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United Nations Development Programme Working Paper number 29 September, 2006
and
Hyun H. Son International Poverty Centre, United Nations Development Programme
Working Paper
International Poverty Centre SBS Ed. BNDES,10o andar 70076 900 Brasilia DF Brazil povertycentre@undp-povertycentre.org www.undp.org/povertycentre Telephone +55 61 2105 5000 Fax +55 61 2105 5001
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ABSTRACT
The m ain obj ective ofthis study is to com pute an internationalpoverty threshol based on the d f ood requirem ent to ensure an adequate cal orie intake f the worl poorest. The study or ds proposes a new m ethodol ogy based on consum er theory to provide a cal oric based international poverty threshol U sing this m ethodol d. ogy, the international poverty l is ine estim ated to be equal to $1.22 in 1993 PPP exchange rates. A ccording to this new yardstick, al ost 1.37 bilion peopl were poor around the worl in 2001. The study al provides gl m l e d so obal estim ates ofhunger, according to which 13.28 percent ofthe worl popul d ation equival to ent 687 m ilion peopl suf ered f l e f rom hunger in 2001.
Keywords:Poverty, Purchasing Power Parity, Gl obalestim ates. JEL Cl assif ication:I D31, O 53, O 57 32,
The authors are gratef to Prof ul essor Peter Townsend f encouraging us to com pl this articl W e woul l to or ete e. d ike acknowl edge hel ulcom m ents and suggestions by Meghnad Desai, Peter Lam bert, Peter Townsend, Sergei Soares and pf Evan Due, which hel ped im prove the f draf ofthis paper. irst t Em ailaddress f correspondence:hyun.son@ undp-povertycentre.org; Tel 55-61-2105 5025; Fax:55-61-2105 5001/5002. or :
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1 I NTROD U CTI ON
Gl obalestim ates ofpoverty can pl an im portant rol in m onitoring the l ay e eveland change in poverty at the gl oball . I is true that an in-depth anal ofcountry- specif poverty evel t ysis ic prof es is m ore usef f understanding the nature ofpoverty and f devising poverty il ul or or reduction strategies, but gl obalcounts can be used as a powerf device to create pol ul itical awareness in giving priority to poverty reduction, as wel as providing benchm arks f l or individualcountries. The W orl Bank is the m ain institution that produces gl d obalestim ates of poverty. I presented gl t obalpoverty estim ates f the f tim e in its 1990 W orl Devel or irst d opm ent Report. The Report chose a $1 a day poverty l m easured in 1985 purchasing power parity ine, ( PPP) The PPP exchange rates are used because they take into account the l . ocalprices of goods and services that are not traded internationaly. l The $1 a day poverty l was chosen because it was the m ost typicalpoverty l am ong ine ine the l ow-incom e countries f which poverty l or ines were avail e. This poverty l has com e to abl ine be regarded as providing the absol m inim um standard ofl ute iving, bel which m eeting ow basic needs is not f l possibl Based on this poverty l Ravalion and Chen ( uly e. ine, l 1997) estim ated that 1.30 bilion peopl in the worl are poor. l e d Recentl Chen and Ravalion ( y, l 2001)have produced m uch im proved gl obalestim ates of poverty based on an expanded database consisting of297 househol surveys spanning 88 d countries. They have al provided estim ates ofthe change in gl so obalpoverty over tim e. The m ost im portant f eature ofthe new estim ates is that they are based on vastl im proved 1993 y PPP exchange rates f consum ption. These rates are superior to the earl ones in term s of or ier coverage ofcountries and are based on price and consum ption baskets prevail in 1993. ing The W orl Bank