In the past only a small elite enjoyed living conditions that we would not describe as a life in extreme poverty today. With the onset of industrialization and rising productive the share of people living in poverty started to decrease and kept on falling ever since. As a consequence of falling poverty, the health of the population improved dramatically over the last two centuries, and the population started to grow. The growth of the population caused the absolute number of poor people in the world to increase; only over the last decades has the absolute number of people living in poverty started to fall as well.
# Empirical View
# What do poor people think about poverty?
More and more people have left the extreme poverty of the past behind. But why should we care? Is it not the case that poor people might only have less income but enjoy their lives just as much – or even more – than rich people?
One way to find out is to simply ask, which is what the Gallup Organization did. In the World Poll the organization asked people around the world what they think about their standard of living – not only about their income. The economist Angus Deaton1 compared the answers that people in different societies gave with the average income of these societies. This research is summarized in the following graph; it shows that people living in poverty are clearly less satisfied with their living standards in a broader sense.
This is one way of seeing that economic prosperity is not an end in itself but a means for a better life. The correlation between rising incomes and happiness and higher life satisfaction is shown in the entry on happiness.
Fractions of people reporting that they are dissatisfied with their standard of living – Deaton2
# Poverty lines
The most straightforward way to measure poverty is to calculate the share of population living below a certain poverty line as the fraction of the total number of people in the society. But drawing the line between the poor and the rest is not easy. If you look at the previous graph, it is easy to understand why. It would be easy if there was a clear delineation between people who were satisfied with their standard of living and people who aren’t. This is not the case. We see, on the contrary, that having more income always improves the self-perceived living standard of the people.
The fact that higher income always improves the standards of living means that defining poverty by drawing a line is always rightly subject to debate. It is necessarily controversial to propose a line that separates those that are poor from those that ‘merely’ have a low income.
The World Bank, which gathers data on income from people around the world, defined absolute poverty as living on less than $1.90 per day. This is measured in international dollars (in prices of 2011) that are adjusted for the fact that people in different countries face different price levels (PPP adjustment). It is also expressed in real terms to adjust for price changes over time. (How these adjustments are made is explained in the entry on GDP data.)
# Share of the population below the international poverty line
The latest data on extreme poverty can be explored in the data visualization below. The map shows the distribution of global poverty and with the slider below the map you can explore the change over time.
You can also switch to the ‘chart’-tab to see the change over time for individual countries or world regions.
$1.90 per day is a very low cut off – the term extreme poverty is appropriate. It is therefore interesting to see the share living below a higher poverty line such as 3.10 international $ per day as in the following chart.
# 200 years of lifting the world out of poverty
The World Bank publishes data on absolute poverty from 1981 onwards, but researchers have tried to reconstruct information of the living standards of the more distant past. The seminal paper was written by Bourguignon and Morrison in 2002 (for the reference see the following footnote) in which the two authors reconstructed measures of poverty as far back as 1820. The poverty line of 1.90 Int. Dollar per day was introduced in 2015 and the 2002 paper used the measure of 1$ per day that was used at the time. All of this information is presented in the following graph.
In 1820, the vast majority of people lived in extreme poverty and only a tiny elite enjoyed higher standards of living. Economic growth over the last 200 years completely transformed our world, and poverty fell continuously over the last two centuries. This is even more remarkable when we consider that the population increased 7-fold over the same time (which in itself is a consequence of increasing living standards and decreasing mortality – especially of infants and children – around the world). In a world without economic growth, an increase in the population would result in less and less income for everyone, and a 7-fold increase would have surely resulted in a world in which everyone is extremely poor. Yet, the exact opposite happened. In a time of unprecedented population growth we managed to lift more and more people out of poverty! Even in 1981 more than 50% of the world population lived in absolute poverty – this is now down to about 14%. This is still a large number of people, but the change is happening incredibly fast. For our present world, the data tells us that poverty is now falling more quickly than ever before in world history. The first of the Millenium Development Goals set by the UN was to halve the population living in absolute poverty between 1990 and 2015. Rapid economic growth meant that this goal – arguably the most important – was achieved (5 years ahead of time) in 2010.
