Saturday, August 15, 2009

How many poor people are there?

Scott Forbes linked me to a thought-provoking 2005 article titled "How not to count the poor"by Sanja Reddy and Thomas Pogge at Columbia University (PDF). The bottom line is that the simple question of how many poor people there are in the world is surprisingly hard to answer.

Reddy & Pogge argue that "[t]he World Bank’s approach to estimating the extent, distribution and trend of global income poverty is neither meaningful nor reliable. The Bank uses an arbitrary international poverty line that is not adequately anchored in any specification of the real requirements of human beings. Moreover, it employs a concept of purchasing power "equivalence" that is neither well defined nor appropriate for poverty assessment. . . In addition, the Bank extrapolates incorrectly from limited data and thereby creates an appearance of precision that masks the high probable error of its estimates." Furthermore: "There is some reason to think that the distortion is in the direction of understating the extent of income poverty."

(A rebuttal by Mark Ravallion at the Bank can be found here.)

Their alternative: construct poverty lines in each country using a "common achievement interpretation". Such poverty lines would use the local costs of achieving universal, commonly specified ends like being adequately nourished. (Ravallion argues this is pretty much what countries already to do create national poverty lines.)

Reddy & Pogge argue that such poverty lines "would have a common meaning across space and time, offering a consistent framework for identifying the poor. As a result, they would permit of meaningful and consistent inter-country comparison and aggregation."

The catch seems to be that such an approach requires one "to carry out on a world scale an equivalent of the poverty measurement exercises conducted regularly by national governments, in which poverty lines that possess an explicit achievement interpretation are developed." This is difficult politically, since a common core conception of poverty will have to be agreed, and financially, since local poverty commissions in each country would have to be funded to construct and update poverty lines over time.

The authors don't claim that their metric would lead to substantially different, or better, policies. Better then, perhaps, to spend money on poverty-focused development assistance rather than improving the metrics. However, the Bank should be more honest about the flakiness of its numbers by at least not reporting them "with six-digit precision".

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