Extreme Poverty – Summary

This blog entry serves as a summary on the topic of extreme poverty. We will briefly review the main points of the last posts and try to collect some compact results that are easy to remember.

In the first entry we found that there are different ways to define extreme poverty. Two basic approaches are:

  • Consumption-based (or income-based) approach: Extreme poverty is defined by the International Poverty Line. All people who have to live on less than 1.90 international dollars a day live in extreme poverty.
  • Multidimensional Poverty Index (MPI): The index contains indicators from the following areas: Living standards, health and education. People who suffer deprivations in 33% or more of these indicators are considered poor.

With regard to the international poverty line, one should be aware that the 1.90 are international dollar, which must be converted by PPP exchange rates:

  • Purchasing Power Parity (PPP): Exchange rates are calculated by directly comparing goods from countries with their respective currencies. They are free of speculative and inflationary effects and are therefore suitable for international price comparisons.

In the context of the income-based approach, there are also three tools to describe the incidence and the relative and absolute intensity of poverty:

  • Poverty Headcount Ratio: The share of people living below the poverty line in a specific area (example: in 2012, approximately 77% of the total population of the Democratic Republic of Congo lived below 1.90 international dollars per day and thus in extreme poverty). This is where the incidence of poverty is registered.
  • Poverty Gap Index: The percentage of the international poverty line that people in extreme poverty would need on average for a life above $1.90 per day (example: in 2012, poor people in the Democratic Republic of Congo needed about 39% of the international poverty line (about $0.74) for a life above $1.90 per day). This index thus describes the intensity of poverty.
  • Absolute Poverty Gap: The annual (or daily) amount of money needed to raise all people in an area above the international poverty line. (Example: In 2013 about 19 billion int. dollars would have been necessary to enable all people of the Democratic Republic of the Congo to live above 1.90 int. dollars). This value describes the intensity of poverty in absolute numbers.

We also found that the correlation between the consumption-based poverty definition and the multidimensional approach is rather weak. Poverty is a very complex problem, which should therefore only be investigated with several different approaches.

In the second part of this series, we explored the regions where poverty is most prevalent. We found that Africa and Asia are the continents with the most people in extreme poverty, with India being the country with the most poor people.

In addition, an important result could be derived from the global development of poverty:

  • Both the proportion and the absolute number of people in extreme poverty have been in decline for several years. The number has fallen from over two billion in 1990 to just under 705 million in 2015.

While this trend can be observed in all regions of the world, we have seen that China has made a major contribution to this development through rapid economic progress.

The last entry dealt with the causes of poverty and possible countermeasures. We have seen that until recently poverty was still an everyday phenomenon that was only greatly reduced in the course of industrialisation. In addition to numerous, sometimes very complex mechanisms that could lead to poverty, various correlations can be identified:

  • Poverty – Economy: Extreme poverty decreases with rising national income.
  • Poverty – Life expectancy: The lower the poverty rate of a country, the higher the life expectancy of its inhabitants.
  • Poverty – school attendance: The higher the average length of school attendance in a country, the lower its poverty rate.

In addition, there are some measures in the fight against extreme poverty whose effectiveness has been scientifically tested:

  • Multidimensional aid programmes certainly show improvements in the living standards of poor people. However, compared to the annual increase in income from migration to a richer country, the benefits of such programmes are minimal.
  • Although the industrial jobs created by globalisation are generating an increasing income, they are damaging to people in terms of multidimensional poverty.
  • According to scientific work, direct money transfers also bring long-term benefits for the recipients without impairing their work ethic.

Non-profit organisations such as GiveWell evaluate aid organisations to ensure that these direct money transfers really do reach the poor.

To complete this series we take a look at a final chart from the publication of OurWorldInData.org:

 

 

It shows the development of the poverty rate and a projection of the course up to 2030, assuming that consumption in the countries will grow at approximately the same rate as in the past 10 years and that the dispersion in the distribution of consumption will also remain the same. The recent data on extreme poverty therefore gives confidence that the number of people in poverty will continue to fall significantly in the coming years. However, the goals of the UN and the World Bank to end extreme poverty completely by 2030 are rather optimistic.

And even if extreme poverty is finally defeated, that does not mean that poverty has been eradicated. Whether poor people can really live better just because they have more than 1.90 int.-$ a day is a justified question. We can therefore conclude this series with a quotation from Nelson Mandela:

 

“As long as poverty, injustice and gross inequality persist in our world, none of us can truly rest.” – Nelson Mandela

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