Poverty: Definition, Measurement, and Eradication

Poverty

• Poverty eradication is a core goal for the global community to achieve and for individual societies
• It is an act of justice and fundamental human rights, unlocking human potential
• Poverty eradication is the center of the United Nations' Sustainable Development Goals (SDG1)

Defining Poverty

• Poverty means individuals lack basic needs like income, nutrition, housing, health, and education
• Absolute poverty is when measures are taken against an absolute minimum (line or value), and those below are poor
• Relative poverty is measured relative to the mean or median

Measuring Poverty

• Most countries develop national poverty lines based on a minimum necessary nutritional consumption basket and minimum consumption items
• International poverty rates helps to aggregate and compare Poverty thresholds reflect the same real standard of living, adjustment for purchasing power parity
• The extreme poverty line is $2.15 a day per person, it reflects national poverty lines in some of the poorest countries
• Lower-middle income poverty line is $3.65 a day per person
• Upper-middle income poverty line is $6.85 a day per person

Poverty Trends

• There has been a significant monetary extreme poverty reduction since 1990, from ~39% in 1990 to 8.5% in 2024
• There was a reversal in 2019, causing a small uptick
• The SDG1 goal of eradicating extreme poverty by 2030 will not be met
• In absolute numbers, poverty decreased between 2004 to 2030, but will remain stable till 2030 at about US$700m
• The upper-middle income poverty line first increased until 2004, but then began to decrease
• There is a divergence in poverty developments between countries, with pre-pandemic poverty levels still remain in the poorest countries
• Lower and upper middle-income countries returned to decreasing trends
• Extreme poverty increased in Africa, but is decreasing/virtually disappearing in East and South Asia
• Median income has increased significantly in the past 35 years, thus the world's income distribution curve has shifted
• The median income went from $2.94 per capita per day to $8.24 per capita per day, but vulnerability remains

Multidimensional Poverty Index (MPI)

• It measures acute multidimensional poverty across more than 100 developing countries
• It measures acute multidimensional poverty, advancing SDG 1 by looking at deprivations linked to SDGs 1, 2, 3, 4, 6, 7 and 11
• Launched in 2010 by the Oxford Poverty and Human Development Initiative (OPHI) and UNDP
• It constructs a deprivation profile for each household and person to help track those facing:
• Child stunting/under-weight; child death in the past five years; no school attendance; no household member with six years of schooling; no electricity; no improved drinking water within a 30-min trip; no sanitation; no solid cooking fuel; no durable housing materials; limited ownership of necessary assets
• All indicators are equally weighted
• Individuals with a deprivation score of 1/3 or higher are considered multidimensionally poor

Multidimensional Poverty Facts

• 1.1 billion people (18.3%) live in acute multidimensional poverty
• Over half of them are children under 18
• 27.9% of children live in poverty, compared to 13.5% of adults
• 83.7% of poor people live in rural areas compared to urban areas
• 83.2% of the world's 1.1 billion multidimensionally poor live in Sub-Saharan Africa and South Asia

Poverty Definitions and Measurements

• Poverty reduction and measurement are results of a country's development
• The accountability of governments/politics linked to poverty reduction makes poverty figures highly political
• Monetary Poverty Measurement:
• only one dimension (consumption) is accounted for; foundation in welfare economics
• allows for straight-forward measurement and comparison across countries
• Multi-dimensional measurement:
• more comprehensive looking at the foundation in Armatya Sen's capabilities' approach
• creates measurement that are morecomplex due to aggregation of different indicators and weights

Human Development

• It is about enhancing people's capabilities and promoting their human rights, freedoms, and range of choices.
• It concept of development that goes beyond economics and regards people’s lives as its central focus
• Armatya Sen's capability approach focuses on development as expansion of people’s capabilities to achieve lives they value
• Human Development Indicator is based on (i) leading a long and healthy life, (ii) acquiring knowledge, and (iii) having access to resources needed for a decent standard of living
• Expands the income per capita measure

Impact on Human Development

• Similar to poverty, the Human Development Index has sharply declined at the onset of COVID-19, failing to fully recover since
• The slowdown in HDI has increased the gap between countries with increasing inequalities
• While accelerated due to COVID-19, there was a 'learning crisis’ started in both OECD and developing countries 15 years ago
• Learning poverty measured percentage of 10 year olds unable to read/understand a simple text is alarmingly high
• The Human Capital Index quantifies the contribution of health and education to the productivity of a country's future workforce
• It allows countries to assess the shortfall resulting from their Human Capital deficits, and to what extent they could progress faster to turn losses into gains by acting now
• Human Capital Index is measures the potential productivity that a child can expect to achieve by the age of 18 by looking at; survival and schooling
• The three key components survival rates, schooling and health all contribute heavily to a persons overall potential

Measuring Inequality

• It concerns the distribution of a variable (e.g., income) in the population, visualizing the Lorenz Curve
• The x-axis shows the cumulative proportions of the total population division
• The y-axis shows the cumulative percentages
• It is the proportion of the population located below the quintile
• Share of [variable] held by the top 1 percent of the population; share of the top 20 percent and the bottom 50 percent are all considerations that affect distributions
• Indicators include factors such as; income, consumption, wealth, and land holdings

Gini Coeffecient

• Most commonly used indicator to capture the entire distribution and derive it from the Lorenz curve
• If the distribution is perfectly equal, the curve is the same as the 45 degree line
• Gini coefficient = A/(A+B)
• Number between 0 and 1

Income and Wealth

• Global inequality has started to decrease and the line ranks all people in the world on one scale
• Decreases in how average incomes between countries have increased
• Country inequalities have increased in important countries like China, US, and India
• Notable trends include the growth of extreme wealth and capabilities to shift profits to avoid tax
• Wealth inequality:
• 18th/19th century: increasing
• Until about 1980: decreasing
• Since then: increasing
• Can impact lower classes due to circumstances at birth

Causes of Inequity

• Factors can include talent, effort and also risk taking and luck
• can be the result of factors beyond the individual, being based on circumstances at birth
• Gender and race/class is an important element
• There can be a strong intergenerational correlation

Impact of Inequity

• A given economic growth rate leads to lower poverty reduction
• Can undermine social cohesion, trust, and lead to conflict
• Can reduces full economic potential

Policies to Reduce Inequity

• Reduce discrimination in the labor, land, financial market
• Equalizing opportunities for the very young/ during schooling
• High quality public education and health programs
• Income transfer schemes; reduction of the intergenerational transmission of inequalities through wealth taxes, inheritance taxes, progressive taxes
• Public finance roles play an important role Most importantly:
• Progressive if it reduces inequality, regressive if a rise and distributionally neutral when neither