There is also an interactive version of this visualization.
# The end of extreme poverty and economic growth
In 1820 only a few places in the world had achieved economic growth – and only to a rather small extent. The progress of the last 200 years was achieved as economic growth brought higher incomes to more and more people in the world. The following graph shows the relation between average income and the share of the population that lives in extreme poverty. The share of people living in extreme poverty is smaller in richer countries, but some countries achieve to have a small share in extreme poverty even at low incomes.
The scatter plot above shows the cross sectional evidence of the link between economic prosperity and poverty. In the following graph we look at the relationship over time for Brazil. The country with a population of almost 200 million people achieved an average annual growth rate of 1.7% over the 20 years. Economic growth together with the expansion of the government’s effort to redistribute to the country’s poorest people, Brazil halved the share of people living in absolute poverty over this short period of time. Similarly to other industrializing countries, this reduced the income inequality (measured with the Gini coefficient) over this period.
# Economic growth, decreasing inequality and decreasing poverty in Brazil, 1990-2011 – The Economist3
# Beyond income – poverty in other dimensions
So far we have only looked at poverty in terms of low productivity and low income. There is good reason to regard these measures as extremely important (the first graph shows the importance to the people living in poverty). But income is a means to an end and not an end in itself. Other measures of poverty look at the ends itself and study progress in terms of extending education, improving health and psychological wellbeing, and human rights and violence. These measures do not only look at work as a source of income but at the safety and quality of the work itself.
The Oxford Poverty & Human Development Initiative publishes reports on the changes of poverty measured with multidimensional poverty indices. Their research supports the idea that we are progressing towards a world with fewer and fewer poor people. They also have a great tool to visualize their research results on a world map.
# Poverty by world regions – in absolute numbers
We have seen that back in 1820 the majority of our ancestors lived in extreme poverty. Poverty back then and for the many millennia previous was equally prevalent in all parts of the world. Economic growth then started to lift the early industrialized countries out of poverty, and absolute poverty disappeared there. I think it is important to notice how very recent this development is even in the rich countries of the world.
Inequality is often the consequence of unequal progress. Poverty is a good example of this. The early progress in some countries and the stagnation in others meant that poverty has largely decreased in some countries and was still as widespread as ever in other countries. With industrialization and economic growth catching on in more and more regions around the world, the standards of living have increased in these countries. Poverty remains in those regions in which the accumulated economic growth is still small and industrialization still at the early stages.
The recent decrease of poverty is shown in the following graph; the graph is now showing the absolute number of poor people. We see that the Americas and Europe left poverty behind before 1981. Over the last thirty years large parts of East Asia and the Pacific achieved rapid economic growth and this meant that poverty has been rapidly decreasing there.
# Poverty by world regions – as the share of the population
In the following graph one can study the declining share of the poor population by continent. Probably the most outstanding achievement is the reduction of poverty in East Asia and Pacific. The reduction from 77% to 12% is especially important as it is a very populous part of the world.
# The distribution of poverty in the world today
From the charts above we have seen that around 1 billion people live in extreme poverty today. Where do these poorest people live?
Number of people in extreme poverty by continent:4
- 551 Million in Asia
- 436 Million in Africa
- 15 Million in South America
- 5.9 Million in North America
- 0.3 Million in Europe
- 50 Thousand in Oceania
The following map – using the new poverty line of 1.90$ in 2011 PPPs – gives an answer to the question for every country in the developing world. The share of people in poverty is highest in Madagascar (82%), the Democratic Republic of Congo (77%) and Burundi (78%). In India 21% of the population live in poverty and in China 11%.
The barchart below shows the number of people in absolute poverty.
India – with almost 300 million people in poverty – is the country with most poor people in the world. Nigeria and China follow with 107 and 84 million people.
