Poverty Centre

INTERNATIONAL
United Nations Development Programme Working Paper number 29 September, 2006

NEW GLOBAL POVERTY COUNTS

Nanak Kakwani International Poverty Centre, United Nations Development Programme

and
Hyun H. Son International Poverty Centre, United Nations Development Programme

Working Paper

Copyright© 2006 United Nations Development Programme International Poverty Centre

International Poverty Centre SBS – Ed. BNDES,10o andar 70076 900 Brasilia DF Brazil povertycentre@undp-povertycentre.org www.undp.org/povertycentre Telephone +55 61 2105 5000 Fax +55 61 2105 5001

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org.22 in 1993 PPP exchange rates. Keywords:Poverty. al ost 1. Peter Townsend. or : ∗ .37 bilion peopl were poor around the worl in 2001.28 percent ofthe worl popul d ation – equival to ent 687 m ilion peopl – suf ered f l e f rom hunger in 2001. Gl obalestim ates. Purchasing Power Parity. The authors are gratef to Prof ul essor Peter Townsend f encouraging us to com pl this articl W e woul l to or ete e. O 53. the international poverty l is ine estim ated to be equal to $1. The study al provides gl m l e d so obal estim ates ofhunger. O 57 32.NEW GLOBAL POVERTY COU NTS ∗ Nanak Kakwani and Hyun H. Fax:55-61-2105 5001/5002. JEL Cl assif ication:I D31. d ike acknowl edge hel ulcom m ents and suggestions by Meghnad Desai. Tel 55-61-2105 5025. ogy. Son ABSTRACT The m ain obj ective ofthis study is to com pute an internationalpoverty threshol based on the d f ood requirem ent to ensure an adequate cal orie intake f the worl poorest.son@ undp-povertycentre. which hel ped im prove the f draf ofthis paper. A ccording to this new yardstick. The study or d’s proposes a new m ethodol ogy based on consum er theory to provide a cal oric based international poverty threshol U sing this m ethodol d. irst t Em ailaddress f correspondence:hyun. Peter Lam bert. according to which 13. Sergei Soares and pf Evan Due.

l 1997) estim ated that 1. but gl obalcounts can be used as a powerf device to create pol ul itical awareness in giving priority to poverty reduction. we chose the . n threshol the study util ds. izes unit record data f 19 l incom e countries ( in A sia and 15 in or ow 4 Af rica) Since the surveys in dif erent countries were conducted in dif erent years. Tanzania. Tunisia and Zam bia. 2001) l . bel which m eeting ow basic needs is not f l possibl Based on this poverty l Ravalion and Chen ( uly e. Nepal Pakistan. China. there is a cl ear-cut need to revise the gl obalpoverty estim ates so that they take som e basic capabil ities into account ( Sen. I ndia. I ndonesia. the W orl Bank has now recal ated the num ber ofpoor based on this new poverty d cul threshol which is stil ref d. The m ost im portant f eature ofthe new estim ates is that they are based on vastl im proved 1993 y PPP exchange rates f consum ption. The Report chose a $1 a day poverty l m easured in 1985 purchasing power parity ine. ity. The m ain obj e ective ofthis study is to com pute an internationalpoverty threshol based on the f d ood requirem ent to ensure adequate cal orie intake f the worl poorest. The study proposes a new m ethodol or d’s ogy based on consum er theory to provide cal oric based internationalpoverty threshol I the construction poverty ds. l e d Recentl Chen and Ravalion ( y. ( PPP) The PPP exchange rates are used because they take into account the l . l erred to as the $1 a day poverty l ( ine Chen and Ravalion.2 I nternationalPoverty Centre W orking Paper nº 29 1 I NTROD U CTI ON Gl obalestim ates ofpoverty can pl an im portant rol in m onitoring the l ay e eveland change in poverty at the gl oball . ine. l 2001)have produced m uch im proved gl obalestim ates of poverty based on an expanded database consisting of297 househol surveys spanning 88 d countries. even m obil which are al refected in nutritionalstatus. 1999) . The root idea ofthe poverty l is that it shoul refect the cost ofachieving basic hum an ine d l needs. the $1 a day ( $2 a day)poverty l does not refect the cost ofachieving or ine l any kind ofbasic hum an needs. d ine which is the m edian ofthe nationalpoverty l ines in 10 countries:Bangl adesh. as wel as providing benchm arks f l or individualcountries. This poverty l has com e to abl ine be regarded as providing the absol m inim um standard ofl ute iving. ter. al th. These rates are superior to the earl ones in term s of or ier coverage ofcountries and are based on price and consum ption baskets prevail in 1993. ing The W orl Bank determ ined a new poverty l of$1. However. I is true that an in-depth anal ofcountry. They have al provided estim ates ofthe change in gl so obalpoverty over tim e. ocalprices of goods and services that are not traded internationaly.08 per person per day at 1993 prices. and. The W orl Bank is the m ain institution that produces gl d obalestim ates of poverty. A ccording to ity y Lipton ( 1988) “access to [ adequate source ofnutrition” is a good indicator ofqual ofl e. which incl ing e uded onl 10 l incom e y ow countries. I was chosen m ainl because it was a typicalpoverty l t y ine prevail in the 1980s in a sam pl of33 countries. Thus.30 bilion peopl in the worl are poor. I its cal ations ofgl n cul obal poverty. abl . . Thail . l l though not in a l inear or otherwise sim pl way. l The $1 a day poverty l was chosen because it was the m ost typicalpoverty l am ong ine ine the l ow-incom e countries f which poverty l or ines were avail e. O ne ofthe basic hum an needs is the capabil to be adequatel nourished.specif poverty evel t ysis ic prof es is m ore usef f understanding the nature ofpoverty and f devising poverty il ul or or reduction strategies. f f l atest avail e survey in each country. I presented gl t obalpoverty estim ates f the f tim e in its 1990 W orl Devel or irst d opm ent Report. an] ity if heal shel education.

