World Bank
August 26, 2008
The World Bank said improved economic estimates showed there were more poor people around the world than previously thought while also revealing big successes in the fight to overcome extreme poverty.
The new estimates, which reflect improvements in internationally comparable price data, offer a much more accurate picture of the cost of living in developing countries and set a new poverty line of US$1.25 a day. They are based on the results of the 2005 International Comparison Program (ICP), released earlier this year.
In a new paper, "The developing world is poorer than we thought but no less successful in the fight against poverty," Martin Ravallion and Shaohua Chen revise estimates of poverty since 1981, finding that 1.4 billion people (one in four) in the developing world were living below US$1.25 a day in 2005, down from 1.9 billion (one in two) in 1981.
An earlier estimate—of 985 million people living below the former international US$1 a day poverty line in 2004 —was based on the (then) best available cost of living data from 1993. The old data also indicated about 1.5 billion in poverty in 1981. However, the new and far better ICP data on prices in developing countries reveal that these estimates were too low.
The new estimates continue to assess world poverty by the standards of the poorest countries. The new line of US$1.25 for 2005 is the average national poverty line for the poorest 10-20 countries.
"The new estimates are a major advance in poverty measurement because they are based on far better price data for assuring that the poverty lines are comparable across countries," said Martin Ravallion, Director of the Development Research Group at the World Bank, "Data from household surveys have also improved in terms of country coverage, data access, and timeliness."
"The new data confirm that the world will likely reach the first Millennium Development Goal of halving the 1990 level of poverty by 2015 and that poverty has fallen by about one percentage point a year since 1981, " said Justin Lin, Chief Economist and Senior Vice President, Development Economics at the World Bank. "However, the sobering news that poverty is more pervasive than we thought means we must redouble our efforts, especially in Sub-Saharan Africa."
The new data show that marked regional differences in progress against poverty persist. Poverty in East Asia has fallen from nearly 80 percent of the population living below US$1.25 a day in 1981 to 18 percent in 2005. However, the poverty rate in Sub-Saharan Africa remains at 50 percent in 2005—no lower than in 1981, although with more encouraging recent signs of progress.
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This is the first major effort to update poverty data based on 2005 measures of purchasing power parity. The new poverty estimates are also based on data from 675 household surveys across 116 developing countries. Over 1.2 million randomly sampled households were interviewed for the 2005 estimate, representing 96% of the developing world. But lags in survey data availability mean that the new estimates do not yet reflect the potentially large adverse effects on poor people of rising food and fuel prices since 2005.
The number of poor has fallen by 500 million since 1981 (from 52 percent of the developing world's population in 1981 to 26 percent in 2005) and the world is still on track to halve the 1990 poverty rate by 2015. But at this rate of progress, about a billion people will still live below $1.25 a day in 2015. Also, most people who escaped $1.25 a day poverty over 1981-2005 would still be poor by middle-income country standards.
East Asia's progress has been dramatic since 1981, when it was the poorest region in the world. In China, the number of people living on less than $1.25 a day in 2005 prices has dropped from 835 million in 1981 to 207 million in 2005. The Bank's earlier 2004 estimate had 130 million people living in China below $1 a day based on 1993 PPP. Thus, the new calculations reveal more poor people than assumed earlier, but China's remarkable success in reducing poverty still stands.
In the developing world outside China, the $1.25 poverty rate has fallen from 40 percent to 29 percent over 1981-2005. However, given population growth, this progress was not enough to bring down the total number of poor outside China, which has stayed at about 1.2 billion.
In South Asia, the $1.25 poverty rate has fallen from 60 percent to 40 percent over 1981-2005, but again, not enough to bring down the total number of poor people in the region, which stood at about 600 million in 2005. In India, poverty at $1.25 a day in 2005 prices increased from 420 million people in 1981 to 455 million in 2005, while the poverty rate as a share of the total population went from 60% in 1981 to 42% in 2005.
In Sub-Saharan Africa, the $1.25 a day rate was 50 percent in 2005—the same as it was in 1981, after rising, then falling during the period. The number of poor has almost doubled, from 200 million in 1981 to about 380 million in 2005. If the trend persists, a third of the world's poor will live in Africa by 2015. Average consumption among poor people in Sub-Saharan Africa stood at a meager 70 cents a day in 2005. Given that poverty is so deep in Africa, even higher growth will be needed than for other regions to have the same impact on poverty.
For middle income countries the median poverty line for all developing countries—$2 a day—is more suitable. 2.6 billion people lived on less than $2 a day in 2005—a number largely unchanged since 1981. This suggests less progress in crossing the $2 a day hurdle. By this measure, the poverty rate has fallen over 1981-2005 in Latin America and the Middle East and North Africa, but not enough to bring down the total number of poor. The $2 a day poverty rate has risen in Eastern Europe and Central Asia, though with signs of progress since the late 1990s.
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