantities of the major foodgroups to be included in model diets where considerable variation in con-sumption is known to occur across countries (cereals, roots/tubers, andpulses/nuts); in this way, national food preferences are taken into ac-count. Official national food prices for 93 food items reported in an ILO

6

There are other approaches. Some developing countries especially in Asia (such as India,Bangladesh and Indonesia) set their national poverty line at the income level of households thatconsume just above the required number of calories per capita (see below); major problems withthis approach are that it does not consider whether other nutritional requirements or non-foodneeds are met (Ravallion, 1992). Some European countries generally use a relative poverty lineset at a certain percentage (often 50 per cent) of national median disposable income equalized forequivalent consumers (Everaers, 1998); major problems with this approach are that there is dis-agreement about what percentage to use, and that a relative poverty line makes it difficult toobserve progress in reducing poverty.

288

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database are used to ensure that model diets are low in cost. The least ex-pensive food item in each major food group is selected for the model diet.Variation in model diets by development level is introduced by takinginto account differences in food consumption that are known to be associ-ated with income level. In the new methodology, the percentage of totalcalories from proteins (especially from animal-based foods) and thequantities of vegetables, fruits, oils and sugar are assumed to increasewith development level, and the percentage of calories from carbohy-drates (especially cereals) is assumed to decrease with development level.

The national model diet established in the first step shown in fig-ure 2 is then costed using the prices reported in an ILO food price dataset. A rough estimate of miscellaneous food costs is then added, as istypically done by countries when they estimate their own poverty lines.This allows for minimal wastage and spoilage, purchase of typical mis-cellaneous foods (such as coffee, tea, spices, condiments, sauces, salt),and variation in diet beyond the one (and sometimes two) food item(s)included in each major food group in the model diets. Miscellaneousfood costs are assumed to increase with development level in keepingwith observed national practices as regards model diets (for evidenceon this, see Anker, 2005).

7

Non-food costs are estimated by multiplying food costs by a non-food “multiplier” that increases with development level in keeping withknowledge about the relationship between non-food expenditures andfood expenditures (see below).

The poverty line for a household is then estimated by multiplyingthe sum of estimated food cost and non-food cost for an average indi-vidual by a household size “scalar”. This is necessary, because povertyis a household concept and food and non-food costs up to this pointhave been estimated per person.

Estimating non-food costs

The cost of non-food needs is estimated using a ratio of non-foodcosts to food costs. For example, if the poor spend 75 per cent of theirtotal expenditure on food, then non-food costs would represent one-thirdof food costs, and the poverty line would consequently equal 1.33 timesfood costs. This is the most common approach used at the nationallevel to account for non-food costs in the poverty line, because the cost of

7

Wastage and spoilage is assumed to increase from 1 per cent of food costs in low-incomecountries to 10 per cent in high-income countries. Cost for typical miscellaneous foods such as cof-fee, tea, spices, condiments and salt is assumed to increase from 3 per cent in low-income countriesto 10 per cent in high-income countries. Allowance for additional variety within major food groupsis assumed to increase from 4 per cent in low-income countries to 23 per cent in high-income coun-tries. For the empirical evidence on which these reasonably conservative percentages are based,see Anker (2005).

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non-food items is known to increase as a percentage of household in-come along with increases in household income at the country level andwith increases in national income per capita at the international level.“The poorer is a family, the greater is the proportion of the total outgo[family expenditures] which must be used for food. … The proportion ofthe outgo used for food, other things being equal, is the best measureof the material standard of living of a population” (Ernst Engel quoted inZimmerman, 1932, p. 80).

To help decide on appropriate non-food multipliers for countriesat different levels of development, information was collected on theassumptions that countries make with regard to the percentage of totalexpenditure for food when they estimate their national poverty line(15 countries) and when they estimate their CPI (75 countries). Table 1presents median values by development level (for national values, seeAnker, 2005). As expected, the values are negatively and stronglyrelated to development level. Also, the values used to estimate CPI areconsistently lower than those used to estimate the poverty line (byaround 10-15 per cent on average). This is what one would expect asCPI is concerned with consumption by the entire population whereasthe poverty line is concerned with consumption by the poor for whomfood expenditures are more important.

The values used in the new methodology for the four developmentlevels are shown in table 1 (last column). They are the median nationalvalues used to estimate poverty lines in table 1 (column 3) after twoadjustments. The food share for low-income countries was increasedfrom 65 to 70 per cent, because this is approximately the median value(71 per cent) found in a much larger sample of 19 low-income countries(Kakwani, 2004) than the four low-income countries on which themedian value in table 1 is based; it also helps create a smooth progres-sion in the food share of expenditure across the four developmentlevels. The food share of expenditure in high-income countries wasreduced from 33 to 25 per cent, because 25 per cent is more consistentwith the much more complete and up to date CPI data for high-incomecountries. Note that the 33 per cent value for high-income countriesshown in the poverty-line column of table 1 is based on a 1955 expend-iture survey in the United States.