# The Poverty Gap is falling globally
The main measure shown before is the poverty headcount which is simply the share of people with incomes or consumption below a certain poverty poverty line, in this case the international poverty line. This measure is easy to understand, but it has disadvantages: With this measure, a person that earns only 0.5 international-$ and a person that earns 1.89 international-$ per day are both called extremely poor. It would make sense to not only capture the fact that an income is below the poverty line, it would also make sense to measure how far below the poverty line this income is. This is what the poverty gap does.
In contrast with the poverty headcount, the poverty gap takes the intensity of poverty into account. It takes into account that poverty is more severe in a place and time where many people live on 0.5 international-$ rather than 1.89 international-$.
The poverty gap is the mean shortfall of the total population from the poverty line (counting the non-poor as having zero shortfall), expressed as a percentage of the poverty line. It is explained in more detail here at the web page of the UN. The issue of course with the poverty gap measure is that it is not as straightforward to explain as the poverty headcount and for public discussions it is therefore rarely used (but it should!).
The visualisation below shows the poverty gap for the international poverty line of 1.90 international-$ per day. You can add other countries to the chart or switch to the map view.
# Data Quality & Definition
The World Bank is the most important institution measuring the extent of global poverty. This poverty data is published via Povcal Net and also in the World Development Indicators.
The word ‘poverty’ is used in 2 distinct meanings in social research. Not distinguishing between these difference causes confusion when comparing poverty across time and across countries. Absolute poverty (or extreme poverty) is measured relative to a fixed standard of living that is consistent over time and between countries. Global poverty figures aim to count the number of people who are destitute by a common global standard. Relative Poverty on the other hand is measured relative to the living standards in a particular society and varies both over time and between societies as the living standards in change, it is therefore related to the level and the inequality of living standards in a particular society at a particular point in time.
# The poverty line and its history
The pioneering work to count the number of people in poverty by a common global standard was published by Montek Ahluwalia, Nicholas Carter, and Hollis Chenery in 19795. The three authors based their estimates of global poverty figures on the Indian poverty line at the time. Until today the global poverty line is set by reference to the national poverty lines of poor countries. But instead of only considering India it is today an average of the poverty lines of a number of poor countries. This global poverty line was introduced in the World Development Report 1990 as the dollar-a-day poverty line. Since then it is based on the national poverty lines of a number of poor countries and was revised according to the national poverty lines and by taking into account price changes over time (inflation). The extreme poverty line was prominently used in the Millennium Development Goals (MDGs), the first of which was to “halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day.”
In the current method the global poverty line is linked to the national poverty lines of poor countries. As it is called an absolute standard, this poverty line should not move upwards as poor countries grow richer or otherwise it becomes a relative poverty measure.
Another possibility to set a poverty line is to ask people about the level of income that is adequate in their society. This tradition of self-reports by poor people is based on the work of Bernard van Praag (1968)6. The first figure in this entry – from Angus Deaton – shows the close relationship between the self-assessment of living conditions and the mean income in the society. Stevenson and Wolfers (2008)7 showed that this relationship not only holds between but also within countries – more information can be found in the entry about happiness and subjective well-being. National poverty lines are in fact often informed by the self-assessment of citizens of these countries.
# Methodology used by the World Bank and quality issues
Ferreira et al (2015)8 describe in detail the method used for estimating the global poverty figures published in Povcal Net. The poverty data is primarily based on household survey data. For the global poverty estimates published in October 2015, the World Bank used income and consumption distribution data “from more than one thousand surveys covering 131 developing countries. The estimates are based on survey interviews of more than 2 million households, representative of 95 percent of the population in the developing world”.
These surveys are not carried out by the World Bank, but by the different National Statistical Offices and are therefore designed to be useful for the varying goals of these national offices. The challenge is therefore to harmonize this empirical data that was not designed to be internationally comparable:
Level of measurement: The first key issue for the World Bank is that the Povcal data is published in per capita terms, but the national surveys are mostly carried out on the household level.
