straight talk about global poverty that won’t fit into one chart

By now, everyone and their siblings have seen the bye-bye poverty chart. You know, this one:


Now it is undoubtably true that there has been major poverty reduction in the world, especially since the opening of China.  However, this graph paints an overly rosy picture.

The first point is that $1.25 / day is not exactly un-poor, and it is an artificial “bright line”. I am not saying the following is true, but if we lifted every person at $1.24 to $1.26 according to this metric we would have eradicated extreme poverty. And that is obviously silly.

The second point is that the incidence of global poverty reduction is very uneven. A great bulk of it comes from China and to a lesser extent, India. The picture in much of the rest of the world is much less good.

Thirdly, while the share in poverty is falling, the number of people in the world is rising so the absolute number of poor people can be rising.

There is an excellent article by Chen and Ravallion (QJE 2010) that addresses in detail poverty in the developing world from 1981 to 2005. I am quoting from an ungated working paper version available here.

Note that they are only looking at developing nations, and don’t include the rich world in their numbers.

“Our estimates suggest less progress (in absolute and proportionate terms) in getting above the $2 per day line than the $1.25 line. The poverty rate by this higher standard has fallen from 70% in 1981 to 47% in 2005 (Table 4). The trend is about 0.8% per year (a regression coefficient on time of -0.84; standard error=0.08); excluding China, the trend is only 0.3% per year (a regression coefficient of -0.26; standard error=0.05%). This has not been sufficient to bring down the number of people living below $2 per day, which was about 2.5 billion in both 1981 and 2005 (Table 5). Thus the number of people living between $1.25 and $2 a day has risen sharply over these 25 years, from about 600 million to 1.2 billion.”

So, move the line from $1.25 to $2.00 and the absolute number of people below the line (2.5 billion) is unchanged from 1981 to 2005. Thus, much of the decline in the number of poor people at $1.25 / day is marginal, with people “bunching up” just above the $1.25 / day line (600 million more people between $1.25 and $2.00 in 2005 than in 1981).

What about a more ambitious comparison? How many people in the developing world are at or above the US poverty line?

From the same paper,  “In 2005, 95.7% of the population of the developing world lived below the US poverty line; 25 years earlier it was 96.7%.”

The US poverty rate in 2005 was at $13/day.

Again, I am not saying the world hasn’t made a lot of progress. I am not saying things were better in the past. I am saying that global poverty is still a very serious issue, more serious that the “you won’t believe this one amazing chart” type of journalism makes it seem.

Jim Kim’s $1.25 fig leaf

Lant Pritchett cogently points out that the WB insistence that we can “end extreme poverty” relies on a very arbitrary definition of extreme poverty, namely people living below $1.25 a day.

Lant notes that, “No person in history has ever celebrated crossing the dollar a day threshold—any more than any other income gain—there is no line.”

But then he kind of drops the ball by not really attempting to answer the key question he poses, which is,

“So why does the thousand dollar a day crowd try to project an imaginary (and extreme) poverty line into a world in which it doesn’t exist—even as a social construct?”

I’ve written about that question before, and I think the focus on $1.25/day is simply a CYA, keep the money flowing, pay no attention to the man behind the curtain, attempt by the World Bank to find something, anything that doesn’t make them look like a complete failure.

Because $1.25 a day is the only “line” they can draw where it looks like they are doing a good job wrt reducing extreme poverty.

Lant talks about $10 a day as a realistic “line”; hell let’s just consider $2.00 a day!

Here’s the data (from the WB, clic the pic for a more legible image):


As you can see, there could be no claim of 800 million people lifted out of extreme poverty if we used even this paltry (and equally artificial) $2.00 “line”. It would be only around 100 million, with well over 2 billion left behind.

This puts the lie to WB claims that great progress has been made and that they are on the verge of eliminating extreme poverty. 

So pay no attention to Jim Kim’s $1.25 fig leaf. The simple truth is that the WB has been a massive failure with respect to eliminating extreme poverty.



The poverty of World Bank poverty reduction

The World Bank’s latest PR campaign is that “for the first time in history” we can “eliminate extreme poverty” (for the hubris of this claim and the many times it’s been said before see here).

Lost in the fine print is the disclaimer that “extreme poverty” is defined as $1.25 / day.

And there has been some progress on that front (clic the pic for a better image):


However, since virtually all the decline from 1981 to 2009 is from China, I’d give the credit largely to “state capitalism” and not to any top down multilateral agency development program.

And, if we raise the bar on extreme poverty to, say, $2.00 per day, the situation is far from rosy (clic the pic for a better image):


At $2.00 China’s progress is not as great, India is regressing, as is SSA and overall, the number barely budges in the last 25+ years.

So, yes, there are a lot fewer people under the $1.25 level today than in 1981, which means it’s easier to lift the rest of them. However, in my opinion, the World Bank will have very little to do with any of the actual lifting.

Overall though, the number of very poor people living on less than $2.00 is rising outside of China, and China’s progress here is not large enough to drive the global number down much at all.

No wonder China feels like it can push the Bank around.  If it wasn’t for China, the Bank couldn’t make up ANY arbitrary poverty reduction statistics to rationalize their continued existence. Even with the Chinese miracle, the Bank has to be very selective in picking a number to make it look like things are improving at the global level.

The graphs come from here, and the hat tip goes to “Mr. Inequality”, @BrankoMilan.