they were m ainl designed f com paring aggregates f y or rom nationalaccounts. The PPP exchange rates are essentialy the cost of l l iving indices am ong the countries. Son 3 The internationalpoverty threshol devel d oped on the basis of19 countries is used to produce gl obalpoverty counts util izing the W orl Bank data base consisting ofover 450 d surveys f about 100 counties covering 93 percent ofthe popul or ation ofl and m iddl ow eincom e countries in the worl d. the Bank has changed the base to 1993. . in the PPP baskets ofgoods and services do not adequatel represent the consum ption basket y ofthe poor. izing the 1993 PPP conversion rates. I m ust be em phasized that PPP exchange rates were not designed f m aking t or internationalpoverty com parisons. The changing ofthe PPP base can m ake a l of ot dif erence to the poverty l f ines as wel to the poverty rates. I is stated that these shoul not be considered as ‘of icial poverty l t d f ’ ines. the estim ation ofgl obalpoverty rates requires both PPP exchange rates and nationalconsum er price indices. These poverty l e ines were obtained f rom a wide range ofsources within and outside the Bank. 2 PU RCH ASI POWER PARI NG TY The purchasing power parity ( PPP)exchange rates are the essentialingredients ofdeterm ining internationaly com parabl poverty l l e ines. then we need to know the ith country’s poverty l d abl or ine in 2000. tabl al presents the 1993 PPP exchange rates.1 PPP exchange rates are based on prices ofcom m odities that are not representative ofthe consum ption baskets ofthe poor ( Rao. Thus. They alow us to m ake internationalcom parisons ofcosts l ofl iving in dif erent countries. e so 3 H OW D I TH E WORLD BANK ARRI AT TH E $1 A D AY D VE POVERTY LI NE? The 1990 W orl Devel d opm ent Report presented gl obalestim ates ofpoverty on the basis ofthe $1 a day poverty l m easured using a 1985 PPP exchange rate f the f tim e. I the present study we used the l n 1993 PPP exchange rates. either ofthe governm ents or ofthe Bank. For instance.08 in 1993 f d PPP ( 1993 prices)dolars is an appropriate internationalpoverty l then util in l ine. which are util ized f constructing the poverty threshol This or ds. Many were estim ates f rom independent researchers. 2003) More im portantl weights . Recentl d ine y. The W orl Bank ine or irst d arrived at the $1 a day poverty l based on the country specif nationalpoverty l ine ic ines f a or sam pl of33 countries. y. Suppose that we want to estim ate the poverty rate ofthe ith country f which the or househol survey is avail e f 2000. The accurate estim ation ofgl obalpoverty rates depends on the accuracy ofboth PPP exchange rates and consum er price indices. Tabl 1 presents the consum er price indices f the 19 countries in e or 1993 and the survey periods.Nanak Kakwani and Hyun H. The W orl Bank’s $1 a day poverty l was based on 1985 PPP exchange rates. This can easil be estim ated using the infation rate that occurred between 1993 y l and 2000. we can estim ate the equival val ofthis poverty l in the country’s ent ue ine l ocalcurrency in 1993 prices. the W orl Bank has determ ined that $1. these poverty l ines were evol using widel dif erent m ethodol ved y f ogies. Thus.

1 111.8 88.0 100.09 1.0 168. The W orl Bank attem pted to derive the internationalpoverty l by f d ine itting a crosscountry sem i-l f og unction.0 1.7 94.2 70.95 1.0 1993 PPP exchange rate 56.73 1.3 2.5 87.1 121. The correct ine procedure woul have been to use the weighted average poverty l with a weight proportional d ine to the popul ation ofthe urban and ruralareas.0 104.00 1.11 Burundi Burkina Faso Ivory Coast Cameroon Ethiopia Ghana Guinea Gambia Kenya Madagascar Mozambique Malawi Nigeria Uganda Zambia Bangladesh India Lao PDR Nepal Source:authors’ cal ations.81 1. I incl t uded m any rich industrial ized countries such as Japan. which do not have absol poverty.5 107.34 2. both in 1985 PPP dolars.5 11. I is obvious that this l shoul have been derived f t ine d rom a sam pl ofl e owincom e countries. rel ating a country’s poverty l with its m ean per capita private ine consum ption.2 39.52 1.3 178.50 2.42 1. e l The $1 a day l is said to be representative ofthe poverty l ine ines f ound am ong l owincom e countries.2 172 144.0 Survey year 186.0 82. m any countries have revised their l ocalpoverty l ines ( and som e have even changed the m ethodol ogy) This im pl that the $1 a day poverty l constructed on the basis ofm id .14 1.4 I nternationalPoverty Centre W orking Paper nº 29 TA BLE 1 Consum er pri i ces.5 260.1 103. They ute generaly use rel l ative poverty l ines.21 0.6 106 223.7 40. The nationalpoverty l ines so sel ected were constructed around the m id 1980s.2 90.5 36.4 221.8 530.5 48.0 223. But the Bank’s sam pl of33 countries consisted ofonl 10 l e y ow-incom e countries.3 808. poverty l ines f urban and ruralareas.6 150.4 70.0 78.70 1.3 122.0 209. 1993 PPP exchange rates and nati ce ndi onalpoverty l nes i Countries Survey Year 1998 1998 1998 1996 2000 1998 1994 1998 1997 2001 1996 1997 1996 1999 1998 2000 2000 1998 1996 Consumer price index 1993 73.9 339.7 7.1 142.5 48. Germ any.4 159. cul Som e countries had m ore than one poverty l For instance. Bel gium .9 9. A ustral W est ia.9 91.3 159.7 106. Since econom etric anal f ed to yiel a reasonabl l ysis ail d e .11 1.86 0.4 1.6 235.4 11.77 1.8 76.2 National Poverty line in 1993 PPP dollars 1. Since then.0 207. then the l or owest poverty l was chosen.4 12. Canada and U nited States.76 1. ies ine 1980s nationalpoverty l ines m ay not be appl icabl in the new m ilennium .3 103.99 1.2 50. ifthey had separate ine.2 129.0 74.26 2.

