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An Introduction to PovcalNet

"1 billion people in the world live on less than $1 a day." What is this widely cited statistic based on? Any credible accounting of how much poverty there is in the world must ultimately come from information supplied by families themselves, including of course poor families. They are the only ones who really know how they are living. Nearly 700 socio-economic sample surveys spanning 116 countries underlie the 1 billion number. About 1.2 million randomly sampled households were interviewed, mostly by staff of the governmental statistics offices of the countries they live in. Detailed questions were asked about their sources of income and what they spend it on, as well as other household characteristics such as the number of people sharing that income.

From these surveys, an assessment is made of how aggregate consumption or income is distributed across the population in each country at the data of each survey. From these data one can calculate what proportion of people do not reach any given "poverty line." The "$1 a day" poverty line has historically been based on the poverty lines commonly found in low-income countries. The latest line is actually $1.25 a day in 2005 prices, which is the mean of the national poverty lines in the poorest 15 countries. In 2005 we estimate that about 1.4 billion people lived below this line (down from 1.9 billion in 1981). The "$2 a day" line that is sometimes used instead is a poverty line more typical of middle-income countries; in fact $2.00 a day is the median poverty line found amongst developing countries in 2005 prices; we estimate that 2.6 billion people live below $2 a day in 2005.

To convert national poverty lines into a common currency, and the convert the international poverty line back into local currency units, we use exchange rates that reflect the differences in the prices of goods and services (both traded and non-traded) across countries. Market exchange rates are not valid for this purpose given that they only reflect purchasing power over internationally traded goods, while other goods, not traded internationally, figure prominently in the consumption bundles found in developing countries and tend to be cheaper there than in rich countries. So market exchange rates over-state the extent of poverty in the world. To address this well-known problem we use "Purchasing Power Parity" exchange rates for consumption constructed by the World Bank's Development Data Group from the price surveys done by the International Comparison Program. The latest version of PovcalNet uses the PPPs from the 2005 ICP, based on price surveys for about 100 developing countries. Since the surveys do not all line up conveniently in time, one also needs a method of interpolating to non-survey years. National accounts data can help here. And one needs census-based estimates of the population of each country at each date.

By combining all this information, a team in the World Bank's research group calculates the total number of people living below various international poverty lines, as well as other poverty and inequality measures, some of which are published annually in the Bank's World Development Indicators. The project began in 1989, and the first estimates were published in the 1990 World Development Report: Poverty. The database is updated regularly and a major reassessment of progress against poverty is made about every three years.

PovcalNet was developed by staff of the Bank's research group to allow users to replicate the calculations made by the Bank's researchers. PovcalNet also allows you to try calculating the numbers under different assumptions. For example, instead of $1 a day, you can try $1.50, or $3. Or you can try different PPP rates. PovcalNet also gives a wider range of poverty and inequality measures than found in the background paper. You can also assemble the estimates using alternative country groupings or a selected set of individual countries. PovcalNet is an interactive computational tool; it has reliable built-in software that immediately does the relevant calculations for you from the built-in database. We plan to update the database annually.

The attached paper, The developing world is poorer than we thought, but no less successful in the fight against povertygives you details on the data sources and methods used in deriving the Bank's estimates. The paper Dollar a Day Revisited gives details on the new international poverty lines based on the 2005 ICP. As a first step, you might try using this web site to replicate the numbers in that paper.

I hope you find this a useful tool.

Martin Ravallion
Development Research Group
World Bank

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