Conceptually, the approach used in this article to estimate non-food costs is obviously inconsistent with the normative approach usedto estimate food costs (see, for example, Streeten, 1994). This approachis, however, practical; it provides a reasonable approximation of non-food costs and is sufficiently robust that it is the most commonapproach countries themselves use to estimate their own poverty lines.Nonetheless, the assumed ratio of non-food to food costs has such animportant effect on poverty line estimates that this question deservesfurther thought and empirical investigation in the future.


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There are other approaches to measuring non-food costs that aresometimes used at the national level. A basic needs approach establishesand costs a list of essential non-food needs (see Boltvinik, 1994, for a gen-eral discussion; and Martins and Maritz, 2002, for an application to SouthAfrica). The basic needs approach has the virtue of being normative andsimilar to that used to estimate food costs. Unfortunately, the basic needsapproach is difficult to use in practice, especially internationally, becauseit is hard to agree on what items, what quantities and what quality levelsshould be considered essential. Another approach sometimes used bycountries – e.g. India and Indonesia – sets non-food costs at the level actu-ally observed in a household income and expenditure survey amonghouseholds that consume the required number of calories per capita (orhave the income needed to purchase the required calories). But while thisapproach may be practical when the required data exist, it presents anumber of conceptual problems (Ravallion and Sen, 1996). One has toaccept on faith that observed non-food expenditures are sufficient (againdeparting from a normative approach); assume that people are highly ef-ficient in how they buy, store and prepare nutritious food; and live withthe fact that the poverty line would become a moving target changingover time along with changing behaviour. Besides, regardless of their

Table 1. Percentage of expenditure on food used by countries to estimate nationalCPIs and national poverty lines, and values used in new methodology,by development level

Development level (per capita income) Percentage of expenditure spent on food

Used by countries Used in new methodology

CPI weights

a

Poverty line

b

Low 58 65 70

(1.43)

c

Lower middle 45 60 60 (1.67)

Upper middle 34 50 50 (2.00)

High 19 33.3

d

25

e

(4.00)

a

Medians of national values for CPI weights in recent years reported in Anker (2005) based on data for 12 low-income countries, 17 lower middle-income countries, 18 upper middle-income countries, and 28 high-incomecountries.

b

Medians of national values for poverty line reported in Anker (2005), based on data for four low-income countries, seven lower middle-income countries, three upper middle-income countries, and one high-income country. Although values are drawn from different years, they are consistent within each developmentlevel.

c

Value for low-income countries was set at 70 per cent for the reasons noted in the section on estimatingnon-food costs.

d

The United States provides the only value for high-income countries – based on data from anoutdated 1955 household expenditure survey that remains the assumption for official poverty line estimates inthe United States. European Union countries generally estimate relative national poverty lines as a proportion ofnational income per equivalent consumer (often one-half).

e

Value for high-income countries was set at 25 percent, because this is more consistent with the much more complete and up to date CPI data for high-incomecountries.

Sources: For CPI weights: Unpublished ILO data drawn from official national sources.For country poverty lines: Tabatabai (1996) for two low-income countries, three lower middle-income countries,and one upper middle-income country; Joshi (1997) for India; Erdogan (1997) for Turkey; Cervera (1997) for Mex-ico; Rama and Fernandez (1997) for Uruguay; Ravallion and Sen (1996) for Bangladesh; Sangui (2004) for China;Martins and Maritz (2002) for South Africa; Orshansky (1965) for the United States.

292


possible merits, neither of these alternative approaches is practical for aninternational methodology such as that presented in this article becausethe required data are not regularly available for a sufficient number ofcountries.

Limitations of the proposed methodology

The methodology developed and used in this article necessarilyinvolves assumptions. This section briefly discusses two possible limita-tions – that the poor might pay different prices, and that the poor mightpay taxes. Readers are referred to Anker (2005) for in-depth discus-sions on these and other issues such as self-consumption of home pro-duction, private cost of typical free public goods and services, and debtand interest payment.

The poor might pay different food prices

The food prices used in the new methodology to estimate nationalpoverty lines are almost always based on retail establishment surveysand are the prices that governments use to estimate the official CPI. Yetthe poor might shop in establishments that charge different prices (e.g.informal shops or street markets). There is evidence that the poor paylower prices in urban – but not rural – India, for example (Deaton andTarozzi, 1999).

If the poor do pay different prices, this would affect poverty lineestimates. But this problem cannot be systematically addressed in aninternational methodology as few countries report food prices specific-ally for the poor.

8

Furthermore, it is unusual for countries to take thisinto consideration when estimating their own poverty lines. All consid-ered then, the ILO food price data set should therefore be generallyreasonable for the purposes of the new methodology.

A related problem is that the poor might tend to purchase var-ieties of food items not included in the ILO data set. For example, onlylong-grain rice is included in the ILO data set, although many of thepoor eat less expensive varieties of rice. According to a small-scaleinquiry in urban India and Bangladesh, the least expensive variety ofrice costs approximately one-half of the price of long-grain rice (seeAnker, 2005, for details). Based on this result and a desire to be con-servative in estimating poverty lines, the prices of long-grain ricereported in the ILO food price data set are reduced by one-half forIndia and Bangladesh and by one-third for other study countries

.

