Chart Of The Day

Sarah Dykstra, Charles Kenny and Justin Sandefur explain the overnight change in global poverty levels:

Global poverty numbers involve two sets of data: national income and consumption surveys (collated in the World Bank’s PovcalNet) and international data about prices around the world.   The [International Comparison Program (ICP)] is in charge of this second set of data.  It compares what people buy and at what local currency price they buy those things to come up with a ‘purchasing power parity’ exchange rate, a ratio that is designed to equalize the power of a rupee to buy what Indians buy with the power of a dollar to buy what an American buys.  Tuesday [last week], the ICP released their estimates for what those purchasing power exchange rates looked like in 2011.

In short, the new PPP numbers suggest a lot of poor countries are richer than we thought.

China’s improved PPP numbers got the most attention last week, but the change is much bigger than that:

India’s 2011 current GDP PPP per capita from the World Bank World Development Indicators is $3,677.  The new ICP number: $4,735.  Bangladesh’s 2011 GDP PPP per capita according to the WDI is $1,733; the ICP suggests that number should be $2,800. Nigeria goes from $2,485 to $3,146.

Dylan Matthews takes a closer look at the data:

The reasons the rate fell so dramatically are fairly technical. To figure out what $1.25 a day means in different countries, economists generally compare the price of a “basket” of goods across those countries. The results they get are thus pretty sensitive to the point in time when you compare baskets. The old data used a comparison from 2005; the new one is from 2011.

Basically, the World Bank found that prices of goods included in the basket were lower than the extrapolation from 2005 data had predicted they would be.

He adds some caveats about the quality of this data. Another important point:

[T]he biggest reason not to get too excited is that the 8.5 percent of the world that’s no longer counted as poor by this metric is still, by any objective measure, not faring well at all. “The people who have just been classified as ‘not absolutely poor’ don’t actually have any more money than they did yesterday, and will still struggle in terms of getting a decent job,” Dykstra, Kenny, and Sandefur note, “Many still face grim daily tradeoffs between buying school supplies or ensuring their kids are well nourished.”