For instance. which becam e wel-known as the $1 a day poverty l The Bank’s cl l ine. ine The $1. as a resul ofboth the new price data avail e and better m ethods ofcal ating the PPP exchange t abl cul rates. d ine l ent poverty l at 1985 PPP dolars? The infation rate in the U SA between 1985 and 1993 was ine l l roughl about 50 percent ( y about 5. The W orl Bank did not adopt ine d ent d this poverty l because it was wel above the m edian ofthe 10 l ine l owest poverty l ines in the sam pl of33 countries. I ent ine nstead.2 4 CH ANGI TH E PPP BASE FROM 1985 TO 1993 NG I the l 1990s. Thail .08 a day is the m edian ofthe poverty l ines ofthe 10 countries with the l owest poverty l ines am ong a sam pl of33 countries. Sim il y. aim that $1 a day is representative ofpoverty l ines found am ong l ow-incom e countries has a very weak foundation. The m edian poverty l ofthese 10 countries was cal ated to be equalto $1.08 in 1993 PPP dolars to be its new d l internationalpoverty l which is stil ref ine.Nanak Kakwani and Hyun H. and. so m ainl what shoul be the poverty l at 1993 PPP dolars that is equival to the $1 a day y. arl I ndonesia and Thail and are not l incom e countries. The Bank has ent ine d def ended against this alegation by saying that one cannot sim pl adj f infation in the U S l y ust or l between 1985 and 1993 to update the poverty l because there has been a PPP deval ine uation ofpoor countries rel ative to the U S with the switch f rom the 1985 to 1993 based PPP. Tunisia and Zam bia. I ndia. which is incl uded in these 10 countries. they al raise som e questions. the countries with the l owest poverty l ines are not necessaril the y countries with the l owest incom es. I cannot be regarded as a typicalpoverty l e t ine ofl ow-incom e countries. or y W hil the new and im proved PPP f 1993 are wel st or com e. Thus. The ten countries with the l e owest poverty l ines in 1993 PPP dolars l were Bangl adesh. Since then m any countries have revised their national . China. Many critics have pointed out that the W orl Bank has l d owered the realpoverty l The ine. whil the earl Penn W orl Tabl abl or e ier d es provided the PPP rates f onl 60 countries. equival poverty l in 1993 PPP shoul have been $1. the nationalpoverty l ines com pil by the W orl Bank were ed d constructed around the m id 1980s. the W orl Bank adopted on an ad d hoc basis the m edian ofthe 10 l owest poverty l ines.08 in 1993 PPP is not equival ent to the original$1 a day l in 1985 PPP. $1.50 and not $1.08. the W orl Bank rel n ate d eased the 1993 PPP exchange rates. Tanzania. Thus. conversion rates are now avail e f 110 countries. Son 5 internationalpoverty l the Bank then decided to determ ine the poverty l by eyebaling ine.50 a day in 1993. correct procedure woul have been to estim ate the degree ofdeval d uation and then to determ ine the equival poverty l in 1993 PPP.00 in 1993 PPP.08 per ine cul person per day.5 percent per annum ) which m eans that the $1 a day . I this argum ent hol ( or which an adequate expl f ds f anation has not been provided) the . I ndonesia. which are superior to the earl ones in term s ofcoverage ofcountries and are based on prices and consum ption ier baskets constructed by the 1993 I nternationalCom parison Proj (CP) The new PPP ect I . Tunisia is a rel ativel rich country with per y capita consum ption of$ 8. poverty l in 1985 woul be equival to $1. Nepal Pakistan. ow 5 A COM PI LATI OF NEW NATI ON ONAL POVERTY LI NES A s noted in the previous section. the W orl Bank adopted $1. ine l the scatter pl of this equation. l erred to as $1 a day poverty l ine. This eyebaling m ethod gave rise to the poverty l of ot l ine $31 per m onth.

23 312.50 in 1993 PPP. the m edian poverty l is cal ated to n e rica ine cul be equalto $1.08 per day at 1993 PPP.82 36.42 TPL 519. U sing the typicalpoverty l of$1. To do that.95 439. given in Tabl 1. we com pil the nationalpoverty l ed ines f our sam pl of19 l incom e or e ow counties.68 9. we com puted the percentage and the num ber of ine poor f the 6 regions based on the W orl Bank cl or d assif ication.6 I nternationalPoverty Centre W orking Paper nº 29 poverty l ines ( and som e have even changed the m ethodol ogy) This im pl that the $1 a day . i) d ( Estim ates based on a typicalpoverty l am ong l ii) ine ow-incom e countries in the l 1990s.76 82. I y.89 3.74 779. The W orl Bank’s poverty l of$1. our poverty l ines are m ore recent.08 in 1993 PPP.19 26.35 31.865 bilion peopl l l e ived in poverty in 2001. Thus.04 56.50 to be a typicalpoverty l ofthe d ine l ow-incom e countries. ies poverty l constructed on the basis ofthe m id 1980s l ine ocalpoverty l ines m ay not be appl icabl e in the new m ilennium .27 TPL (ii) 28. nam el Burkina Faso. were constructed around the d period in the m id 1980s. W e obtained the nationalpoverty l rica ines f rom the W orl Bank’s various poverty assessm ent reports. ast um e I is interesting to note that m ost ofthe countries in our sam pl of19 countries in A f t e rica and A sia have poverty l ines that are m uch higher than $1. ndia and Nigeria.89 46. cul ( W orl Bank estim ates based on $1. ine or I our sam pl of19 countries in A f and A sia.57 1098.66 40. the poverty l ines. l e l ived in poverty.08 appears to be rather l d ine ow. These estim ates are ref erred to here as the TPL estim ates. I is. $1. TA BLE 2 Percentage and num ber of poor by regi ons i 2001 n Regions East Asia and Pacific East Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Total World Bank (i) 14.21 6.63 1865.08 a day is not a typicalpoverty l f poor countries. theref l t ore.34 52.58 61. Moreover.96 2. d ine. there is a wide divergence in gl obalpoverty counts between the W orl Bank’s estim ates d and our new estim ates based on a m ore typicalpoverty l am ong l ine ow-incom e countries.26 Percentage of poor Number of poor (million) Source:authors’ cal ations.46 9.50. l e These l ines are presented in the l col n ofTabl 1. ate . Thus. Most ofthese poverty l d ines were constructed in the m id to l 1990s.63 15.54 8. A ccording to the W orl Bank poverty l 1.38 21. which the W orl Bank has used. but the TPL estim ates show that 1. which have l ower poverty l ines than the W orl Bank poverty l Thus.12 16.098 bilion peopl in 2001 d ine. im portant to f an internationalpoverty l that can be ix ine considered representative ofthe poverty l ines f ound am ong l ow-incom e countries in the recent past. W e converted the nationalpoverty l ate ines f rom l ocal currency to PPP dolars using the consum er price indices and PPP exchange rates. f rom the 1990s.12 World Bank 271. 15 in Sub-Saharan A f and 4 in A sia. There are onl three y countries. we woul regard $1.29 416.

