Shifting Perceptions of Poverty

• Author: Justin Yifu Lin
• Position: Senior Vice President and Chief Economist of the World Bank
• Pages: 54-55

Revised poverty statistics may improve understanding of the development process

Page 54

Imagine you are the prime minister of a developing country. You have been working hard for many years to reform your country's economy so that growth rates can be improved and sustained, and poverty reduced. Just when you were confi dent things were on the right track and that clear progress was being made toward meeting the Millennium Development Goals (MDGs), out of the blue, some World Bank poverty experts come up with new calculations revealing that the updated international poverty rate in your country is much higher than previously thought. Surprised, you gather your thoughts and request that your own experts carefully review their statistics. Yet they, too, review the empirical evidence and confi rm that poverty is more pervasive than you thought.

That is more or less the situation in which many policymakers in developing countries find themselves since the release of the World Bank's internationally comparable poverty estimates. The news was sobering indeed:

A study by my colleagues Martin Ravallion and Shaohua Chen, which adjusts the yardstick for measuring global poverty to $1.25 a day in 2005 prices, reveals that more people are living in poverty in developing countries than previously thought, based on the World Bank's prior international poverty line of $1.08 a day in 1993 prices. After a major revision of the method used to calculate poverty, they estimate that 1.4 billion people, or 25 percent of the population of the developing world, live below the international poverty line. Previous work published in 2007 had estimated that 950 million people, or 17 percent of the developing world's population, were living on $1.08 a day or less. By the updated measure, an additional 400 million people are living in poverty.

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The new study also found poverty falling from 52 percent of the developing world's population in 1981 to 42 percent in 1990 to 25 percent in 2005, with a constant rate of decline for 1981-2005 of about 1 percentage point a year for the developing world as a whole. It concluded that the world is still on track to reach the first MDG of halving the 1990 level of poverty by 2015.

Dramatic shift

The main reason behind such a dramatic shift in numbers is straightforward: the...