Mix of consumption and income data: The second challenge for harmonizing the data is that the underlying household survey are a mix of income and consumption data. In poor countries, where many people are self-employed in agriculture, consumption is typically much easier to measure in surveys than is income. The table shows that approximately 75 percent of the countries in the PovcalNet database have data on per capita consumption and only a quarter of the countries – mostly in Latin America and the Caribbean – report income per capita data. The fact that the Povcal data is based on these two very different welfare measures is a key weakness of the data and one that is according to Ferreira et al (2015) impossible to correct for; the authors write “indeed, in part because there are few or no fixed, observable patterns in the relationship between income and consumption, no adjustments are made to income or consumption distributions in PovcalNet to make them more comparable.” Comparisons of income and consumption figures has shown that the inequality and poverty level of consumption estimates is lower than of that same economy’s income inequality and income poverty.9
Income and consumption distributions in PovcalNet for global poverty estimates10
|All of PovcalNet (as of October 2015)||2012 Poverty estimates|
|Micro data||Grouped data||Total||Micro data||Grouped data||Total|
Survey nonresponse: There is also theoretical and empirical evidence presented by Korinek et al. (2005)11 showing that as people become richer, they are less likely to respond to surveys. When richer individuals or households are less likely to answer surveys than poor people it has the consequence that survey-based estimates of consumption and income will understate the mean level of prosperity and overstate the share of people in poverty.
Survey design: Questionnaires are designed differently in different countries and these differences matter significantly for the level of measured poverty. For example the recall period for food consumption matters for the assessment of food consumption in a population – research indicates that the reported food consumption is lower if the recall period is longer (for an example on India see Deaton and Kozel (2005)12 and for a study on how the questionnaire design matters see Beegle et al. (2012)13). Jolliffe (2001)14 finds that questionnaires with more food items listed report higher food consumption when compared with a questionnaire with fewer items. However, higher consumption totals, as reported in the surveys with a shorter recall period, are not necessarily more accurate as the Indian NSSO Expert Group on Sampling Errors (2003)15 found.
Not available microdata: For six of the 131 countries covered the World Bank relied (in October 2015) on grouped data. According to Ferreira et al (2015) this is because the World Bank was not authorized to share the microdata publicly and it could only rely on the grouped data that refers to quintile or decile shares.
Urban bias: The urban bias in pricing referring to the worry that in price comparisons more expensive goods in urban markets are measured and the often lower prices in rural areas are neglected.
# Comparing poverty between countries and over time
The entry on GDP data explains how adjustments are made for price changes over time (inflation) and between countries (PPP adjustments). For poverty measurements, the revision of PPPs have substantial consequences for the regional distribution but not for the trend over time as Deaton (2010)16 explains:
“The revision from 1985 to 1993 had relatively little effect on the global count but made sub-Saharan Africa appear to be much poorer, and Latin America appear to be much less poor. Indeed, it is the 1993 revision that “established” sub-Saharan Africa as the region with the highest headcount ratio, a fact that has dominated subsequent discussions of world poverty; prior to revision, the measured prevalence of poverty in South Asia was substantially higher than in sub-Saharan Africa. At the time of that revision, I commented that “changes of this size risk swamping real changes, and it seems impossible to make statements about changes in world poverty when the ground underneath one’s feet is changing in this way,” Deaton (2001). The 2005 revision shifts the ground even more. The global count for 1993 jumps by almost half a billion people, the headcount ratio for East Asia doubles, there are substantial increases in Africa and South Asia, and a large reduction in Latin America. The Table shows these numbers for 1993, for which there are estimates using three sets of PPPs, […]. Let me emphasize that the general trends […] reappear whichever PPPs and poverty lines are used. The shifting of the ground refers only to the level of global poverty, and to its regional distribution.”
# Poverty figures for regional aggregates and the timing of suveys
For individual countries the World Bank publishes poverty estimates only for years in which household survey data is available. For regional and global aggregates however it is necessary to estimate the poverty figures for all countries in a specific year. Ferreira et al (2015)17 explain that in cases in which survey data before and after that specific year is available the World Bank reports an average weighted by the relative distance from these two surveys. To arrive at data for all countries in a specific year the consumption or income data from the latest survey is extrapolated by using growth rates from the national accounts. In this extrapolation the World Bank assumes distribution-neutral growth (no change in inequality since the last survey).
