1.2 Poverty gap ratio

Modified on 2013/03/27 10:49 by The World Bank — Categorized as: Goal 1

Contents


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

Definition
The poverty gap ratio is the mean shortfall of the total population from the poverty line (counting the non-poor as having zero shortfall), expressed as a percentage of the poverty line.

Concepts
The poverty line is a common method used to measure poverty based on income or consumption levels. A person is considered poor if his or her consumption or income level falls below some minimum level necessary to meet basic needs. This minimum level is referred to as the poverty line.

The international poverty line used for the calculation of this indicator is the $1.25 a day international line, converted to national currency units using the latest purchasing power parity (PPP) exchange rates for consumption (see “CONCEPTS” for Indicator 1.1).

National poverty lines are defined differently across countries based on different calculation methods (see “CONCEPTS” for Indicator 1.1a).

The purchasing power parity (PPP) conversion factor for private consumption represents the number of units of a country's currency required to buy the same amounts of goods and services in the domestic market as one United States dollar would buy in the United States. It is based on the System of National Accounts’ concept of actual individual consumption.

Method of Computation
The poverty gap ratio is measured as follows:

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where P1 represents the poverty gap and is calculated as the sum of the relative distance between the poverty line (z) and income or consumption for those who are poor (the non-poor have a poverty gap of zero). I(.) is an indicator function that equals 1 if the bracketed expression is true, and 0 otherwise. N is the total population.

This formula is calculated based on data on individuals (yi as per capita income or consumption). If household-level data are used, the formula has to be adjusted by the weight wi, which is the household size times sampling expansion factor for every household i.

The poverty line used for this calculation can be either the international poverty line of $1.25 a day converted into respective national currency units at the latest PPP exchange rates for consumption, or the national poverty line (see Indicator 1.1 and Indicator 1.1a).

RATIONALE AND INTERPRETATION

The indicator measures the “poverty deficit” of the entire population, where the poverty deficit is the per capita amount of resources that would be needed to bring all poor people above the poverty line through perfectly targeted cash transfers. Hence, the indicator is often described as a tool for measuring the per capita amount of resources needed to eliminate poverty, identifying the poverty depth in population groups which makes it a very useful indicator for policy makers and donors.

The poverty gap indicator supplements the poverty headcount indicator in describing the poverty situation. The larger the poverty gap the poorer on average are people below the poverty line and the more resources are needed to lift everyone out of poverty. If two countries have about the same poverty headcounts, but the first country has a poverty gap estimate that is much higher than the second country, then the first country can be considered “poorer” than the second country.

Poverty measures based on an international poverty line attempt to hold the real value of the poverty line constant across countries, as is done when making comparisons over time. Therefore, when computed based on a common poverty line measured using purchasing power parities, poverty gaps are comparable across countries.

SOURCES AND DATA COLLECTION

The indicator should be produced using nationally representative household surveys that are of good quality, contain sufficient information to produce a comprehensive consumption or income aggregate, and allow for the construction of a correctly weighted distribution of per capita consumption or income.

For data sources, see Indicator 1.1.

DISAGGREGATION

It is sometimes possible to disaggregate this indicator by urban-rural location. In such cases, a clear definition of urban and rural areas needs to be established and included in the metadata.

COMMENTS AND LIMITATIONS

See “COMMENTS AND LIMITATIONS” for Indicator 1.1.

GENDER EQUALITY ISSUES

See “GENDER EQUALITY ISSUES” for Indicator 1.1.

DATA FOR GLOBAL AND REGIONAL MONITORING

The responsible agency for monitoring this indicator at the global level is the World Bank. In order to produce the estimates, international poverty indicators are produced for each country based on an internationally comparable poverty line, which allows for comparisons across countries.

See “DATA FOR GLOBAL AND REGIONAL MONITORING” for Indicator 1.1 on the procedure for lining up country estimates to a common reference year, replacing ‘poverty headcount (H)’ with ‘poverty gap (PG)’.

SUPPLEMENTARY INFORMATION

No information available yet.

EXAMPLES

No information available yet.

REFERENCES

See “REFERENCES” for Indicator 1.1.