In the

8

The poor could pay higher or lower prices than those used to estimate the CPI. While onthe one hand neither they nor the informal establishments where they might shop would get lowerprices by buying in bulk, on the other hand informal establishments have lower overheads andmarkups.


293

future, it is hoped that the ILO will collect data on the prices of differ-ent varieties of rice.

The poor might pay taxes

Poverty lines estimated by countries generally ignore taxes. Arationale for this is that poor people do not pay income tax either becauseof a progressive tax schedule or because of poor enforcement. The poorin some countries, however, often pay sales taxes and payroll taxes, andthis reduces cross-country comparability because the extent to which thepoor pay these taxes varies greatly across countries.

9

In the future, itwould be worthwhile collecting information on sales and payroll taxespaid by the poor and incorporating these taxes into the methodology.

Applying the new methodology: Poverty lineestimates for 12 countries

Given the complexity of developing and applying a methodology forestimating internationally comparable poverty lines, testing it is import-ant. National poverty lines have therefore been estimated for 12 coun-tries drawn from all development levels and regions so as to ensure that awide range of situations are covered.

10

The poverty lines are estimatedfor a household of four (two adults and two children). Although anyhousehold size could have been used, four approximately ensures popu-lation reproduction and represents a reasonable compromise betweenthe smaller sizes found in most higher income countries and the largersizes found in many developing countries.

11

This section of the article is divided into two parts. The first sub-section describes and evaluates the national model diets established forthe 12 countries using the new methodology. The second subsectionpresents and discusses the new national poverty line estimates. Each ofthese is compared to the poverty line used by the country as well as thecorresponding poverty line estimated by the World Bank using its US$1

9

In the United States, for example, sales and payroll taxes combined account for approxi-mately 13 per cent of wages for low-wage employees.

10

The countries selected for this article are mainly countries included in Bescond,Châtaignier and Mehran (2003) where median wage rates are reported for selected countries. Thereason for using this selection of countries was that one of the main objectives of Anker (2005) wasto evaluate national living wage rate estimates using the new methodology by comparing them tothe median wage rate in the country. Four important countries were added to increase regionaldiversity: China, Egypt, India and the United States.

11

Since a good argument can be made for allowing household size to vary across countriesalong with observed differences in the number of children per household, this is done in theauthor’s other article in this issue of the


. Poverty lines increase onaverage by approximately 24 per cent in the three low-income countries; decrease by approxi-mately 15 per cent in the two transition-economy countries; decrease by 10 per cent in Switzerland;decrease by 6 per cent in China; increase by 2 per cent in the United States; and increase byapproximately 14 per cent in the remaining four developing countries.

294


PPP a day for low-income countries and US$2 PPP a day for lower mid-dle-income countries.

National model diets and food cost estimates

This subsection reports the new model diets established and evalu-ates them by analysing: (i) the composition of the model diets in termsof calories, proteins, fats and carbohydrates as well as in terms of quan-tities in each of ten major food groups; and (ii) the composition of eachmodel diet compared to that used by the country to estimate its ownpoverty line.

Composition of national model diets

Figure 3 indicates the percentages of calories in the model dietsthat come from proteins, fats and carbohydrates by development level.The established national model diets appear generally reasonable.Readers interested in how each model diet was established and the spe-cific food items selected are referred to Anker (2005).

12

Percentages of total calories from proteins, fats and carbohydrateschange with development level as expected. The percentage of caloriesderived from proteins increases with development from 10 per cent onaverage in the low-income countries to 16 per cent in the high-incomecountries studied; this is consistent with people’s increased ability toafford preferred, but expensive, animal-based protein-rich foods suchas milk, eggs and meat. The percentage of total calories derived fromfats increases from 17 per cent on average in the low-income countriesto approximately 24 per cent on average in other countries; this is con-sistent with the patterns observed worldwide. The percentage of totalcalories derived from carbohydrates decreases from 73 per cent onaverage in low-income countries to 60 per cent on average in high-income countries, which is again consistent with the patterns observedmore generally (WHO/FAO, 2003).

Other aspects of the model diets are worth mentioning as well. Thequantity of animal-based foods in the model diets increases substantiallywith development level. This is reasonable, because these foods are ex-pensive per calorie; indeed, the poor in lower-income countries cannotoften afford them. Thus, while the model diets for low-income countriestypically contain around a quarter of a cup of milk per day, one egg everyother week, and one serving of meat every other week, the model dietsfor high-income countries typically contain around one-and-a-half cups

12

A few adjustments were made in how model diets were established and food costs esti-mated compared to those reported in Anker (2005): the percentage of total calories from pulsesin Bangladesh was increased; vegetable/fruit consumption in middle-income countries was slightlyreduced; and the distribution of animal-based foods was changed, with meat consumption in-creased and milk and egg consumption reduced.


295

of milk a day, an egg five times a week, and a serving of lean meat ten timesper week.

