GOAL AND TARGET ADDRESSED
Goal 1. Eradicate extreme poverty and hunger
Target 1.A Halve, between 1990 and 2015, the proportion of people whose income is less than $1.25 a day
DEFINITION AND METHOD OF COMPUTATION
The proportion of the population living below the poverty line is also known as the headcount index (or incidence of poverty or poverty rate).Method of Computation
The percentage of the population living below the poverty line is calculated using either consumption or income data, gathered from nationally representative household surveys. Consumption is preferred to income for measuring poverty, because income is more difficult to measure accurately and can vary over time even if the standard of living does not. However, in practice the two methods yield similar results.Consumption, including consumption from own production (or income when consumption is unavailable), is calculated for the entire household and then divided by the number of persons living in the household to derive a per capita measure. Households are then ranked by either consumption (or income) per person and compared to the poverty line to determine the numbers of people living above and below the poverty line. The sample distributions of poor people are weighted by household size and sample expansion factors so that they are representative of the population of each country. This generates an estimate of the number of people living in households with levels of per capita consumption or income below the poverty line. The total number below the poverty line is divided by the total population to estimate the proportion of the population that is poor. This number is multiplied by 100 to derive a percentage.The formula for calculating this indicator is as follows:where P0 represents the headcount index, I(.) is an indicator function that takes on the value 1 if the bracketed expression is true, and 0 otherwise. If individual consumption or income (yi) is less than the poverty line (z), then I(.) is equal to 1 and the individual is counted as poor. Np is the total number of the poor and N is the total population.
RATIONALE AND INTERPRETATION
SOURCES AND DATA COLLECTION
DISAGGREGATION
COMMENTS AND LIMITATIONS
GENDER EQUALITY ISSUES
DATA FOR GLOBAL AND REGIONAL MONITORING
The first global poverty estimates for developing countries produced by the World Bank were published in the World Development Report 1990 using household survey data for 22 countries. Since then there has been considerable expansion in the number of countries that field household income and expenditure surveys. The World Bank’s poverty monitoring database maintained by the Development Research Group now includes more than 675 surveys representing 116 developing countries collected between 1979 and 2007. Not all of these surveys are comparable in design and sampling methods. Non-representative surveys, though useful for some purposes, are excluded from the calculation of international poverty rates. As of 2009 there were 508 surveys for 115 countries available for deriving poverty estimates. More than 1.2 million randomly sampled households were interviewed in these surveys, representing 96 percent of the population of developing countries. Data coverage is improving in all regions, but the Middle East and North Africa and Sub-Saharan Africa continue to lag. The database is updated annually as new survey data become available, and a major reassessment of progress against poverty is made about every three years.To compare the number of poor across countries and compute regional aggregates, country estimates must first be “lined up” to a common reference year. This involves estimating figures through interpolation for countries that do not provide survey data for the reference year, but do provide data for years before or after the reference year. The process requires adjusting the mean income or expenditure observed in the survey year by a growth factor to infer the unobserved level in the reference year. Thus, two assumptions are required to implement this process: distribution-neutral growth and a conjectured real rate of growth between the survey and reference year.
Distribution-neutral growth implies that income or expenditure levels are adjusted for growth assuming that the underlying distribution of income or expenditure observed in survey years remains unchanged. Under this assumption, it is straightforward to interpolate the poverty estimate in a given reference year using a given rate of growth in income or expenditure.The rate of change in real consumption per capita should be based on the change in real consumption measured by comparing country survey data across different years. In practice, however, survey data in most countries are not available on an annual basis. Therefore, the change in private consumption per capita as measured in the national accounts is used instead. While there can be no guarantee that the survey-based measure of income or consumption changes at exactly the same rate as private consumption in the national accounts, under certain circumstances and over short periods of time it can provide a reasonable approximation.When the reference year falls between two survey years, an estimate of mean consumption at the reference year is constructed by extrapolating the mean consumption obtained from the surveys forward and backward to the reference year. The second step for constructing comparable poverty rates is to compute the headcount poverty rate for the reference year after normalizing the distributions observed in the two survey years by the reference year mean consumption. This yields two estimates of the headcount poverty rates in the reference year. The final reported poverty headcount rate for the reference years is the average of the two estimates. For example, if the reference year is 1993 and two surveys are available for 1989 and 1995, two means can be computed for the reference year based on two surveys, M93(89) and M93(95) where M93(t) is the estimated mean for 1993 using the survey for year t. Based on the 1989 distribution and M93(89), the headcount index obtained using the 1993 mean and the 1989 distribution H93(89) can be estimated. Similarly, based on the 1995 distribution and M93, H93(95) is estimated. The poverty headcount for 1993 is estimated as the weighted average of H93(89) and H93(95) according to the following formula: When data from only one survey year are available, the reference year mean is based on the survey mean by applying the growth rate in private consumption per capita from the national accounts. The reference year poverty estimate is then based on this mean and on the distribution observed in the one survey year.The better the data coverage is in terms of number and frequency of available surveys, the more accurate this lining-up process is and the more reliable the regional estimates will be.
SUPPLEMENTARY INFORMATION
EXAMPLES
REFERENCES