New research from King’s College London suggests billions of dollars in foreign aid could be better allocated if poverty numbers around the world were more accurate.
Dr. Michail Moatsos, a researcher at the college, believes the current method of measuring poverty provides an inaccurate understanding of where poverty exists. Hence, this makes it harder to effectively fight poverty.
“Currently, international donors cannot prioritize their funds based on the best possible information, and therefore funnel those funds to those most in need around the world. A $2.15 per day poverty line affords very different living standards across countries—even across low-income countries alone,” he says.
Several flaws in poverty line calculation
A new study published in the journal Humanities and Social Science Communications examines the current way of calculating the poverty line and finds several problems with it.
Dr. Michail Moatsos, one of the researchers, uses the COVID-19 pandemic as an example. Additionally, he says the pandemic likely increased the number of people living in poverty worldwide.
However, due to flaws in the way the poverty line is calculated, it is hard to determine exactly how much poverty increased or where it is most severe. This makes it difficult to address the problem effectively on a global level.
The World Bank sets the international poverty line by taking the middle value of poverty lines from all low-income countries.
In middle- and low-income countries, national poverty lines are usually calculated based on the cost of food that provides about 2,100 calories per day for each person. Additionally, a budget for non-food items such as housing, education, health, heating, transportation, clothing, and communication is added to cover basic needs.
Poverty line allows for comparison across different countries
The key aspect of the poverty line is that it allows for comparison across different countries, ensuring similar living standards are measured.
Moatsos states that if the poverty line doesn’t achieve this, our understanding of poverty becomes unclear, making it hard to create effective global policies.
For example, the World Bank updated the international poverty line to $2.15 per day, based on 2017 prices. They claimed this update had a small impact on poverty statistics.
However, Moatsos and his co-author, Dr. Achillefs Lazopoulos from ETH Zurich, found that this change actually affects 190 million more people than previously thought.
Moatsos and Lazopoulos identify a major issue with the current method. This is the use of “purchasing power” comparisons. Economists use purchasing power parities to compare average incomes between countries, but these comparisons can also affect how living standards are measured.