The quantities of roots/tubers (potatoes) and pulses/nuts in themodel diets vary considerably across countries. This results from thesubstantial differences in national food preferences reflected in FAO na-tional food consumption data. For example, Armenia, China, Lithuania,Switzerland and the United States have relatively high consumption ofpotatoes. Pulses/nuts consumption is relatively high in China, Costa Rica,India, the United States and Zimbabwe, with the specific varieties in-cluded in the model diets varying across countries: dhal in Bangladeshand India, bean curd in China, chickpeas in Egypt, and beans in otherstudy countries.

Comparing the new model diets to the diets used by countriesto estimate national poverty lines

Another way to evaluate the national model diets established bythe new methodology is to compare them to the model diets that coun-tries use to estimate their own national poverty lines. A country’s ownmodel diet should provide a good benchmark in terms of local foodhabits and preferences. Although one would not expect the proposed

Figure 3. Percentages of calories from proteins, fats and carbohydrates in newmodel diets by development level (12 study countries)

10

17

73

12

20

68

14

21

66

16

24

60

0

10

20

30

40

50

60

70

80

% from proteins % from fats % from carbohydrates

Per

cent

age

Source: Author’s calculations.

Note: Colour of bar indicates development level: low-income , lower middle-income , upper middle-income ,and high-income .

296


new model diet for a given country to be identical to the country’s ownmodel diet, the two should tend to be similar. Table 2 indicates the dif-ference between the internationally comparable model diet and thecountry’s own model diet for ten major food groups across the ninestudy countries for which the countries’ own model diets could befound.

13

First, the same ten major food groups used in the internationallycomparable model diets are used by the study countries in establishingtheir own model diets. Second, the composition of the two diets is simi-lar overall; average daily quantities vary within a range of +/– 17 gramsexcept for meats and vegetables (last row in table 2). Furthermore, alarge difference for a specific country and food group can usually beexplained. The large differences for China on almost every major foodgroup reflect the fact that China’s own model diet was nutritionallyunacceptable, since rice supplied approximately 90 per cent of calories.The model diets used by Ecuador and Costa Rica include much higherquantities of oil and sugar than the model diet of any other study coun-try, hence the more reasonable (smaller) quantities specified in theinternationally comparable model diets for these countries. The largeramount of fruit in the United States’ own recommended model diet ismainly due to the large amount of orange juice that Americans drink.Also for the United States, the large difference in the quantity ofpulses/nuts may be due to the constraints of the linear programmingroutine used to establish USDA model diets.

14

The model diets established by the new methodology do, however,display some consistent differences for four major food groups (milk,eggs, meat and vegetables) as well as some variability (cereals and roots/tubers) compared to the model diets used by the countries themselves.These differences appear for the most part reasonable given that the totalcost of the new model diets tends to be lower than the cost of the modeldiets used by countries and that systematic biases in quantities are oftencounterbalancing in nature. Thus, a higher quantity of cereals in a newmodel diet tends to be associated with a lower quantity of potatoes;higher amounts of milk are associated with lower quantities of meat;higher amounts of vegetables are associated with lower amounts of fruit.Also, the systematic underestimate of meat in the new model diets helps

13

Anker (2005) provides details of the internationally comparable model diets for all12 study countries and of the model diets used by the nine study countries for which such dietscould be found.

14 The United States Thrifty Food Plan is established using a linear programming routinewhere total food cost must remain constant in real terms over time. Since pulses/nuts are an in-expensive source of protein, it would not be surprising if this caused quantities of pulses/nuts toincrease over time in this food plan. It is worth noting that the 1961 Economy Food Plan usedto estimate the United States original poverty line contains substantially fewer grams of pulses/nuts than the 1999 Thrifty Food Plan used in table 2.

Poverty lines around the world: A new methodology 297

to reduce total food cost, which is not a bad thing when trying to be con-servative in estimating poverty lines;15 and the systematic upward bias forvegetables – compared to the countries’ own model diets – still leavesvegetable consumption well below the amount recommended by WHO/FAO (2003).

In summary, the model diets established by the new methodologytend to be similar to those established by the study countries them-selves. Both include the same major food groups, and quantities aresimilar on average for most major food groups. This means that the newmodel diets have the desirable attributes of generally reflectingnational food preferences, meeting nutritional needs, being relativelylow in cost, and being comparable across countries.

15 The lower average total cost of the internationally comparable model diets is mainly dueto the fact that they include fewer grams of meat. According to a sensitivity analysis in Anker(2005), total food cost is indeed sensitive to the percentage of total calories derived from proteinbecause a considerable part of this is provided by relatively expensive animal products.