determ ined a new poverty l of$1.08 per person per day at 1993 prices, d ine which is the m edian ofthe nationalpoverty l ines in 10 countries:Bangl adesh, China, I ndia, I ndonesia, Nepal Pakistan, Thail , and, Tanzania, Tunisia and Zam bia. I its cal ations ofgl n cul obal poverty, the W orl Bank has now recal ated the num ber ofpoor based on this new poverty d cul threshol which is stil ref d, l erred to as the $1 a day poverty l ( ine Chen and Ravalion, 2001) l . The root idea ofthe poverty l is that it shoul refect the cost ofachieving basic hum an ine d l needs. However, the $1 a day ( $2 a day)poverty l does not refect the cost ofachieving or ine l any kind ofbasic hum an needs. I was chosen m ainl because it was a typicalpoverty l t y ine prevail in the 1980s in a sam pl of33 countries, which incl ing e uded onl 10 l incom e y ow countries. Thus, there is a cl ear-cut need to revise the gl obalpoverty estim ates so that they take som e basic capabil ities into account ( Sen, 1999) . O ne ofthe basic hum an needs is the capabil to be adequatel nourished. A ccording to ity y Lipton ( 1988) access to [ adequate source ofnutrition is a good indicator ofqual ofl e; , an] ity if heal shel education, even m obil which are al refected in nutritionalstatus, al th, ter, ity, l l though not in a l inear or otherwise sim pl way. The m ain obj e ective ofthis study is to com pute an internationalpoverty threshol based on the f d ood requirem ent to ensure adequate cal orie intake f the worl poorest. The study proposes a new m ethodol or ds ogy based on consum er theory to provide cal oric based internationalpoverty threshol I the construction poverty ds. n threshol the study util ds, izes unit record data f 19 l incom e countries ( in A sia and 15 in or ow 4 Af rica) Since the surveys in dif erent countries were conducted in dif erent years, we chose the . f f l atest avail e survey in each country. abl
The internationalpoverty threshol devel d oped on the basis of19 countries is used to produce gl obalpoverty counts util izing the W orl Bank data base consisting ofover 450 d surveys f about 100 counties covering 93 percent ofthe popul or ation ofl and m iddl ow eincom e countries in the worl d.
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TA BLE 1
Consum er pri i ces, 1993 PPP exchange rates and nati ce ndi onalpoverty l nes i
Countries Survey Year 1998 1998 1998 1996 2000 1998 1994 1998 1997 2001 1996 1997 1996 1999 1998 2000 2000 1998 1996 Consumer price index 1993 73.0 74.4 70.2 70.5 87.2 50.2 90.9 91.8 76.5 48.2 39.7 40.5 36.8 88.5 48.3 159.0 100.0 78.0 82.0 Survey year 186.5 107.1 111.1 103.6 106 223.7 94.7 106.1 121.2 172 144.6 150.2 129.3 122.4 221.6 235.0 168.0 207.0 104.0 1993 PPP exchange rate 56.3 103.4 159.1 142.4 1.3 178.9 339.3 2.4 11.8 530.3 808.0 1.5 11.5 260.0 223.4 12.7 7.0 209.9 9.2 National Poverty line in 1993 PPP dollars 1.21 0.99 1.77 1.81 1.50 2.34 2.26 2.52 1.95 1.11 1.73 1.86 0.76 1.70 1.14 1.42 1.00 1.09 1.11
Burundi Burkina Faso Ivory Coast Cameroon Ethiopia Ghana Guinea Gambia Kenya Madagascar Mozambique Malawi Nigeria Uganda Zambia Bangladesh India Lao PDR Nepal
Som e countries had m ore than one poverty l For instance, ifthey had separate ine. poverty l ines f urban and ruralareas, then the l or owest poverty l was chosen. The correct ine procedure woul have been to use the weighted average poverty l with a weight proportional d ine to the popul ation ofthe urban and ruralareas. The nationalpoverty l ines so sel ected were constructed around the m id 1980s. Since then, m any countries have revised their l ocalpoverty l ines ( and som e have even changed the m ethodol ogy) This im pl that the $1 a day poverty l constructed