n m ay be the additional n im non-f ood requirem ent such as expenditure on extra cl othing and heating. the f or l ood basket and I is evident f t rom ( that ifu is f 1) ixed at the u* l non-f ood baskets.then f e orie l they w il enj the sam e l of util l oy evel ity. denoted by q f and q n . evelf al countries. Son 7 6 PROPOSED M ETH OD OLOGY BASED ON CONSU M ER TH EORY A poverty l specif the society’s m inim um standard ofl ine ies iving to which everybody in that society shoul be entitl Def d ed. W e present a detail discussion ofthe m odelin the A ppendix. The totalinternationalpoverty l f ines wil be obtained l by sum m ing the f ood and non-f ood poverty l ines. orie cost in f ood PPP dolars is a m onotonicaly increasing f l l unction ofthe util peopl enj This resul im pl ity e oy. Lemma 1:I the peopl in tw o countries have the sam e cal costin food PPP dolars. r n ( 1) where q f and q n are the quantity vectors off ood and non-f ood item s ofconsum ption. e f O ur m odelpresented in the A ppendix al dem onstrates that we can obtain the non-f so ood poverty l ines by util izing the f ood and totalexpenditure f unctions derived f rom consum er theory. the internationaly l l l com parabl f e ood poverty l wil be obtained by m ul ying a country’s cal ine l tipl orie requirem ent r by the cal orie cost ( ccost*)in f ood PPP dolars. This l m a has an im portant im pl em ication. t ies Lem m a 1 ( proofofwhich is given in the A ppendix) the . Thus. ining a m inim um standard ofl iving is not easy. which hel us to arrive at internationaly ps l com parabl poverty l e ines. The non-food poverty l ines estim ated in this way woul be com parabl across d e countries because they wil provide the sam e l l evelofutil to individual at the poverty ity s l ines but l iving in dif erent countries. d However. A n obvious way to def it is in term s ofthe util an average person derives by consum ing a given bundl of ine ity e goods and services. we can m ake som e j udgm ent about its m agnitude indirectl I this study.Nanak Kakwani and Hyun H. ed W ith the hel ofour m odel we have dem onstrated that the cal p . we have y. W e m ay def a util f ine ity unction as: u =u q f qn . then such estim ated poverty counts wil obviousl be internationaly com parabl l y l e. which is m easured by a util l d ed ity eveldenoted by u*. A nyone * ied f ixed f al or l whose actualenj oym ent ofutil is l than u is identif as poor. W e describe this procedure using Figure 1. respectivel r is the average cal y. then there wil be a singl poverty l which wil be l e ine. l f or f because the countries dif er with respect to their basic needs as m easured by r and n. I tels us that we can obtain internationaly t l l com parabl f e ood poverty l ines ifwe determ ine the f ood poverty l in each country by using ine a constant cal orie cost in f ood PPP dolars across al countries. I u* is f ity ess countries. The f l ood poverty l ines so obtained f each or country wil im pl the sam e util l l y ity evelenj oyed by the peopl in dif erent countries. respectivel wil be dif erent f dif erent countries y. Suppose an internationalm inim um standard ofl iving to which everybody shoul be entitl exists and. I a country with extrem e cl ate. I al f f l countries have the sam e basic needs. orie requirem ent ofa country and n is a m easure ofsom e other basic needs in a country. The util f ity unction given in ( cannot be directl estim ated f 1) y rom househol surveys. . l internationaly com parabl l e. n devel oped a m odelbased on consum er theory.

d’s ust suf icient to buy onl the nutritionaly adequate f f y l ood basket so that any expenditure a househol incurs on non-f d ood wil be absol y essential l utel . l or oy a given l evelofutil These expenditure f ity. Thus. ood poverty l so obtained ine wil be consistent with standard consum er theory. Note that this m ethod ofcal ating the l cul non-f ood poverty l is equival to Ravalion’s ( ine ent l 1998)upper poverty l which he derived ine. consum ers wil enj the m inim um basic standard of ine. which gives BD as the totalpoverty l that is consistent with the util l ine ity evelu*. Corresponding to point B on the x-axis. The ess non-food poverty l corresponds to the util l ine ity evel_u*. which wil m eet their cal l orie requirem ents. W e recom m end using CD as the non-f ity ood poverty l ine. respectivel wil be required in order f the consum ers to enj y. we obtain point D on the totalexpenditure f unction. spends on non-f ood item s wil be considered as basic non-f l ood needs. using a dif erent m ethodol f ogy. A t this point. l ways be l than CD. the non-f ood poverty l is the househol non-f ine d’s ood expenditure at which the househol d’s totalexpenditure is equalto the f ood poverty l A t this point. FI RE 1 GU D eterm i nati of Non-food Poverty Li on ne Total expenditure function D Food expenditure function E C Food poverty line O F A B * _u * u Utility . FE wil be the non-f l ood poverty l which wil al ine. which gives the util l ity evelu* that is im pl icit in the f ood poverty l A t this point. Ravalion ( l 1998)al suggested estim ating the non-f so ood poverty l using the idea that ine ifa person’s totalincom e is j enough to reach the f ust ood threshol anything that a person d. l standard util theory. Corresponding to point C. the horizontalaxis represents util l n ity eveland the verticalaxis represents expenditures. unctions are m onotonicaly increasing in the util l l ity evel u. C is the point that corresponds to the f ood poverty l on the f ine ood expenditure f unction. O bviousl then. which tel us how m uch l expenditure f ood and non-f ood. A ccording to this idea. CD wil be the non-f y l ood poverty l The non-f ine. I the f n igure. l oy l iving. the f the sam e l evelofconsum er util Thus.8 I nternationalPoverty Centre W orking Paper nº 29 I Figure 1. the househol incom e is j ine. whereas the f ood poverty l ine * ood and non-f ood poverty l ines do not im pl y corresponds to the util l ity evelu . we obtain B on the x-axis. E is the point at which the totalexpenditure is equalto the f ood poverty l ine. Figure 1 depicts the f ood and totalexpenditure f unctions. we say that Ravalion’s m ethod is inconsistent with ity.

