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Poverty PPPs

Poverty PPPs are an important key research area for the ICP.  Using the PPPs as calculated by the ICP for the purposes of the global poverty count faces two main shortcomings. Firstly, the price indexes that underlie the PPPs are constructed for purposes of national income accounting, using weights that represent patterns of aggregate consumption, not the consumption patterns of the global poor. Second, the basket of goods and services used for collecting prices for the ICP is not geared towards the consumption of the poor per se. For example, under the beef heading in the list of goods and services collected in Africa, prices are collected for fillet mignon among other products. However, in order to obtain meaningful poverty lines it is important that the PPPs used for conversion incorporate the prices paid by the poor, and the relative importance of different goods and services they consume, as reflected by the expenditure share weights of the poor households.

To address the first shortcoming, research was carried out by Angus Deaton and Olivier Dupriez (2011), where they used household surveys from 62 developing countries to calculate global poverty-weighted PPPs and to calculate global poverty lines and new global poverty counts. They noted though that their research did not attempt to use separate prices for the poor. Instead, they reweighted the same ICP-collected prices to match the expenditure patterns of households near the global poverty line.

Another research was conducted by the Asian Development Bank (2008) to examine whether the prices collected under the ICP are appropriate for poverty uses, using data from the ICP 2005 for 16 Asian countries. 

Poverty PPPs in general were already a major component of the 2005 ICP global round which aimed to compute poverty-specific PPPs to estimate poverty incidences, with the objective of monitoring progress towards meeting the Millennium Development Goals. The research then undertaken in this area focused on: (1) identifying a suitable classification of expenditure categories for purposes of cross-country poverty comparisons, and estimating expenditure weights breakdown for countries that do not have reliable and timely household expenditure data with national survey coverage, (2) establishing correspondence between the detailed expenditure estimates from household surveys and the standard 90 plus consumption classifications of the ICP and (3) developing an aggregation methodology for poverty PPP calculation. The work on poverty PPP was managed and funded separately from the regular ICP initiative and recorded the following reference papers and presentations:

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