raising the bar

Asia has gotten too rich for the global poverty line

August 28, 2014
August 28, 2014

Where is the line between “poor” and “not poor”? The international standard says that anyone making under $1.25 per day should be considered poor. Above that, not poor.

Now that line is looking too low to be relevant in Asia, a testament to the scale of the economic growth on the continent in recent decades.

A report (pdf) released this month by the Asian Development Bank makes the case for a higher, Asia-focused poverty line (The World Bank sets the international standard). Indeed, all Asian countries save one—Afghanistan—already have national poverty lines above the international figure. Many are considerably higher.

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The report offers a few criticisms of the $1.25 figure. For one, making it relevant to all countries requires adjusting local currencies at purchasing power parity, or PPP, which measures a currency’s ability to buy goods. While more instructive than a simple exchange rate, PPPs aren’t much good at assessing the lives of the poor.

PPPs are “generated to compare overall price levels, not prices specifically applicable to the poor,” the report says. Price changes in middle-class products like televisions or cars don’t affect the poor, who spend nearly all of their income on basic goods like food. The Financial Times’ Alphaville blog agrees that PPP is a “pretty poor parallel.”

Another criticism of the international number is it’s an average of national poverty lines of the world’s 15 poorest countries. But only two of these are in Asia, making it “too low to be relevant for policymakers,” says the report.

The World Bank is considering increasing its poverty line (paywall). For the meanwhile, the Asian Development Bank report is using its own methodology to settle on a regional poverty line of $1.51. The additional $0.26 makes a difference: By that standard, the number of people termed “poor” in the region goes up by more than 340 million, and the poverty rate for Asia increases from about 20% to over 30%. At $1.51, for instance, India’s poverty rate rises by 15 percentage points.

Estimated-Asian-poverty-rates-with-a-minimum-income-of-1-51-per-day_mapbuilder

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