Table 2. Difference in quantity by major food group (in grams) betweenthe proposed model diet and country’s own model diet(percentages)

Country Cereal Potato Pulses/nuts

Milk Eggs Meat Vege-tables

Fruit Oil Sugar

Bangladesh –34 25 0 52 8 –49 39 43 8 –5

Zimbabwe 2 57 19 –6 3 –42 31 63 –4 –4

Armenia –46 53 8 126 10 –33 44 –29 8 12

Ecuador 124 –108 12 18 11 –70 32 –95 –20 –45

Egypt 40 4 4 170 –1 –106 –37 –22 0 –22

Chinaa –184 171 71 –2 18 62 34 61 20 32

South Africa 15 –14 –33 –111 3 12 –55 59 –8 –26

Costa Rica 144b –14 –10 17 3 0 10 –11 –23 –67

United States 81b –73 –34 –71 –20 –79 112 –227 9 20

Mean 16 11 4 21 4 –34 23 –18 –1 –12

Medianc 15 4 4 17 3 –42 32 –11 –0 –5

a Differences for China are large because ChinaÕs own model diet is nutritionally unacceptable. India, Lithuaniaand Switzerland are not included in this table because these countries’ model diets were not available to theauthor. b It is assumed in the methodology that wheat is taken in the form of flour in low-income and lower mid-dle-income countries and in equal quantities of flour and bread in upper middle-income and high-income coun-tries. This partly explains the higher quantity of cereals in the internationally comparable model diets compared tocountry’s own model diet for Costa Rica and the United States. Because bread has approximately two-thirds asmany calories as flour, more bread is needed compared to flour to obtain the same number of cal-ories. c Median values are given in bold, because the country value for some foods (e.g. rice for China, sugarfor Costa Rica and Ecuador) are clearly inappropriate and this has a major effect on the mean for all countries.

Sources: Author’s calculations for proposed model diet values. Country’s own model diet values: Ravallion andSen (1996) for Bangladesh; Hamdok (1999) for Zimbabwe; Armenia (2004) for Armenia; World Bank (2002) forEgypt; Sangui (2004) for China; Martins and Maritz (2002) for South Africa; USDA (1999) for the United States;Costa Rica (2004) for Costa Rica; ILO (2004) for Ecuador.

298 International Labour Review

National poverty line estimatesThis section presents poverty line estimates for the 12 study coun-

tries using the new methodology (see table 3). The focus is on the extentto which the new poverty lines are consistent across development levels,and on how they compare with the poverty lines estimated by the coun-tries themselves and those estimated using the World Bank PPP method-ology. This analysis helps to evaluate the methodology and sheds newlight on the level of poverty in the world.

As expected, the values expressed in PPP tend to increase with de-velopment level (column 5 of table 3). Average 1993 PPP values increasefrom approximately US$2.3 per day for the three low-income countries,to US$3.0 for the five lower middle-income countries, to US$4.6 for thetwo upper middle-income countries, and to US$16 for the two high-income countries.

Estimated poverty lines in PPP, however, sometimes unexpectedlyoverlap with estimates for countries at a higher development level. Forexample, Zimbabwe’s estimated poverty line is higher than that of sev-eral of the lower middle-income countries; and China’s poverty line issimilar to Bangladesh’s. Interestingly, the poverty lines for the two Afri-can countries and the two transition-economy countries are especiallyhigh for their respective development levels. While these anomaliescould reflect real differences, they could also be due to problems with thepoverty line estimates and/or to problems with the PPPs in which they areexpressed. In this regard, it is important to remember (as noted above)that PPPs are often imprecise especially in high-inflation countries, andthis is believed to be a problem for Armenia, Ecuador, South Africaand Zimbabwe (see Anker, 2005, for a detailed discussion).

The average difference between the new poverty lines for the low-income and lower middle-income countries (around 30 per cent) ismuch smaller than the 100 per cent ad hoc difference assumed by theWorld Bank.16 This is an important result. It is due in part to differencesin the ratio of food to non-food costs at different development levels.As the poor spend a high percentage of their income on food, an argu-ment can be made to the effect that cross-national comparisons of pov-erty lines should not use overall PPPs as is done by the World Bank butshould instead use PPPs based on food prices only. Accordingly, Anker(2005) estimated food PPPs for study countries based on a typical lowermiddle-income country model diet. These food PPPs were found tobe consistently higher than the overall PPPs, because food prices are

16 It is worth noting that the differences estimated with the new methodology are consistentwith the data and discussion in Ravallion (1998) who reports that the elasticity of the national pov-erty line to national income per capita in PPP is close to zero at low per capita income levels andthat this elasticity remains low up to the income levels of lower middle-income countries. It is onlyfor upper middle-income and high-income countries that the elasticity is reported to be aroundone.


relatively low in the United States (the comparator country) relative tothe prices of other goods and services. While these food PPPs wereapproximately double the overall PPP for the low-income studycountries on average, they were only 1.2 times greater for the lowermiddle-income countries and 1.1 times greater for the upper middle-and high-income countries (Anker, 2005). Also worth noting is that allof the new poverty lines are consistent across development levels whenexpressed in food PPPs. There are no longer any overlaps in nationalvalues across development levels; values range from US$1.3 to US$1.4food PPP for the three low-income countries, from US$2.7 to US$2.9for the five lower middle-income countries, from US$4.5 to US$5.7 forthe two upper middle-income countries, and from US$16.4 to US$17.4for the two high-income countries.