we woul al know the util d so ity l evelenj oyed by the poor. im evel The U nited Nations’ Food and A gricul turalO rganization ( O )is m ainl concerned with the FA y m easurem ent ofunder nutrition in the worl so it provides cal d. The cal orie costs f Bangl or adesh are presented in Tabl 3. Househol surveys generaly provide us with expenditures and quantities ofeach f d l ood item consum ed by househol W e determ ined the average expenditure and average quantity ds.62 9.74 1. we constructed f f ive es.15 1993 PPP dollars 0. cal oric requirem ent ( needs)ofindividual I m ust be em phasized that these requirem ents or s. orie requirem ents f dif erent or f countries in the worl W e com pil the average cal d. This m eans that ifwe know the cal orie cost ofthe poor.61 0. we divided the popul d’s ation into f quintil by ranking the househol by their per capita f ive es ds inalconsum ption. W e constructed a l f ood basket f each quintil or e. the higher the util l . t depend on severalf actors such as age. 7.2 CA LO RI CO ST A ND THE FO O D PO VERTY LI C NE The f ood poverty l ofa househol can be determ ined by m ul ying the cal ine d tipl orie requirem ent ofthe househol by the cal d orie cost. ive ood baskets ( one f or each quintil .41 0. coul cal ate the cal d cul orie cost f each quintil by dividing the totalf or e ood expenditure by the totalcal ories. The f col n in Tabl 4 presents the cal or e irst um e orie requirem ents per person per day. Since we know the totalf ood expenditure f each quintil and the totalcal or e ories obtained f rom the f ood basket f each quintil we or e.02 .78 11. ofeach f ood item in each ofthe f quintil 3 Thus.Nanak Kakwani and Hyun H. cl atic conditions and activity l s. I was dem onstrated in Section 2 that the cal t orie cost has a m onotonic rel ationship with the util l .81 19.000 ki o cal es i Bangl ori l ori n adesh Quintiles Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 Source:authors’ cal ations. e TA BLE 3 Cal c cost per 1. To do so. W e were al abl to acquire the quantity to cal e) so e orie conversions. sex. ed orie requirem ent ( individualper day) per f our sam pl of19 countries. we want to determ ine how the cal orie cost varies with the standard ofl iving m easured by the househol per capita consum ption. the greater the cal ity evel ity evel orie cost. body weight.1 CA LO RI REQ U I E REMENTS W e use the basic needs approach to construct the f ood poverty l This approach requires ine. Son 9 7 ESTI ATES OF A NU TRI ON BASED I M TI NTERNATI ONAL FOOD POVERTY LI NE 7. cul Takka in 2000 7.52 0. The f inal consum ption is def ined as a sum ofal net cash and in-kind expenditures. How do we f out the cal ind orie cost ofthe poor when we do not know who the poor are? W e used the f l olowing procedure: First. which provided us with the totalcal ories obtained f rom these baskets.47 13.

120 2.21 1.88 0.22 1. t ds or l usion f rom our m odelthat the cal orie cost is an increasing f unction ofthe standard ofl iving ( easured by the per capita m totalconsum ption)4 .14 1.84 0.170 2.87 0.050 2.63 0. which is 85 cents per person per day.120 Poverty line in 1993 PPP dollars Food 0.29 1. cul Note:* Per capita per day.110 2. The cal orie requirem ent f Bangl or adesh is 2.89 0.85 0.18 1.21 1. This is easil done util l y izing the CPIand PPP exchange rates given in Tabl 1. I order to m ake a com parison ofcal n orie costs across countries.10 1.82 0.28 0.200 2.41× 2080 /1000 .120 2.87 0.52 0.000 2.27 0.080 2.000 cal ories.080 2.85 Takka per person per day.080 2.170 2.85 0. we have m ade a j cul udgm ent that the f quintil is a reasonabl ref irst e e erence group.27 0.63 1.89 0.140 2.05 1. so the average f ood poverty l f Bangl ine or adesh woul be 7.070 2.110 2.87 0. I is noted that the cal t orie cost increases as we go f rom a l ower quintil to a higher e quintil This resul hol f al countries. peopl bel e onging to the f quintil spend 7.170 2.89 0.88 0.87 0. U sing the f quintil as a irst e ref erence group im pl that the f ies ood poverty l of85 cents per person per day is the ine absol m inim um f ute ood requirem ent in Bangl adesh bel which m eeting the basic ow nutritionalrequirem ent is not possibl e.85 0.35 0. This supports the concl e. .21 0.87 Non-food 0.90 0.85 0.47 1.23 1.68 0.41 1.080 cal ories per person per day.34 0. which is d equalto 15. The cal e oric cost in Bangl adesh f the peopl in the f or e irst quintil is 41 cents in 1993 PPP dolars. This is the f ood poverty l f Bangl ine or adesh.35 1.20 0.30 0.160 2.10 I nternationalPoverty Centre W orking Paper nº 29 I Bangl n adesh.62 × 2080 /1000 .56 1. This gives the f e l ood poverty l f Bangl ine or adesh in 1993 PPP dolars as equalto 0.74 0. I is essentialto m ake such a j t udgm ent about the ref erence group.30 0.130 2. TA BLE 4 New nutri on based poverty l ne at 1993 PPP dol ars ti i l Countries Burundi Burkina Faso Ivory Coast Cameroon Ethiopia Ghana Guinea Gambia Kenya Madagascar Mozambique Malawi Nigeria Uganda Zambia Bangladesh India Lao PDR Nepal Median Calorie requirement* 2.87 0. we need to convert the cal orie costs in l ocalcurrency to PPP dolars.140 2.41 0.89 0.22 Source:authors’ cal ations.26 1.74 0.16 1.39 0.62 Takka on f irst e ood in order to obtain 1.34 0.82 0.07 1.38 0.50 0.14 1. I these l n cal ations.63 1.35 Total 1.000 2.

