Global poverty and inequality: are the revised estimates open to an alternative interpretation?

Abstract

The level of, and trends in, global inequality and global poverty are indicative assessments of who has benefited from economic growth. The revision of price data has led to a reassessment of those estimates. Through an extensive overview of the implications, we argue that the data can be read in different ways. Official estimates show global extreme poverty and global inequality are considerably lower than previously thought. We argue that these changes are much less significant than they at first appear, and we present a more nuanced alternative interpretation by exploring changes across the entire global distribution.

Keywords:

• Poverty and inequality
• globalisation
• economy and finance
• Global South
• aid and capital flows
• economic growth

Notes

1. The rebasing of the official global poverty line from 2005 to 2011 PPP in Ferreira et al., “Global Count of the Extreme Poor” (and preceded by Jolliffe and Prydz, Estimating International Poverty Lines), has received one examination so far – Reddy and Lahoti, “$1.90” – and there is one technical paper on the PPP methodology – Inklaar and Rao, “Cross-Country Income Levels.”

2. Deaton and Dupriez, in “Purchasing Power Parity Exchange Rates,” constructed new PPPs for consumption near the poverty line using 2005 PPPs, and found that there was little difference between PPPs for the consumption of the ‘poor’ and PPPs based on national accounts using the ICP 2005.

3. See, for discussion: Anand and Segal, “Global Distribution of Income”; Chen and Ravallion, “Developing World Is Poorer”; Deaton, “Measuring Poverty in a Growing World,”; Deaton, “Price Indexes, Inequality, and the Measurement”; Deaton, “Measuring Development”; Deaton and Heston, “Understanding PPPs”; Deaton and Dupriez, “Purchasing Power Parity Exchange Rates”; Edward and Sumner, Future of Global Poverty; Edward and Sumner, Geography of Inequality; Edward and Sumner, “Estimating the Scale and Geography of Global Poverty”; Klasen, “Levels and Trends in Absolute Poverty”; Milanovic, Global Inequality Recalculated; and Ravallion, Chan and Sangraula, Dollar a Day Revisited.

4. Deaton and Aten, Trying to Understand the PPPs, 1.

5. Ibid., 18.

6. Deaton and Aten, Trying to Understand the PPPs, 6. Others concur, for example Inklaar and Rao, “Cross-Country Income Levels,” but Ravallion, in “Exploration of the ICPs,” questions this thesis.

7. Deaton and Aten, Trying to Understand the PPPs, 15.

8. Ibid.

9. Ibid., 27. Notably, the 2011 PPP data collection did make better efforts to ensure adequate cover of rural and urban areas.

10. Deaton, “Price Indexes, Inequality, and the Measurement,” 31.

11. A full description of the data set is contained within Edward and Sumner, “Estimating the Scale and Geography of Global Poverty.” The data set was previously developed in Edward, “Examining Inequality,” and then updated and expanded in Edward and Sumner, Future of Global Poverty; Edward and Sumner, Geography of Inequality.

12. The most recent data published in WDI using the old 2005 PPP rates were for 2012. So we focus on 2012 as the most recent year for direct comparisons.

13. Because surveys of national distributions are often only made several years apart, the analysis to 2012 may be more representative than that to 2015.

14. This would not be the case for the within-country component of the Theil T, because that is an income- or consumption-weighted average of within-country inequalities.

15. For example, Niño-Zarazúa, Roope and Tarp, in Global Interpersonal Inequality, provide a detailed discussion on the impact of China and India on global inequality.

16. Quah, “Twin Peaks: Growth and Convergence.”

17. Ferreira et al., “Global Count of the Extreme Poor”; Jolliffe and Prydz, Estimating International Poverty Lines.

18. Reddy and Lahoti, “$1.90.” For historic commentary see also Reddy and Pogge, “How Not to Count the Poor”; and Ravallion, “Reply to Reddy and Pogge.”

19. Jolliffe and Prydz, Estimating International Poverty Lines, 4.

20. Ravallion, Chan and Sangraula, Dollar a Day Revisited.

21. Jolliffe and Prydz, Estimating International Poverty Lines. They propose a new data set of estimates for national poverty lines in 2011 PPP by inferring national poverty lines from the poverty rate to estimate national poverty lines.

22. Various people, including many of the World Bank staff cited in this section, have suggested multiple poverty lines are required, and the World Bank has had two poverty lines though the higher line is little used.

23. Alkire et al., “Multidimensional Poverty Measurement and Analysis.”

24. Birdsall and Meyer, “Median is the Message.”

25. For Latin America: López-Calva and Ortiz-Juarez, “Vulnerability Approach to the Definition of the Middle Class.” For Indonesia: Sumner, Yusuf and Suara, Prospects of the Poor.