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It's now more expensive than ever to be poor

Flickr- ILRI

The World Bank has just released their updated data on extreme poverty, and in amongst the brilliant news that extreme poverty is set to fall below 10% for the first time, they announced a revision to how much money you need to be counted as extremely poor.

It's gone from $1.25 to $1.90.

It might seem like a lot - but actually, it's stayed exactly the same.

I recently had the chance to talk to Kaushik Basu, the World Bank's Chief Economist about it, and the Bank have just released this paper explaining how it all works.

In short:

The Bank uses an updated international poverty line of US $1.90 a day, which incorporates new information on differences in the cost of living across countries (the PPP exchange rates). The new line preserves the real purchasing power of the previous line (of $1.25 a day in 2005 prices) in the world’s poorest countries. 

And now for that in English...

Every country in the world has a poverty line, and in many of the poorest countries in the world, the government has an extreme or absolute poverty line, which they consider to be the very least one would need to get by. Although it's a political decision in each country, this line usually equates to the cash value of what it would cost to buy and prepare a couple of simple meals, giving you around 2000-2200 calories a day. 

Market in Burkina Faso.jpgMarket in Burkina Faso.
Image: Wikimedia Commons- Marco Schmidt

To create a 'global' line for extreme poverty, years ago the World Bank took the average of the national poverty lines of 15 of the poorest countries: Chad, Ethiopia, The Gambia, Ghana, Guinea-Bissau, Malawi, Mali, Mozambique, Nepal, Niger, Rwanda, Sierra Leone, Tajikistan, Tanzania, and Uganda.

The thing is, food and other products in each of these countries cost different amounts, and the exchange rates between countries can vary wildly, so it won't work to just convert directly to US dollars.

Think of a Big Mac - same two all beef patties, special sauce, lettuce, cheese, onions on a sesame seed bun - pretty much everywhere in the world. But, the prices are different, even after you convert back into US dollars from wherever you happen to be. To create a global poverty line, we need to control for these differences. 

To do this, the boffins at the Bank (and other economist-laden places) use what are called PPP values. Purchasing Power Parity controls for the different prices of products between countries, making the Big Mac 'cost' the same between countries.

Big Mac.jpgImage: Flickr- Pointnshoot

Using these 15 country averages, and PPP data from 2005, the Bank established an extreme poverty line of $1.25 per day, which is what the world has used for most of the last decade to measure extreme poverty. 

In the years since then, some prices have gone up, and others down. Some countries have flourished, and others floundered. To ensure that the global data stays pretty close to accurate, the World Bank updates their poverty line every time there's new good data, which is what they just got.

The report that's just been released updates PPP numbers from 2005 to 2011, and in doing so, takes the line from $1.25 to $1.90.

So, you're now equipped to sound smart at your next dinner party, and I hope, aware of just how hard it would be to live in extreme poverty.