The new poverty line estimates tend to be similar to the povertylines that the study countries use themselves, albeit with a slight upwardbias (figure 4 and column 6 in table 3). Just as important, almost all ofthe differences between the new poverty line and the country’s ownpoverty line are reasonable, given the inexact nature of estimating apoverty line. Differences are between –9 and –2 per cent for four of thecountries and between +17 and +39 per cent for six of the countries.Only Egypt and China are outside this range. Also reassuring is that thedirection of the difference between the newly estimated poverty lineand the country’s own poverty line is often consistent with how the newpoverty lines were estimated (see Anker, 2005, for details). For example,the estimate for India could be expected to be higher because it is basedon Mumbai food prices, which are higher than food prices in other partsof urban India; the poverty line estimate for Egypt was also likely to behigher partly because it is based on prices which the government usesto estimate the CPI) that are higher than the prices people actually payaccording to the World Bank (2002). The much higher poverty line esti-mated for China – which is similar to the World Bank’s – is traceable tothe unrealistically low level of the official Chinese poverty line.17

Figure 5 and column 7 in table 3 indicate that the new poverty lineestimates are much higher than those of the World Bank, especially forthe low-income study countries. Estimated poverty lines for the threelow-income countries are between 77 and 161 per cent higher than theWorld Bank’s. Even though this differential is partly due to the facturban prices were used for Bangladesh and India, it is clear that the new

17 As explained above, the model diet that China used to estimate its poverty line prior to1998 was clearly unhealthy because rice provided around 90 per cent of total calories. When thenational authorities improved the model diet used for estimating the poverty line in 1998, theysimultaneously reduced the non-food share of total expenditure from a realistic 40 per cent in 1997to a very unrealistic 11 per cent in 1998. In this way, China’s official poverty line and poverty rateremained basically unchanged between 1997 and 1998, with the poverty line changing only from630 to 635 yuan and the official poverty rate changing only from 30.1 to 29.3 per cent (Sangui,2004).

300 International Labour ReviewTa

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s. T

here

is n

o gu

idan

ce f

or u

pper

mid

dle-

inco

me

coun

trie

s or

for

high

-inco

me

coun

trie

s.cP

PP

s ar

e im

prec

ise,

whi

ch m

akes

com

paris

ons

with

Wor

ld B

ank

pove

rty

lines

als

o im

prec

ise.

PP

Ps

are

espe

cial

ly im

prec

ise

for Z

imba

bwe,

Arm

enia

and

Ecu

ador

(ver

y hi

gh in

flatio

nco

untr

ies)

, and

to a

less

er e

xten

t for

Sou

th A

frica

(see

Ank

er, 2

005)

.d

Ban

glad

esh’

s ur

ban

pove

rty

line

is u

sed

for

com

paris

on, b

ecau

se th

e ne

w p

over

ty li

ne w

as e

stim

ated

usi

ng fo

od p

rices

for

Dha

ka re

port

ed in

the

ILO

dat

abas

e. T

he u

rban

pov

erty

line

for

1991

-92

repo

rted

in R

aval

lion

and

Sen

(199

6) w

as u

pdat

ed to

dat

a ye

ar 1

996

by in

flatio

n. N

ote

that

the

1996

rur

al p

over

ty li

ne c

alcu

late

d in

this

way

was

19.

10.

eTh

e ne

w p

over

ty li

ne is

pro

babl

y ov

eres

timat

ed re

lativ

e to

Wor

ld B

ank’

s, b

ecau

se it

is e

stim

ated

for

urba

n ar

eas.

f Indi

a ha

s se

para

te o

ffici

al r

ural

and

urb

an p

over

ty li

nes.

For

com

paris

on, t

he G

over

nmen

t’s u

rban

pov

erty

line

was

use

d be

caus

e IL

O fo

od p

rice

data

wer

e fo

r M

umba

i. In

dia’

s ru

ral

pove

rty

line

was

12.

09.

gR

atio

is o

vere

stim

ated

bec

ause

the

new

pov

erty

line

for

Indi

a is

bas

ed o

n M

umba

i pric

es th

at a

re h

ighe

r th

an p

rices

in o

ther

Indi

an c

ities

(see

Ank

er, 2

005)

.hE

cuad

or’s

pov

erty

line

for

2001

as

repo

rted

in W

orld

Ban

k (2

004b

) was

redu

ced

by re

port

ed in

flatio

n in

200

1.i P

over

ty li

ne fo

r m

etro

polit

an E

gypt

is u

sed

for

com

paris

on w

ith t

he n

ew p

over

ty li

ne, b

ecau

se fo

od p

rices

in t

he IL

O d

atab

ase

are

for

urba

n ar

eas.

Egy

pt’s

ow

n po

vert

y lin

e is

2.4

0fo

r ru

ral a

reas

and

2.5

6 fo

r ot

her

urba

n ar

eas.

j The

new

pov

erty

line

for

Chi

na w

as e

stim

ated

usi

ng p

rices

for

Shi

jazh

uang

, whi

ch a

ppea

rs to

hav

e re

ason

ably

typi

cal p

rices

for

Chi

na (A

nker

, 200

5).

kTh

e of

ficia

l pov

erty

line

for

Chi

na is

muc

h to

o lo

w b

ecau

se it

is b

ased

on

an u

nacc

epta

ble

diet

(see

tabl

e 2)

. For

this

reas

on, t

he a

vera

ge w

as a

lso

calc

ulat

ed w

ithou

t Chi

na.

l Lith

uani

a’s

own

pove

rty

line

diffe

rs fr

om th

e ot

her p

over

ty li

nes

in th

is ta

ble

in th

at it

is a

rela

tive

pove

rty

line.