on the basis ofm id . ies ine 1980s nationalpoverty l ines m ay not be appl icabl in the new m ilennium . e l The $1 a day l is said to be representative ofthe poverty l ine ines f ound am ong l owincom e countries. I is obvious that this l shoul have been derived f t ine d rom a sam pl ofl e owincom e countries. But the Banks sam pl of33 countries consisted ofonl 10 l e y ow-incom e countries. I incl t uded m any rich industrial ized countries such as Japan, A ustral W est ia, Germ any, Bel gium , Canada and U nited States, which do not have absol poverty. They ute generaly use rel l ative poverty l ines. The W orl Bank attem pted to derive the internationalpoverty l by f d ine itting a crosscountry sem i-l f og unction, rel ating a countrys poverty l with its m ean per capita private ine consum ption, both in 1985 PPP dolars. Since econom etric anal f ed to yiel a reasonabl l ysis ail d e
internationalpoverty l the Bank then decided to determ ine the poverty l by eyebaling ine, ine l the scatter pl of this equation. This eyebaling m ethod gave rise to the poverty l of ot l ine $31 per m onth, which becam e wel-known as the $1 a day poverty l The Banks cl l ine. aim that $1 a day is representative ofpoverty l ines found am ong l ow-incom e countries has a very weak foundation.2
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poverty l ines ( and som e have even changed the m ethodol ogy) This im pl that the $1 a day . ies poverty l constructed on the basis ofthe m id 1980s l ine ocalpoverty l ines m ay not be appl icabl e in the new m ilennium . I is, theref l t ore, im portant to f an internationalpoverty l that can be ix ine considered representative ofthe poverty l ines f ound am ong l ow-incom e countries in the recent past. To do that, we com pil the nationalpoverty l ed ines f our sam pl of19 l incom e or e ow counties, 15 in Sub-Saharan A f and 4 in A sia. W e obtained the nationalpoverty l rica ines f rom the W orl Banks various poverty assessm ent reports. Most ofthese poverty l d ines were constructed in the m id to l 1990s. W e converted the nationalpoverty l ate ines f rom l ocal currency to PPP dolars using the consum er price indices and PPP exchange rates, given in Tabl 1. l e These l ines are presented in the l col n ofTabl 1. ast um e I is interesting to note that m ost ofthe countries in our sam pl of19 countries in A f t e rica and A sia have poverty l ines that are m uch higher than $1.08 in 1993 PPP. There are onl three y countries, nam el Burkina Faso, I y, ndia and Nigeria, which have l ower poverty l ines than the W orl Bank poverty l Thus, $1.08 a day is not a typicalpoverty l f poor countries. d ine. ine or I our sam pl of19 countries in A f and A sia, the m edian poverty l is cal ated to n e rica ine cul be equalto $1.50 in 1993 PPP. Thus, we woul regard $1.50 to be a typicalpoverty l ofthe d ine l ow-incom e countries. The W orl Banks poverty l of$1.08 appears to be rather l d ine ow. Moreover, the poverty l ines, which the W orl Bank has used, were constructed around the d period in the m id 1980s; our poverty l ines are m ore recent, f rom the 1990s. U sing the typicalpoverty l of$1.50, we com puted the percentage and the num ber of ine poor f the 6 regions based on the W orl Bank cl or d assif ication. These estim ates are ref erred to here as the TPL estim ates. A ccording to the W orl Bank poverty l 1.098 bilion peopl in 2001 d ine, l e l ived in poverty, but the TPL estim ates show that 1.865 bilion peopl l l e ived in poverty in 2001. Thus, there is a wide divergence in gl obalpoverty counts between the W orl Banks estim ates d and our new estim ates based on a m ore typicalpoverty l am ong l ine ow-incom e countries.
