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Here's what purchasing power parities can tell us about world poverty
Jun 3, 2020
The International Comparison Programme has just published new purchasing power parities (PPPs). PPPs play an important role in estimating levels of global poverty. The changes observed in the global poverty headcount with the revised 2011 and 2017 PPPs are small.
The International Comparison Program (ICP) has just published new purchasing power parities (PPPs). It has revised the previously published 2011 PPPs to take into account the effects of national accounts rebasing. It also published new PPPs for 2017 that reflect new price data collected from around the world. In the World Bank’s global poverty measurement, PPP exchange rates are used to adjust for differences in price levels across countries. Previous releases of PPPs led to large changes in global poverty estimates, e.g. with the 2005 PPPs there were some 400 million more poor people in the world ( Chen and Ravallion, 2010 ).
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In a paper published today, we take a first look at what the new PPP estimates mean for the World Bank’s current global poverty estimates. Poverty measures are estimated from more than a thousand consumption/income distributions in PovcalNet ( March 2020 update ) covering 166 economies, that represent around three-quarters of the world’s population in 2015. To isolate the impact of the PPP changes on global poverty headcounts, only PPPs are updated in the paper , closely following the approach by Ferreira et al., 2016 ( blog ). The paper also discusses potential implications for the derivation of the international poverty line and reports results for the higher lines ($3.20 and $5.50 with the original 2011 PPPs), which may be more relevant for countries that have a low incidence of extreme poverty. In the blog we concentrate on the effects of the new PPPs on global extreme poverty.
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