Is poverty rightly measured internationally?

Question

According to the World Bank, Argentina has 3.63% or people living in poverty. As a subjective assessment of someone living there, this is completely ridiculous. Rates measured by Argentine government and Argentine private institutions set it around 32% to 34%, and they are widely accepted as representative figures of Argentina's today reality.

As far as I understand, the definition used by the World Bank to define a person as poor says someone is poor when he earns less than US\$ 3.1 a day. That makes US\$ 90.30 dollars a month. Now I understand that the living costs are different in different countries, but how could they reach a figure of US\$ 90.30 a month to cover basic needs? How can a person with US\$ 90.30 dollars a month cover basic needs anywhere?

Answer 1

This measure of poverty depends on your definition of basic needs and local prices. Argentina is a good example for how local prices matter. It is widely accepted that official price and inflation statistics published by the Argentinian government are cooked and inflation rates in the last few years are have been substantially bigger than official numbers suggest. I assume that the world bank has to rely on those statistics and it is therefore likely that its estimates of poverty in Argentina are too low, simply because the price level adjustment is not done with good data.

Alberto Cavallo has a nice paper showing the discrepancies of official statistics with other measures of Inflation in Argentina, see here.

Living on 90$ a month is obviously not nice, but around the world many people do. This measure is intended to document the extent of extreme poverty in developing countries, i.e. the circumstances where you are literally close to starving. Many more developed countries use a much higher poverty line in their domestic statistics. The world bank as an international body publishes statistics on development that are internationally comparable, and hence uses the same threshold for each country.

The World Bank's extreme poverty line used to be much lower - I believe it started out at 1$ per day around 1990. You can read up on the intention of publishing such a statistic, and how the threshold is chosen in this interesting blog post by a World Bank economist.

Answer 2

A related question in this site focuses on the definition of poverty lines by the World Bank. Basically, the WB poverty line is based on national poverty lines, which usually cover minimum nutritional, clothing, and shelter. They do not include other things which other people might consider important, including transport. For instance, I would argue that transport costs is very important too, as it is common in Latin American massive cities for the poor to live segregated, far from core commerce and industrial centres.

Additionally, the WB poverty line is based only in a selection of countries. As such, it is not expected to be representative of all nations. For example, as the official WB FAQ states regarding the 1990 poverty line:

Once converted into a common currency, they [WB researchers] found that in six of these very poor countries the value of the national poverty line was about $1 per day per person, and this formed the basis for the first dollar-a-day international poverty line.

More countries were added later:

After a new round and larger volume of internationally comparable prices were collected in 2005, the international poverty line was revised based on 15 national poverty lines from some of the poorest countries in the World.

In any case, although I don't have the list at hand, I am very sure it does not include Argentina. The key here is that if the selection of countries were different, and more similar to the countries like Argentina, the poverty line would reflect more of the Argentinian reality.

Notice however that the calculation of this line already was converted using PPP levels. This means you cannot simply translate US\$ 3.10 and US\$ 90.30 into Argentinian pesos using market exchange rates (of 2011). You need to revert back to pesos using the PPP rate. Unfortunately, the 2011 edition is not available for Argentina. The 2005 edition is 1.2. For a poverty line in 2005 of US\$ 1.25, and monthly of US\$ 37.5, this corresponds to $37.5*1.2=45$ pesos per month. You might agree that this, in 2005, is nonsensical, as the minimum wage per month was 550 pesos. (For comparison, the Chilean monthly povert line according to the World Bank was 30,000 CLP, whereas the minimum wage was roughly 130,000 CLP). No surprise then that the poverty rate in Argentina was, according to the World Bank, so low.

For a very recent study of global poverty using alternative definitions, coauthored by Martin Ravallion (one of the actual proponents of the poverty line statistic), see here.