TA BLE 2
Source:authors cal ations. cul ( W orl Bank estim ates based on $1.08 per day at 1993 PPP. i) d ( Estim ates based on a typicalpoverty l am ong l ii) ine ow-incom e countries in the l 1990s. ate
( 1)
where q f and q n are the quantity vectors off ood and non-f ood item s ofconsum ption, respectivel r is the average cal y; orie requirem ent ofa country and n is a m easure ofsom e other basic needs in a country. I a country with extrem e cl ate, n m ay be the additional n im non-f ood requirem ent such as expenditure on extra cl othing and heating. evelf al countries, the f or l ood basket and I is evident f t rom ( that ifu is f 1) ixed at the u* l non-f ood baskets, denoted by q f and q n , respectivel wil be dif erent f dif erent countries y, l f or f because the countries dif er with respect to their basic needs as m easured by r and n. I al f f l countries have the sam e basic needs, then there wil be a singl poverty l which wil be l e ine, l internationaly com parabl l e. The util f ity unction given in ( cannot be directl estim ated f 1) y rom househol surveys. d However, we can m ake som e j udgm ent about its m agnitude indirectl I this study, we have y. n devel oped a m odelbased on consum er theory, which hel us to arrive at internationaly ps l com parabl poverty l e ines. W e present a detail discussion ofthe m odelin the A ppendix. ed W ith the hel ofour m odel we have dem onstrated that the cal p , orie cost in f ood PPP dolars is a m onotonicaly increasing f l l unction ofthe util peopl enj This resul im pl ity e oy. t ies Lem m a 1 ( proofofwhich is given in the A ppendix) the . Lemma 1:I the peopl in tw o countries have the sam e cal costin food PPP dolars,then f e orie l they w il enj the sam e l of util l oy evel ity. This l m a has an im portant im pl em ication. I tels us that we can obtain internationaly t l l com parabl f e ood poverty l ines ifwe determ ine the f ood poverty l in each country by using ine a constant cal orie cost in f ood PPP dolars across al countries. Thus, the internationaly l l l com parabl f e ood poverty l wil be obtained by m ul ying a countrys cal ine l tipl orie requirem ent r by the cal orie cost ( ccost*)in f ood PPP dolars. The f l ood poverty l ines so obtained f each or country wil im pl the sam e util l l y ity evelenj oyed by the peopl in dif erent countries. e f O ur m odelpresented in the A ppendix al dem onstrates that we can obtain the non-f so ood poverty l ines by util izing the f ood and totalexpenditure f unctions derived f rom consum er theory. The non-food poverty l ines estim ated in this way woul be com parabl across d e countries because they wil provide the sam e l l evelofutil to individual at the poverty ity s l ines but l iving in dif erent countries. The totalinternationalpoverty l f ines wil be obtained l by sum m ing the f ood and non-f ood poverty l ines. W e describe this procedure using Figure 1.
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I Figure 1, the horizontalaxis represents util l n ity eveland the verticalaxis represents expenditures. Figure 1 depicts the f ood and totalexpenditure f unctions, which tel us how m uch l expenditure f ood and non-f ood, respectivel wil be required in order f the consum ers to enj y, l or oy a given l evelofutil These expenditure f ity. unctions are m onotonicaly increasing in the util l l ity evel u. C is the point that corresponds to the f ood poverty l on the f ine ood expenditure f unction. Corresponding to point C, we obtain B on the x-axis, which gives the util l ity evelu* that is im pl icit in the f ood poverty l A t this point, consum ers wil enj the m inim um basic standard of ine. l oy l iving, which wil m eet their cal l orie requirem ents. Corresponding to point B on the x-axis, we obtain point D on the totalexpenditure f unction, which gives BD as the totalpoverty l that is consistent with the util l ine ity evelu*. O bviousl then, CD wil be the non-f y l ood poverty l The non-f ine. ood poverty l so obtained ine wil be consistent with standard consum er theory. Note that this m ethod ofcal ating the l cul non-f ood poverty l is equival to Ravalions ( ine ent l 1998)upper poverty l which he derived ine, using a dif erent m ethodol f ogy. Ravalion ( l 1998)al suggested estim ating the non-f so ood poverty l using the idea that ine ifa persons totalincom e is j enough to reach the f ust ood threshol anything that a person d, spends on non-f ood item s wil be considered as basic non-f l ood needs. A ccording to this idea, the non-f ood poverty l is the househol non-f ine ds ood expenditure at which the househol ds totalexpenditure is equalto the f ood poverty l A t this point, the househol incom e is j ine. ds ust suf icient to buy onl the nutritionaly adequate f f y l ood basket so that any expenditure a househol incurs on non-f d ood wil be absol y essential l utel . I the f n igure, E is the point at which the totalexpenditure is equalto the f ood poverty l ine. A t this point, FE wil be the non-f l ood poverty l which wil al ine, l ways be l than CD. The ess non-food poverty l corresponds to the util l ine ity evel_u*, whereas the f ood poverty l ine * ood and non-f ood poverty l ines do not im pl y corresponds to the util l ity evelu . Thus, the f the sam e l evelofconsum er util Thus, we say that Ravalions m ethod is inconsistent with ity. l standard util theory. W e recom m end using CD as the non-f ity ood poverty l ine.
