Absolute poverty: when necessity displaces desire

20 February 2018 Authors: Robert Allen (New York University, Abu Dhabi)

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There already exists a widely recognized metric for measuring poverty–the World Bank’s famous $-a-day poverty line. However, this measure does not account for differences in basic needs across countries. For example, the clothing, housing, and heating needs for a poor person living in a cold northern country are very different from what is needed for a poor resident of a warm southern country, and the prices of these goods vary across developed and undeveloped nations.

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The World Bank poverty lines account for differences in prices across countries, but there is no allowance for differences in needs. In my paper, I explore an alternative approach to setting a poverty line that specifies a reference budget defined in terms of the basic needs for each country.

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Basic needs include food and non-food goods like clothing, fuel, and housing. I compute the poverty line for twenty countries using data from 2011. The countries in the sample range from very poor countries south of the Sahara to the USA, UK, and France. Many Asian countries including China and India are included. My line comes closest to matching the WBPL for the sub-Saharan countries. In other cases, I compute higher lines reflecting differences in dietary regimes, climate, and real estate markets.

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The United Nations Sustainable Development Goals require the World Bank to use its poverty line to track the number of poor people in every country–not just the developing countries that it has been focusing on. It is imperative, therefore, to define the poverty line in a way that allows clothing and heating, for instance, to vary with the temperature. The clothing and fuel needed to survive the winter in Niger are not enough to survive in New York.

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Another surprising result is that the BNPL indicates there are millions of people living in absolute poverty even in the richest countries–0.6% of the population in France, 1% in the UK, and 1.5% in the USA.

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