cul Percentage of people (%) 7.34 685. This requirem ent wil l or l l ensure that the m inim um standard ofl iving rem ains the sam e f al countries. our m odelsuggested or f that we shoul use the sam e cal d orie cost in PPP dolars f al countries.85 13.Nanak Kakwani and Hyun H. cl y.93 18.46 33. The estim ates are presented in Tabl 5. ic ood basic needs. this is al very unnecessary. W e can use n so the cal orie cost ofa typicall ow-incom e country.55 2. we assum e that ifa househol ine. then we shoul d use a cal orie cost that is typicalofthe whol worl This woul require cal ating the cal e d. I our view. This sel ection was partl m otivated by the f that we did not have detail y act ed f ood baskets f other l or ow-incom e tropicalcountries. the f ood poverty l ines in 1993 PPP dolars f the 19 countries presented in Tabl 4 were com puted by m ul ying the cal l or e tipl oric requirem ents ofeach country by the cal oric cost of41 cents per 1. we dem onstrated that ifwe know the f n ood poverty l we can util consum er ine.28 percent ofthe worl popul e t d ation ( 685. I our study.48 7. d suf ers f f rom hunger. we can cal ate the percentage ofpopul cul ation that suf ers f f rom hunger. I is noted that 13.78 9 NON-FOOD POVERTY LI NE I Section 6. we sel n ected Bangl adesh as an anchor country.99 1. Since the f ood poverty l determ ines the m inim um ine basic f ood needs ofthe househol we can say that the househol suf ers f d.58 6.02 36.28 Number of people (million) 145.78 m ilion peopl suff l e) ered f rom hunger in 2001. appl this poverty l to m easure the percentage ofpeopl suffering f ied ine e rom hunger. U nder these assum ptions.75 248.000 cal ories. ize theory to estim ate the non-f ood poverty l which takes account ofcountry specif non-f ine. .4 0. then al its m em bers al suf er f l so f rom extrem e poverty. Thus. d f rom hunger ifits per capita totalconsum ption is l than the f ess ood poverty l Further. is earl beyond the scope ofthe present study. Son 11 I the construction off n ood poverty l ines f dif erent countries. The m aj ority ofpeopl suffering f e rom hunger are residing in South A sia and A f rica. This task. TA BLE 5 Percentage and num ber of peopl sufferi from hunger i 2001 e ng n Regions East Asia and Pacific East Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Total Source:authors’ cal ations.19 248. 8 ESTI ATES OF GLOBAL H U NGER M W e m ay def a househol to be suf ering f ine d f rom hunger ifit does not have enough incom e to be abl to m eet its basic f e ood needs. The m edian food poverty l is 87 cents per person per day ( 1993 PPP dolars) W e ine in l . which im pl or l ies that the f ood poverty l wil be internationaly com parabl ine l l e. d cul orie cost f al countries in the worl and cal ating the m edian cal or l d cul orie cost. I our obj f ective is to m ake an internationalcom parison ofpoverty rates.

in i) d ( iii) Sel the househol whose f ect ds ood-poverty l ratio l between 95 and 105. TA BLE 6 Percentage and num ber of poor usi nutri on based poverty l ne.63 in the I vory Coast.43 Number of people (million) 350. cal ate the ratio ofa househol per capita f cul d’s ood expenditure to the f ood poverty l m ul ied by 100.12 I nternationalPoverty Centre W orking Paper nº 29 The basic idea ofconsum er theory is that we determ ine the non-food poverty at the point where per capita househol food consum ption is equalto the food poverty l W e d ine. The non-f e ood poverty l ines in 1993 PPP dolars are l presented in Tabl 4.10 566.26 1.6 ine ies ( iv) Cal ate the average non-f cul ood poverty l f the individual bel ine or s onging to these househol ds. cul Percentage of people (%) 19.13 W e have util ized this new internationalyardstick to com pute gl obalpoverty counts. This was easil done using the consum er price indices and PPP l y exchange rates.365 bilion peopl l l e) ived in absol poverty in 2001. The m aj ute ority ofpoor are l iving in South A sia.50 352.22 (per person per day)varying f cul rom $1. This ratio wil be equalto 100 when the househol ine tipl l d’s per capita f ood expenditure is equalto the househol per capita f d’s ood poverty l ine.incom e countries is cal ated as equalto $1. The m edian poverty l am ong 19 l l ine ow.14 23. 2001 ng ti i Regions East Asia and Pacific East Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Total Source:authors’ cal ations.70 12.43 percent ofthe worl popul e t d ation ( 1. . To m ake internationalcom parisons ofthe non-f ood poverty l ines.365. we needed to convert them to PPP dolars. I is noted that 26.05 in Burundi to $1. ( i) First.23 4.96 11.09 41.42 60. These estim ates are presented in Tabl 6.27 26. which are given in Tabl 1.58 4. have util ized the folowing non-param etric approach to cal ate the non-food poverty l l cul ine 5 for each country. ( ii) A rrange the househol in ascending order according to the f ds ood poverty l ratio ine ( ( )using the househol survey data.13 52. e 10 TOTAL POVERTY LI AND POVERTY RATES NE The totalpoverty l ines f 19 countries were obtained by adding up the respective f or ood and non-f ood poverty l ines in 1993 PPP dolars. The above procedure provided the non-f ood poverty l f each country in l ine or ocal currency.