FI RE 1 GU
* _u
* u
Utility
10
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I Bangl n adesh, peopl bel e onging to the f quintil spend 7.62 Takka on f irst e ood in order to obtain 1,000 cal ories. The cal orie requirem ent f Bangl or adesh is 2,080 cal ories per person per day, so the average f ood poverty l f Bangl ine or adesh woul be 7.62 2080 /1000 , which is d equalto 15.85 Takka per person per day. This is the f ood poverty l f Bangl ine or adesh. I is noted that the cal t orie cost increases as we go f rom a l ower quintil to a higher e quintil This resul hol f al countries. This supports the concl e. t ds or l usion f rom our m odelthat the cal orie cost is an increasing f unction ofthe standard ofl iving ( easured by the per capita m totalconsum ption)4 . I order to m ake a com parison ofcal n orie costs across countries, we need to convert the cal orie costs in l ocalcurrency to PPP dolars. This is easil done util l y izing the CPIand PPP exchange rates given in Tabl 1. The cal e oric cost in Bangl adesh f the peopl in the f or e irst quintil is 41 cents in 1993 PPP dolars. This gives the f e l ood poverty l f Bangl ine or adesh in 1993 PPP dolars as equalto 0.41 2080 /1000 , which is 85 cents per person per day. I these l n cal ations, we have m ade a j cul udgm ent that the f quintil is a reasonabl ref irst e e erence group. I is essentialto m ake such a j t udgm ent about the ref erence group. U sing the f quintil as a irst e ref erence group im pl that the f ies ood poverty l of85 cents per person per day is the ine absol m inim um f ute ood requirem ent in Bangl adesh bel which m eeting the basic ow nutritionalrequirem ent is not possibl e.
TA BLE 4
11
I the construction off n ood poverty l ines f dif erent countries, our m odelsuggested or f that we shoul use the sam e cal d orie cost in PPP dolars f al countries. This requirem ent wil l or l l ensure that the m inim um standard ofl iving rem ains the sam e f al countries, which im pl or l ies that the f ood poverty l wil be internationaly com parabl ine l l e. I our obj f ective is to m ake an internationalcom parison ofpoverty rates, then we shoul d use a cal orie cost that is typicalofthe whol worl This woul require cal ating the cal e d. d cul orie cost f al countries in the worl and cal ating the m edian cal or l d cul orie cost. This task, cl y, is earl beyond the scope ofthe present study. I our view, this is al very unnecessary. W e can use n so the cal orie cost ofa typicall ow-incom e country. I our study, we sel n ected Bangl adesh as an anchor country. This sel ection was partl m otivated by the f that we did not have detail y act ed f ood baskets f other l or ow-incom e tropicalcountries. Thus, the f ood poverty l ines in 1993 PPP dolars f the 19 countries presented in Tabl 4 were com puted by m ul ying the cal l or e tipl oric requirem ents ofeach country by the cal oric cost of41 cents per 1,000 cal ories.
9 NON-FOOD POVERTY LI NE
I Section 6, we dem onstrated that ifwe know the f n ood poverty l we can util consum er ine, ize theory to estim ate the non-f ood poverty l which takes account ofcountry specif non-f ine, ic ood basic needs.