There are some countries for which no poverty estimates are available. Not including these countries in the regional or global aggregates would understate the level of global poverty. To avoid this the average poverty estimate of the world region in which this country is located is then assigned to that country for which no data is available.
High-income countries – according to the definition of the World Bank – are assumed to have no people living in extreme poverty in the global poverty figures published by the World Bank. Ferreira et al (2015) explain that “although some people in rich countries report household per capita incomes that are below the international poverty line, per capita consumption is above this threshold for nearly everyone.” Chandy and Smith (2014) for example find that 1% to 4% of the US population have incomes of less than $2 a day, but when measured by consumption this share of Americans living with less than 2$ per day falls to less than 0.1%.
The timing of surveys can be problematic for several reasons: Most countries do not have regular annual surveys and to arrive at regional or global estimates for a particular year the World Bank uses data from the National Accounts to fill in the gaps. This makes it particularly problematic to link changes in poverty estimates to current events – such as the financial crisis. It is preferable to study the change of poverty over longer time periods for which the data is based on household surveys. Additionally the timing of survey within a given year can matter for the measurement as for example the food provision varies throughout the year.
# Survey based and National Accounts based poverty figures
The poverty figures published by the World Bank are based on household surveys as explained above. A second possibility to measure poverty is to start from the National Accounts. This is done by using National Accounts data (from the Penn World Tables) combined with inequality measures. First used was this technique by Ahluwalia et al. (1979)18. More recent papers that followed this approach include Bourguignon and Morrisson (2002) whose data is shown above.
In theory the household survey based and National Accounts based measures should match up, but in reality there are unfortunately often quite large discrepancies in growth rates between the survey data and the national accounts. Deaton (2005)19 reviews the reasons for these discrepancies.
How we measure extreme poverty also matters for the allocation of international aid.
Reviewing the many problems of poverty measurement Deaton (2010)20 concludes that “probably the most urgent area for the poverty counts is not the [International Comparison Program], but the improvement in the consistency and timeliness of household surveys, and the upgrading of national accounts.”
For all of these reasons we have to regard figures of extreme poverty country as rough estimates. This is a main reason why an essessment of living conditions around the world and over time should not be based on income and conumption measures alone but should take into account the many dimensions of well-being (health, education, nutrition etc.) that OurWorldInData.org captures.
# Data Sources
# Long-term development of global poverty
# Bourguignon and Morrisson (2002)
- Data: Several measures of poverty and inequality
- Geographical coverage: Global – by world regions/continents
- Time span: 1820 to 1992
- Available at: The research paper is: Bourguignon and Morrisson (2002) – Inequality Among World Citizens: 1820–1992. In American Economic Review, 92, 4, 727–744.
- These data were used above in the graph showing the declining share of people living in poverty since 1820.
Economists Xavier Sala-i-Martin and Maxim Pinkovskiy estimated the share of the world population living in absolute poverty.21
An important recent paper on absolute poverty is Chen and Ravallion (2010) – The Developing World is Poorer than We Thought, But No Less Successful in the Fight Against Poverty. In The Quarterly Journal of Economics, 125, 4, 1577–1625.
# Data on global poverty in recent decades
# World Bank
- Data: Several measures of absolute poverty.
- Geographical coverage: Global – by country and world region.
- Time span: Since 1980
- Available at: World Bank’s PovcalNet – an interactive tool which visualizes absolute poverty and makes the data available for download.
- There is a collection of World Bank articles about declining poverty.
- The World Bank data on extreme poverty (% of people below 1.25$ a day) is also available on Gapminder where the relationship with other measures of wellbeing can be visualised.
Data on the sub-national level (with huge coverage!) is available from the World Bank. These are data on the poverty headcount – at national poverty line, urban poverty line, and the rural poverty line.