It e

qual

s 50

per

cen

t of a

vera

ge c

onsu

mer

exp

endi

ture

for a

n eq

uiva

lent

cons

umer

.m

Cos

ta R

ica’

s ur

ban

pove

rty

was

use

d fo

r co

mpa

rison

, bec

ause

the

new

pov

erty

line

was

est

imat

ed u

sing

ILO

food

pric

e da

ta fo

r ur

ban

area

s. C

osta

Ric

a’s

own

rura

l pov

erty

line

was

649

.37.

nS

witz

erla

nd d

oes

not

have

an

offic

ial p

over

ty li

ne. I

t ha

s a

“sem

i-offi

cial

” po

vert

y lin

e fo

r a

sing

le a

dult

hous

ehol

d fro

m C

SIA

S (S

wis

s C

onfe

dera

tion

of S

ocia

l Ins

titut

ions

). Th

is w

asco

nver

ted

to a

per

cap

ita v

alue

for

a ho

useh

old

of fo

ur u

sing

a C

SIA

S h

ouse

hold

siz

e sc

alar

and

then

upd

ated

to 2

001

usin

g re

port

ed in

flatio

n.o

Bot

h th

e ne

w p

over

ty li

ne a

nd t

he o

ffici

al p

over

ty li

ne f

or t

he U

nite

d S

tate

s w

ould

hav

e be

en a

ppro

xim

atel

y U

S$1

.35

high

er if

tax

es (s

ales

and

pay

roll)

had

bee

n co

nsid

ered

and

betw

een

US

$1.3

5 an

d U

S$4

hig

her

if he

alth

car

e ex

pens

es h

ad b

een

cons

ider

ed fo

r th

e m

any

Am

eric

ans

not c

over

ed b

y st

ate

or e

mpl

oyer

med

ical

ben

efits

acc

ordi

ng to

est

imat

esin

Ank

er (2

005)

. On

the

othe

r ha

nd, t

he e

arne

d in

com

e ta

x cr

edit

that

ben

efits

low

-wag

e w

orke

rs w

ith a

fam

ily w

ould

hav

e re

duce

d th

e po

vert

y lin

e ha

d it

been

take

n in

to a

ccou

nt.

pTh

e U

nite

d S

tate

s of

ficia

l pov

erty

line

is w

idel

y ac

know

ledg

ed t

o be

an

unde

rest

imat

e. A

ccor

ding

to

the

Nat

iona

l Aca

dem

y of

Sci

ence

, it

was

bet

wee

n 14

and

34

per

cent

too

low

in 1

992

(Citr

o an

d M

icha

el, 1

995)

.S

ourc

es:

Aut

hor’s

est

imat

es a

nd c

alcu

latio

ns fo

r th

e ne

w p

over

ty li

ne a

nd W

orld

Ban

k po

vert

y lin

e as

des

crib

ed in

tex

t. Th

e fo

llow

ing

sour

ces

wer

e us

ed fo

r na

tiona

l pov

erty

line

s:R

aval

lion

and

Sen

(199

6) fo

r Ban

glad

esh;

Indi

a (2

004)

for I

ndia

; Zim

babw

e (2

004)

for Z

imba

bwe;

Arm

enia

(200

4) fo

r Arm

enia

; Wor

ld B

ank

(200

4b) f

or E

cuad

or; W

orld

Ban

k (2

002)

for

Egy

pt; S

angu

i (20

04) f

or C

hina

; Mar

tins

and

Mar

itz (2

002)

for S

outh

Afri

ca; L

ithua

nia

(200

1) fo

r Lith

uani

a; C

osta

Ric

a (2

004)

for C

osta

Ric

a; R

omer

o an

d To

rres

(200

3) fo

r Sw

itzer

land

;U

nite

d S

tate

s C

ensu

s B

urea

u (2

003)

for

the

Uni

ted

Sta

tes.


poverty lines for the low-income countries are substantially higher thanthe Bank’s.

Comparison with the World Bank poverty lines for the lower mid-dle-income countries produces a mixed picture, although the newly esti-mated poverty lines are still consistently higher than the Bank’s US$2.15a day at 1993 PPP. They are around 10 per cent higher for China, 20 percent higher for Egypt and Ecuador, 50 per cent higher for Armenia, and100 per cent higher for South Africa.

There are no World Bank poverty lines for upper middle-income orhigh-income countries, as the Bank has not extended its PPP method-ology to such countries. Reassuringly, however, the new poverty line esti-mates for these countries display a reasonable progression compared toestimates for the low-income and lower middle-income countries – aver-

17

34 3933

57

228

2432

-4 –4 –9–2

–50

0

50

100

150

200

250

BangladeshIndia

Zimbabwe

Armenia

Ecuador

Egypt

China

South AfricaLithuania

Costa RicaSwitzerland

United

StatesP

erce

ntag

e di

ffere

nce

Note: Colour of bar indicates development level: low-income , lower middle-income , upper middle-income ,and high-income .