12
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The basic idea ofconsum er theory is that we determ ine the non-food poverty at the point where per capita househol food consum ption is equalto the food poverty l W e d ine. have util ized the folowing non-param etric approach to cal ate the non-food poverty l l cul ine 5 for each country. ( i) First, cal ate the ratio ofa househol per capita f cul ds ood expenditure to the f ood poverty l m ul ied by 100. This ratio wil be equalto 100 when the househol ine tipl l ds per capita f ood expenditure is equalto the househol per capita f ds ood poverty l ine.
( ii) A rrange the househol in ascending order according to the f ds ood poverty l ratio ine ( ( )using the househol survey data. in i) d ( iii) Sel the househol whose f ect ds ood-poverty l ratio l between 95 and 105.6 ine ies ( iv) Cal ate the average non-f cul ood poverty l f the individual bel ine or s onging to these househol ds.
The above procedure provided the non-f ood poverty l f each country in l ine or ocal currency. To m ake internationalcom parisons ofthe non-f ood poverty l ines, we needed to convert them to PPP dolars. This was easil done using the consum er price indices and PPP l y exchange rates, which are given in Tabl 1. The non-f e ood poverty l ines in 1993 PPP dolars are l presented in Tabl 4. e
Percentage and num ber of poor usi nutri on based poverty l ne, 2001 ng ti i
Regions East Asia and Pacific East Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Total Source:authors cal ations. cul Percentage of people (%) 19.23 4.96 11.58 4.09 41.13 52.27 26.43 Number of people (million) 350.14 23.42 60.70 12.10 566.50 352.26 1,365.13
W e have util ized this new internationalyardstick to com pute gl obalpoverty counts. These estim ates are presented in Tabl 6. I is noted that 26.43 percent ofthe worl popul e t d ation ( 1.365 bilion peopl l l e) ived in absol poverty in 2001. The m aj ute ority ofpoor are l iving in South A sia.
13
14
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APPEND I :PROPOSED M OD EL X
This appendix presents the m odelthat hel to arrive at internationaly com parabl poverty l ps l e ines. Suppose p f and p n are the price vectors off ood and non-f ood item s ofconsum ption, respectivel then, using the conventionaltreatm ent ofconsum er choice, we m axim ize util y; ity f unction u= u
q f qn , r n
( 1) A
( 2) A
where x is the totalexpenditure or incom e that is avail e to the consum er. I is assum ed that abl t al countries have the sam e util as ( 1)but dif erent r and n. l ity A f This m axim ization procedure yiel the f ds ood and non-f ood dem and f unctions as
q f = rg f x, rp f , np n
( 3) A
and
q n = ng n x, rp f , np n
( 4) A
respectivel These equations are the Marshalian dem and f y. l unctions ( Marshal, 1930) l . Substituting ( 3)and ( 4)into ( 1)yiel the expenditure f A A A ds unction
x = e u , rp f , np n
( 5) A
which is the m inim um cost ofbuying the individualutil u at given f ity ood and non-f ood prices. Further, substituting ( 5)into ( 3)and ( 4)yiel the Hicksian f A A A ds ood and non-f ood dem and equations ( Hicks, 1957) :
q f = rg f u , rp f , np n
) )
( 6) A
and
q n = ng n u , rp f , np n
( 7) A
respectivel y. The f ood and non-f ood poverty l ines are then obtained by substituting u = u* in ( 6)and A ( 7) respectivel as A , y,
15
F = p f q f = rp f g f u*, rp f , np n
) )
( 8) A
and
NF = p n q n = np n g n u * , rp f , np n
( 9) A
