Global Absolute Poverty: Behind the Veil of Dollars

Abstract

The widely applied "dollar-A-day" methodology identifies global absolute poverty as declining precipitously since the early 80's throughout the developing world. The methodological underpinnings of the "dollar-A-day" approach have been questioned in terms of adequately representing equivalent welfare conditions in different countries and years. These key issues of measuring global poverty are addressed here using the concept of the bare bones consumption basket (BBB). This methodology pinpoints equivalent levels of welfare, both internationally and intertemporally. The results validate the critique against the "dollar-A-day" methodology, showing large variations in costs of BBB between countries and years, even when one explicitly allows for additional expenses such as education and health. This volatility represents the differential among the typically used average CPI and a price index which is more relevant to those living in absolute poverty. On a point estimate level, success in terms of the first Millennium Development Goal (MDG) appears marginal. Once uncertainty in the estimates is accounted for, the BBB poverty lines provide the ground to dispute MDG 1 early celebrations. While BBB absolute poverty remains at very low levels during the entire 1983-2014 period, it also demonstrates strong persistence throughout. On the contrary, the higher welfare level BBB derivative shows overall much less flattering poverty levels.