the m ain obj ective ofthis study has been to com pute the internationalpoverty threshol based on the f d ood requirem ent to ensure adequate cal orie intake f the worl or d’s poorest. 687 m ilion peopl are suf ering f l e f rom hunger. d’s l . A person is def ined as suf ering f f rom hunger ifhe or she does not have enough incom e to be abl to m eet his or her e basic f ood needs. A ccording to this new yardstick. or d. we com puted the internationalpoverty l as being equalto $1. ul ic awareness about the need to f ight poverty and achieve the Milennium Devel l opm ent Goal s. Son 13 11 CONCLU D I REM ARK S NG Every society has its own views on what constitutes a m inim um standard ofl iving.22.50 com pared to the W orl Bank’s figure of$1. A ccording to this def inition.37 bilion peopl were poor around the worl in 2001.9 bilion peopl l ine. y l e iving in poverty around the worl in 2001. I is. al ost ine m 1. Strictl y speaking.Nanak Kakwani and Hyun H. ogy. The study proposes a new m ethodol ogy based on consum er theory to provide a cal oric based internationalpoverty threshol U sing this m ethodol d. However. therefore. These estim ates wil cl y be hel ulto internationaldonor agencies that are concerned l earl pf about achieving the Milennium Devel l opm ent Goalofreducing worl hunger. gl n obalestim ates do pl an im portant rol in m onitoring the l ay e eveland change in poverty around the worl They can be used as a powerf toolto heighten publ d. im portant to f an cul t ix internationalpoverty l that is representative ofthe poverty l ine ines ofl ow-incom e countries in the recent past. U nf ortunatel the Bank has paid y. d O ur cal ations cl y suggest that an ef ort m ust be m ade to im prove the m ethodol cul earl f ogy f estim ating the num ber and percentage ofpoor peopl around the worl I f the W orl or e d. n act. The national poverty l ines com pil f the purpose ofdeterm ining the originalinternationalpoverty l ed or ine were constructed around the m id-1980s. The ef orts m ade by the W orl Bank to produce gl f d obalpoverty counts based on an internationaly com parabl threshol m ust be appl l e d auded. U sing this ine d poverty l we estim ated that there were nearl 1. we shoul not be abl to m ake cross-country com parisons ofpoverty rates since d e it woul be virtualy im possibl to agree on a com m on poverty basket that is acceptabl in d l e e every country. l e attention to im proving the m ethodol ittl ogy f constructing such a threshol I this paper. O ur estim ates are based on a m ore typicalpoverty l prevail in the m id 1990s ine ing am ong the l ow-incom e countries. This f d igure is considerabl higher than the 1. n we have dem onstrated how shaky the W orl Bank m ethodol d ogy has been. I this study. I spite ofthis. Many countries have revised them and som e have even changed the m ethodol ogy for their cal ation. 15 in Sub-Saharan A f rica and 4 in A sia.1 bilion poor reported by the y l Bank. d Bank’s poverty counts are in need ofserious adj ustm ent ifthey are to m ore accuratel refect y l the situation ofthe worl poorest in the new m ilennium . we have al provided gl n so obalestim ates ofhunger. l e d I this study. we have attem pted to address this deficiency by com pil the national n ing poverty l ines for a sam pl of19 l e ow-incom e countries.08. W e arrived at a poverty l of$1.

14 I nternationalPoverty Centre W orking Paper nº 29 APPEND I :PROPOSED M OD EL X This appendix presents the m odelthat hel to arrive at internationaly com parabl poverty l ps l e ines. Suppose p f and p n are the price vectors off ood and non-f ood item s ofconsum ption. we m axim ize util y. rp f . rp f . r n ( 1) A subj to budget constraint ect p f ⋅ q f + pn ⋅ qn ≤ x ( 2) A where x is the totalexpenditure or incom e that is avail e to the consum er. np n ( ) ( 5) A which is the m inim um cost ofbuying the individualutil u at given f ity ood and non-f ood prices. substituting ( 5)into ( 3)and ( 4)yiel the Hicksian f A A A ds ood and non-f ood dem and equations ( Hicks. l ity A f This m axim ization procedure yiel the f ds ood and non-f ood dem and f unctions as q f = rg f x. np n ( ) ) ( 6) A and q n = ng n u . 1930) l . respectivel then. np n ( ) ( 4) A respectivel These equations are the Marshalian dem and f y. Substituting ( 3)and ( 4)into ( 1)yiel the expenditure f A A A ds unction x = e u . l unctions ( Marshal. rp f . The f ood and non-f ood poverty l ines are then obtained by substituting u = u* in ( 6)and A ( 7) respectivel as A . using the conventionaltreatm ent ofconsum er choice. ity f unction u= u q f qn . I is assum ed that abl t al countries have the sam e util as ( 1)but dif erent r and n. . Further. 1957) : q f = rg f u . rp f . rp f . y. np n ( ) ( 3) A and q n = ng n x. np n ( ( 7) A respectivel y.

using ( 6) we obtain A . rp f . The olowing sol ution is proposed. The cal orie cost in ( 12)is in l A ocalcurrency ofthe country. A y orie cost f unction as c cos t = p f g f u * ( ) ( 12) A Thus. the cal orie cost ofa country depends on two f actors. f the util peopl enj This proves Lem m a 1 given in Section 2. f ood prices and the util l ity evelu*. ( ) . The f y ood poverty l in ( 8)wil then be given by ine A l F = p f q f = rp f g f u * ( ) ( 11) A Since the f ood poverty l can al be written as the product ofcal ine so orie requirem ent and cal orie cost ( which is the expenditure on f ood per cal orie) ( 11)im m ediatel gives the cal . which shoul be d equalto the cal orie requirem ent r. Suppose c is the vector that converts a f ood quantity vector qf into cal ories. rp f .g f ( u * . that is. np n ) = 1 ( 10) A I this equation is to hol f al exogenousl determ ined val ofr. c × qf is the num ber ofcal ories that are obtained f rom the f ood basket qf . np n ) shoul not contain rpf and npn as its argum ents. These l ity ines are internationaly com parabl because they m aintain the sam e util l l e ity evelacross countries. Since p *f is the international l * f ood price ( which is sam e f al countries)and g f u is a m onotonicaly increasing f or l l unction rom ( 14)the cal A orie cost in f ood PPP dolars is a m onotonicaly increasing f l l unction of ofu*. c is f ixed f each country depending on the kind off or ood the county’s popul ation is consum ing. rp f . ity e oy.Nanak Kakwani and Hyun H. np n ( ) ) ( 8) A and NF = p n q n = np n g n u * . c. Son 15 F = p f q f = rp f g f u*. probl is:How do we determ ine u*? The f l em The f ood poverty l shoul satisf the requirem ent that cal ine d y orie intake is equalto cal orie requirem ent. the PPP conversion rate k is given by * f p f = kp * f which on substituting in ( 12)gives A c cos t * = p*f g f ( u * ) ( 13) A ( 14) A where c cos t * = c cos t / k is the cal orie cost in f ood PPP dolars. The PPP converts prices in l ocalcurrency ofa country to prices in U S dolars. then the f d or l y ues * f unction g f ( u . it shoul d d * depend onl on u . rp f . pf . n and pn. Thus. np n ( ( 9) A Equations ( 8)and ( 9)give the f A A ood and non-f ood poverty l ines at the point where individual ofthe country concerned enj the sam e l s oy evelutil u*. Suppose l p is the vector ofinternationalf ood prices.