Equations ( 8)and ( 9)give the f A A ood and non-f ood poverty l ines at the point where individual ofthe country concerned enj the sam e l s oy evelutil u*. These l ity ines are internationaly com parabl because they m aintain the sam e util l l e ity evelacross countries. The olowing sol ution is proposed. probl is:How do we determ ine u*? The f l em The f ood poverty l shoul satisf the requirem ent that cal ine d y orie intake is equalto cal orie requirem ent. Suppose c is the vector that converts a f ood quantity vector qf into cal ories. c is f ixed f each country depending on the kind off or ood the countys popul ation is consum ing. c qf is the num ber ofcal ories that are obtained f rom the f ood basket qf , which shoul be d equalto the cal orie requirem ent r. Thus, using ( 6) we obtain A ,
c.g f ( u * , rp f , np n ) = 1
( 10) A
I this equation is to hol f al exogenousl determ ined val ofr, pf , n and pn, then the f d or l y ues * f unction g f ( u , rp f , np n ) shoul not contain rpf and npn as its argum ents, that is, it shoul d d * depend onl on u . The f y ood poverty l in ( 8)wil then be given by ine A l
F = p f q f = rp f g f u *
( )
( 11) A
Since the f ood poverty l can al be written as the product ofcal ine so orie requirem ent and cal orie cost ( which is the expenditure on f ood per cal orie) ( 11)im m ediatel gives the cal , A y orie cost f unction as
c cos t = p f g f u *
( )
( 12) A
Thus, the cal orie cost ofa country depends on two f actors, f ood prices and the util l ity evelu*. The cal orie cost in ( 12)is in l A ocalcurrency ofthe country. The PPP converts prices in l ocalcurrency ofa country to prices in U S dolars. Suppose l p is the vector ofinternationalf ood prices, the PPP conversion rate k is given by
* f
p f = kp * f
which on substituting in ( 12)gives A
c cos t * = p*f g f ( u * )
( 13) A
( 14) A
where c cos t * = c cos t / k is the cal orie cost in f ood PPP dolars. Since p *f is the international l * f ood price ( which is sam e f al countries)and g f u is a m onotonicaly increasing f or l l unction rom ( 14)the cal A orie cost in f ood PPP dolars is a m onotonicaly increasing f l l unction of ofu*, f the util peopl enj This proves Lem m a 1 given in Section 2. ity e oy.
( )
16
I nternationalPoverty Centre
W orking Paper n 29
Lemma 1:I the peopl in tw o countries have the sam e cal costin food PPP dolars,then f e orie l they w il enj the sam e l of util l oy evel ity. A s pointed out in Section 2, Lem m a 1 tels us that we can obtain internationaly l l com parabl f e ood poverty l ines ifwe determ ine the f ood poverty l in each country by ine using a constant cal orie cost in f ood PPP dolars across al countries. Thus, the internationaly l l l * com parabl food poverty l ( e ine denoting by F )wil be obtained by m ul ying a countrys l tipl ood PPP dolars. l cal orie requirem ent r by the cal orie cost ( ccost*)in f Given F*, which is in PPP dolars and the f l ood PPP exchange rates, we can determ ine the f ood poverty l f each country in l ine or ocalcurrency, which we denote by F. Substituting F into ity evelenj oyed by peopl at the f e ood poverty l ine ( 11) we can sol f u*, which is the util l A , ve or and is f ixed across countries. Further, substituting u* into ( 9) we can sol f the non-f A , ve or ood poverty l NF, which wil be the non-f ine, l ood poverty l in l ine ocalcurrency. U sing the non-f ood PPP conversions, we obtain the non-food poverty l in internationaldolars. The non-food ine l poverty l ines estim ated this way woul be com parabl across countries because they provide d e the sam e l evelofutil to individual at the poverty l ity s ines but l iving in dif erent countries. The f totalinternationalpoverty l ines are obtained by sum m ing the f ood and non-f ood poverty l ines.
