Poverty Line Measurement Analysis

The World Bank introduced the one-dollar-a-day poverty threshold in 1990 in its World Development Report. This poverty line, applicable only in low-income countries, is based on the 1985 purchasing power parity (PPP) dollars and refers to household expenditure per person.This paper will determine whether the “one dollar-a-day” poverty indicator and those measures based on it are reasonable benchmarks for poverty incidence across the world. Key sections are outlined to achieve this end: a review of the theory. empirical analysis of the data. policy recommendations and conclusion.It was found that while the one-dollar-a-day indicator and those poverty measures based on it are credible and may reflect true poverty incidence, they are not comprehensive frameworks and that they leave several important variables behind primarily because the approach is numerical and predetermined it does not address country-specific factors that characterize the relativity of poverty.The World Development Report released in 2001 wherein poverty was measured based on 1 dollar-a-day poverty lined revealed that: 1) of all the world’s 6 billion people – 2.8 billion live on less than 2 dollars a day and 1.2 billion – a fifth – live on less than one dollar a day. (Chandra, 2004, p. 27).The average proportion of people in developing countries living on less than $1 per day fell from 32% to 25% between 1990 and 1999 and that a simple extrapolation of this trend to the year 2015 results in a headcount index of about 16%, indicating that the world is on track in reaching the global goal of halving poverty by 2015. (Townsend and Gordon, 2002, p. 378).With the poverty line of $1 a day established, it became the reference point of several measures that calculate poverty incidence. For instance, the head count ratio (HCR) index identifies the percentage of the population living in households with consumption or incomeper person below the poverty line and the head count is then reported either as a percentage or as the number of individuals who are poor. (Harrison, 2007, p. 6).