The new estimate for India is probably too high relative to India’s own urban poverty line, because it is based on foodprice data from Mumbai where prices are higher than in other urban areas of India. The United States’ own national poverty line is underestimated according to the United States National Academy of Science (Citro and Michael, 1995).

Source: Table 3, column 6.

Figure 4. Differences between the new poverty line estimates and the poverty linesused by countries (percentages)


aging approximately US$4.6 and US$16 in 1993 PPP for upper middle-income and high-income countries, respectively.

In summary, the poverty lines estimated on the basis of the newmethodology for the 12 study countries appear reasonable: they aregenerally consistent with the poverty lines used by national authoritiesas well as internally consistent. The fact that the new estimates arehigher than the World Bank’s, especially for the low-income countries,suggests that the World Bank poverty lines are too low in the light ofthe very basic model diets specified for the low-income and lower mid-dle-income countries in the new methodology (e.g. around one cup ofmilk every four day, one egg every nine days, and one 85-gram servingof meat or fish every 12 days for low-income countries). Such resultslend support to the new methodology’s feasibility and usefulness – evenif specific country values and the methodology itself could be improved.

Note: Colour of bar indicates development level: low-income , and lower middle-income .

World Bank does not use its PPP methodology to estimate poverty lines for upper middle-income or high-income countries.

* Comparisons for Armenia, Ecuador and Zimbabwe are especially imprecise because of the difficulty of estimating 1993PPP in high-inflation countries and, therefore, the World Bank poverty line.

The new poverty lines for Bangladesh, India, Ecuador and Egypt are probably overestimated relative to the World Bank’s,because they are based on urban price data. See country notes in column 7, table 3.

Source: Table 3, column 7.

Figure 5. Percentage difference between the new poverty line estimatesand the World Bankís poverty lines for the low-incomeand lower middle-income study countries

104

77

161

46

24

9

103

18

0

20

40

60

80

100

120

140

160

Bangladesh India Zimbabwe* Armenia* Ecuador* Egypt China South Africa

Per

cent

age

diffe

renc

e


They also imply that there is considerably more poverty in the worldthan is currently believed based on the World Bank’s estimates.

Concluding remarksDrawing on a detailed ILO working paper (Anker, 2005), this art-

icle has described a new methodology for estimating internationallycomparable national poverty lines. The development of this new meth-odology should be seen in the present context wherein the most com-mon way to measure poverty internationally – the World Bank’spoverty lines of US$1 and US$2 a day – poses recognized problems andis, in any case, based on a methodology that is inappropriate for esti-mating national poverty lines.

The new methodology has a number of advantages. It is: (i) norma-tively based, with the underlying concept of poverty and food and non-food needs clearly reflected and measured; (ii) usable for all countries anddevelopment levels, which is important because poverty exists in all coun-tries; (iii) transparent, as the assumptions used to estimate national pov-erty lines are specified; (iv) inexpensive to use and update regularly for alarge number of countries as the required data are available online forfree; and (v) flexible, with calculations done in computer spreadsheets sothat underlying assumptions can be easily changed. It also can be used tocommunicate the meaning of being poor to the public in terms of food con-sumption and non-food expenses. The new methodology uses the sameapproach that most countries use to estimate their own national povertyline, namely, the traditional approach to the measurement of a nationalpoverty line which has been used at least since Rowntree’s classic study of1899 York. It involves establishing and costing an acceptable low-costnutritious model diet and then adding the cost of non-food necessities.What sets the new methodology described in this article apart fromearlier work on poverty line measurement is that the traditional ap-proach used at the national level has been replicated at the internationallevel in order to estimate comparable national poverty lines.

The new methodology was used to estimate national poverty linesfor 12 countries representing all regions and development levels in orderto examine how well the methodology works in practice and to providefresh insights into poverty around the world. This exercise included com-paring the new model diets and poverty line estimates to those of theWorld Bank and the countries themselves. The model diets establishedusing the new methodology were found to be acceptable in terms of cal-ories, proteins, carbohydrates and fats; to display reasonable patterns ofchange by development level; and to be generally similar to the modeldiets that the countries themselves use. The newly estimated nationalpoverty lines also tended to be similar to the poverty lines used by coun-tries, although they were somewhat higher. However, the new poverty


lines were much higher than those of the World Bank, especially for thethree low-income study countries. These results indicate that there ismuch more poverty in the world than is currently estimated by the WorldBank. There is also considerable poverty in upper middle-income andhigh-income countries – something which the World Bank does not con-sider with its US$1 and US$2 a day poverty lines.

Despite some limitations and possibilities for improvement – andthe inexact nature of all poverty line estimations – the new methodologydescribed in this article appears to provide a useful approach to measur-ing reasonably comparable national poverty lines. From the resultsobtained with this approach, it also appears that poverty in the world ismuch higher than is currently estimated by the World Bank and that pov-erty is common in all countries of the world.

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poverty lines around the world: a new methodology and internationally comparable estimates

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