17
REFERENCES
Chen, S. and M. Ravalion ( l 2001) How Did the W orl Poorest Fare in the 1990s Review of , ds I ncom e and W eal Series 47, No. 3, Sept. pp. 283-300. th, Chen, S., Datt, G. and M. Ravalion ( l 1994) I Poverty I , s ncreasing or Decreasing in the Devel oping W orl Review of I d ncom e and W eal Series 40, pp. 359-76. th, Deaton, A . ( 2001) Counting the W orl Poor:Probl s and Possibl Sol , ds em e utions W orl Bank d Research O bserver, Vol 16, No. 2, pp. 125-147. . Hicks, J. R. ( 1946) Val and Capital Cl , ue , arendon Press:O xf ord. Lipton, M. (1988), The poor and the poorest, Discussion Paper No. 25, W ashington D.C.: W orl Bank. d Marshal, A . ( l 1930) Principl of Econom ics, 8th ed., Macm ilan & Co., London. , es l Rao, P. ( 2003) I , ntegration ofCPIand PPP:Methodol ogicalissues, f easibil and ity recom m endations, Paper presented at the Joint W orl Bank-O ECD Sem inar on Purchasing d Power Parities, W ashington, D.C. Ravalion, M. ( l 1998) Poverty Lines in Theory and Practice, LSMS W orking Paper No. 133, The , W orl Bank, W ashington, D.C. d Ravalion, M. ( l 2001) Com m ents on Counting the W orl Poor by A ngus Deaton, W orl Bank , ds d Research O bserver, Vol 16, No. 2, pp. 149-156. . Ravalion, M. and S. Chen ( l 1997) W hat Can New Survey Data Tel U s about Recent , l Distribution and Poverty, W orl Bank Econom ic Review , Vol 1 ( , pp. 357-82. d . 2) Ravalion, M., Datt, G. and D. van de W ale ( l l 1991) Q uantif , ying A bsol Poverty in the W orl ute d, Review of I ncom e and W eal 37, pp. 345-61. th, Sen, A . ( 1999) D evel , opm entas a Freedom , O xf U niversity Press:O xf ord ord. Srinivasan, T. N. ( 2001) Com m ents on Counting the W orl Poor by A ngus Deaton, W orl , ds d Bank Research O bserver, Vol 16, No. 2, pp.157-168. . W orl Bank ( d 1990) W orl Devel , d opm ent Report 1990, O xf U niversity Press:New York. ord .
NOTES
1. There are two m ain l itations to PPP. Firstl as PPP com parisons weigh prices by the share in worl consum ption, im y, d worl dwide rel ative prices cl y track rel osel ative prices in the U nited States, W estern Europe, and Japan. U sing such rich country prices wil inf ate poor country incom es ( l l and vice versa) A s a resul this underestim ates worl poverty. Thus, if . t, d onl f y ood prices are used, which our m ethodol ogy requires, this wil reduce the bias. l 2. Defenders of a 1$ a day poverty l argue that one of the m ost im portant m erits of this approach is sim pl ine icity. The argum ent is that if the def inition of poverty l ines becom es too com pl then the debate on poverty wil revol ex, l ve around technical aspects of how to def the poor and not on the m easures and pol ine icies necessary to l t them f if rom poverty. O n the other hand, pol ef orts f icy f ocused on the wrong target, though sim pl m ay be sel-def e, f eating. 3. Q uintil were constructed using househol per capita consum ption expenditure. es d 4. A n intuitive interpretation of this resul is that richer househol consum e their cal t ds ories f rom m ore expensive food stuf s, f exam pl substituting m eat f potatoes. The richer househol m ay al be paying higher prices f the sam e f or e or ds so or f ood item s because they generaly buy higher qual f l ity ood item s ( or exam pl a superior qual ofrice) f e, ity . 5. W e are suggesting a non-param etric approach. To im pl ent this m ethodol em ogy, we woul require unit record data on d househol expenditure surveys. O ne can al use a regression m odel( proposed by Ravalion 1998) W e bel d so as l . ieve that the non-param etric approach is m ore robust. 6. W e shoul sel househol whose per capita f d ect ds ood expenditure is equal to the f ood poverty l ine, which m eans we shoul sel the househol at the point where the househol food-poverty l ratio is equal to 100. Since it is d ect ds ds ine im possibl to cal ate this ratio for a specific point, it is reasonabl to sel a range in the neighbourhood of 100. e cul e ect W e sel ected a range ofthe f ood-poverty l ratios l ine ying between 95 and 105.
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