Controversy over new poverty figures

New poverty estimates published by the World Bank reveal that 1.4 billion people in the developing world (one in four) were living on less than US$1.25 a day in 2005, down from 1.9 billion (one in two) in 1981.

The new numbers show that poverty has been more widespread across the developing world over the past 25 years than previously estimated, but also that there has been strong—if regionally uneven—progress toward reducing overall poverty.

“Our latest revision of poverty numbers is the largest revision yet because of important new data revealing that the cost of living in the developing world is higher than we thought,” says Martin Ravallion, director of the World Bank’s Development Research Group.

Ravallion refers to new information published earlier this year on the comparative prices of goods and services (such as food, housing, transport and so on) across many countries, expressed as internationally comparable exchange rates known as purchasing power parities (PPPs).

The latest PPPs—for 2005—were made available by a global statistical initiative called the International Comparison Program (ICP). The improvements in the design, implementation and analysis of the ICP price surveys for 2005 mean that the new PPPs are more reliable than older data from 1993 and 1985, which underestimated the cost of living in developing countries.

With the release of the new World Bank estimates of global poverty, however, the spotlight has once again turned on the theoretical and quantitative disagreements among economists. Reddy and Pogge of Columbia University in New York, in particular, have a thorn in the side of Martin Ravallion of the World Bank. In the latest public skirmish on the issue.

Sanjay Reddy's paper "The New Global Poverty Estimates – Digging Deeper into a Hole" provoked a reply "Global Poverty Reassessed: A Reply to Reddy" from Martin Ravallion.