which is the util l A . The non-food ine l poverty l ines estim ated this way woul be com parabl across countries because they provide d e the sam e l evelofutil to individual at the poverty l ity s ines but l iving in dif erent countries. The f totalinternationalpoverty l ines are obtained by sum m ing the f ood and non-f ood poverty l ines. ve or and is f ixed across countries.then f e orie l they w il enj the sam e l of util l oy evel ity. substituting u* into ( 9) we can sol f the non-f A . l cal orie requirem ent r by the cal orie cost ( ccost*)in f Given F*. we can determ ine the f ood poverty l f each country in l ine or ocalcurrency. we obtain the non-food poverty l in internationaldolars. Lem m a 1 tels us that we can obtain internationaly l l com parabl f e ood poverty l ines ifwe determ ine the f ood poverty l in each country by ine using a constant cal orie cost in f ood PPP dolars across al countries. l ood poverty l in l ine ocalcurrency. Further. the internationaly l l l * com parabl food poverty l ( e ine denoting by F )wil be obtained by m ul ying a country’s l tipl ood PPP dolars. which is in PPP dolars and the f l ood PPP exchange rates. Substituting F into ity evelenj oyed by peopl at the f e ood poverty l ine ( 11) we can sol f u*. U sing the non-f ood PPP conversions. Thus. which wil be the non-f ine. which we denote by F. . ve or ood poverty l NF.16 I nternationalPoverty Centre W orking Paper nº 29 Lemma 1:I the peopl in tw o countries have the sam e cal costin food PPP dolars. A s pointed out in Section 2.

( 2003) “I . (1988). W ashington. M. ntegration ofCPIand PPP:Methodol ogicalissues. 3. T. Review of I ncom e and W eal 37. ( l 1998) “Poverty Lines in Theory and Practice”. ( l 2001) “Com m ents on ‘Counting the W orl Poor’ by A ngus Deaton”.Nanak Kakwani and Hyun H. 283-300. Chen. Ravalion. van de W ale ( l l 1991) “Q uantif .: W orl Bank. d opm ent Report 1990. Deaton. opm entas a Freedom . Vol 16. Hicks. G. d . pp. M. London. W orl . R. A . ( 1946) Val and Capital Cl . 2. 2. ( 1999) D evel . l Distribution and Poverty”. pp. S. 2. pp.. Sen. S. No. W ashington. Chen ( l 1997) “W hat Can New Survey Data Tel U s about Recent . . 125-147. ue . 2) Ravalion. M. pp. P. O xf U niversity Press:O xf ord ord. Datt. No. f easibil and ity recom m endations”. “The poor and the poorest”. Vol 1 ( . th. Ravalion ( l 2001) “How Did the W orl Poorest Fare in the 1990s” Review of .C. and D.. arendon Press:O xf ord. d’s d Bank Research O bserver. Lipton. W orl Bank . d Marshal. A .. and M. ying A bsol Poverty in the W orl ute d”. Son 17 REFERENCES Chen. and M. M.157-168. d’s I ncom e and W eal Series 47. . N. 25. D. Vol 16.. 345-61. 133. W orl Bank ( d 1990) W orl Devel . . Macm ilan & Co. M. No. s ncreasing or Decreasing in the Devel oping W orl Review of I d” ncom e and W eal Series 40. G. Srinivasan. pp. The . .C. Paper presented at the Joint W orl Bank-O ECD Sem inar on Purchasing d Power Parities. A . W ashington D. pp. d’s d Research O bserver. 359-76. th. W orl Bank. 357-82. O xf U niversity Press:New York. J. Datt. Ravalion ( l 1994) “I Poverty I . LSMS W orking Paper No. ( l 1930) Principl of Econom ics. W orl Bank Econom ic Review . and S. Ravalion. No. ( 2001) “Com m ents on ‘Counting the W orl Poor’ by A ngus Deaton”. D. 149-156. ( 2001) “Counting the W orl Poor:Probl s and Possibl Sol . pp. Vol 16. 8th ed. Discussion Paper No. Sept. d’s em e utions” W orl Bank d Research O bserver. es l Rao. th. ord . .C. d Ravalion.

5. U sing such rich country prices wil inf ate poor country incom es ( l l and vice versa) A s a resul this underestim ates worl poverty. f exam pl substituting m eat f potatoes. Thus. The richer househol m ay al be paying higher prices f the sam e f or e or ds so or f ood item s because they generaly buy higher qual f l ity ood item s ( or exam pl a superior qual ofrice) f e. which our m ethodol ogy requires. e cul e ect W e sel ected a range ofthe f ood-poverty l ratios l ine ying between 95 and 105. Q uintil were constructed using househol per capita consum ption expenditure. which m eans we shoul sel the househol at the point where the househol food-poverty l ratio is equal to 100. d onl f y ood prices are used. W e are suggesting a non-param etric approach. Since it is d ect ds d’s ine im possibl to cal ate this ratio for a specific point. l ve around technical aspects of how to def the poor and not on the m easures and pol ine icies necessary to l t them f if rom poverty. 6. There are two m ain l itations to PPP. we woul require unit record data on d househol expenditure surveys. this wil reduce the bias. t. A n intuitive interpretation of this resul is that richer househol consum e their cal t ds ories f rom m ore expensive food stuf s. it is reasonabl to sel a range in the neighbourhood of 100. W estern Europe. if . es d 4. To im pl ent this m ethodol em ogy. W e shoul sel househol whose per capita f d ect ds ood expenditure is equal to the f ood poverty l ine. im y. O ne can al use a regression m odel( proposed by Ravalion 1998) W e bel d so as l . Firstl as PPP com parisons weigh prices by the share in worl consum ption. f eating. though sim pl m ay be sel-def e. . ity . and Japan. 3. Defenders of a 1$ a day poverty l argue that one of the m ost im portant m erits of this approach is sim pl ine icity. ieve that the non-param etric approach is m ore robust. The argum ent is that if the def inition of poverty l ines becom es too com pl then the debate on poverty wil revol ex. l 2. pol ef orts f icy f ocused on the wrong target.NOTES 1. d worl dwide rel ative prices cl y track rel osel ative prices in the U nited States. O n the other hand.

org/povertycentre Telephone +55 61 2105 5000 Fax +55 61 2105 5001 .undp. BNDES.org www.10o andar 70076 900 Brasilia DF Brazil povertycentre@undp-povertycentre.International Poverty Centre SBS – Ed.

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