Development indicators Gianni Vaggi and Clara Capelli University of Pavia November 2013 Poverty Choosing and estimating poverty lines • Monetary (e.g. a certain level of consumption) • Nonmonetary (e.g. a certain level of literacy) • Relative/national poverty lines: in relation to the overall distribution of income or consumption in a country. Strictly related to inequality (Sen 1983). • Absolute poverty lines: anchored to some absolute standard (see the cost of basic needs approach). Sometimes "absolute poverty" is used as a synonym of "extreme poverty". Measuring extreme poverty at world level: The 1990 WDR • Standards of living (incomes and consumption), plus measures of nutrition, life expectancy, child mortality and school enrollment rates. • Poverty lines: "A consumption-based poverty line can be thought of comprising two elements: • the expenditure necessary to buy a minimum standard of nutrition and other basic necessities; • a further amount that varies from country to country, reflecting the cost of participating in the everyday life of society“. A person can appear in public without shame (Adam Smith 1776). 1985 Total population: 4,8 billion. More than 1 billion people under the poverty line. The Absolute Poverty Lines • 1990 WDR: $ 1 per day in 1985 US$ (Ravaillon, Datt, Van De Walle): first global poverty threshold; • 2000: $ 1.08 per day in 1993 US$ prices(Chen and Ravaillon); • 2008 "Dollar a Day Revisited" (Ravaillon, Chen, Sangraula): the line is set at $1.25 (PPP 2005); • $2 poverty line ($2.15 in 2000, $2.50 in 2008). Measuring the international poverty line 1990 Country-poverty lines of six developing countries clustered around $370 (1985 PPP) a year : the 1-dollar-a-day story was born. 2000 1.08 dollar a day. 75 poverty lines examined, 15 lowest taken(Nepal Tajikistan and 13 SSA countries) ; a person is poor if she consumes less than an American spending 1.08 USD at 1993 prices. • All data derive form national household consumption surveys, which are based on a sample of the whole population. • If you use GDP from national account extreme poverty is much lower(see Sala i Martin) Choosing and estimating poverty measures Once the line has been set, poverty is to be measured in terms of its: Incidence /headcount index: share of the population whose income or consumption is below the poverty line. Depth/poverty gap: how far off household are from the poverty line, is the mean shortfall from the poverty line (counting the non-poor as zero shortfall) expressed as a percentage of the poverty line Choosing and estimating poverty measures incidence, depth and severity: People living on less than 1.25 a day (millions): • • 1,909 in 1990; 1,289 in 2008; Poverty Headcount ratio at 1.25 a day: • • 43.1% in 1990; 22.4% in 2008; Source: PovcalNet Source: WDI, 2012 Economia dello Sviluppo Regional focus • The greatest reduction in poverty occurred in East Asia and Pacific: • • • From 77% in 1981 to 14% in 2008; In absolute terms, the poor population dropped by 800 million; Such decline is mostly attributable to China (from 84% to 13%, 660 million people). • In South Asia, poverty rate fell from 61% to 36%; • Sub-Saharan Africa’s performance was poor: the poverty rate was approximately 50% in 1981, it rose to nearly 60% in 1993 and then dropped to 47.5% in 2008. The number of people below the poverty line has nearly doubled in this time span and started declining only from 2005 onwards. Economia dello Sviluppo • Most of the people who have escaped extreme poverty are still "poor", i.e. they live below the $2a-day line; • People living below this line dropped from 70% in 1981 to 43% in 2008; • In absolute terms, the number is constant at 2.5 billion people; • The largest decrease occurred in East Asia and Pacific, thanks to China; • At global level, the number of people living on $1.25-$2 a day nearly double, hitting 1.2 billion. Economia dello Sviluppo China/1 GDP per capita, USD, Atlas method Source: WB Database Economia dello Sviluppo China/2 $1.25-a-day Poverty Line, Headcount Ratio Source: WB Database Economia dello Sviluppo China/3 $2.50-a-day Poverty Line, Headcount Ratio Source: WB Database Economia dello Sviluppo India/1 GDP per capita, USD, Atlas method Source: WB Database Economia dello Sviluppo India/2 $1.25-a-day Poverty Line, Headcount Ratio Source: WB Database Economia dello Sviluppo India/3 $2.50-a-day Poverty Line, Headcount Ratio Source: WB Database Economia dello Sviluppo