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Measuring global poverty


Emily Vuong

By

July 11th, 2014


Emily Vuong explores the use of the Multidimensional Poverty Index (MPI) as the latest measure of extreme economic inequality. Can it finally replace GDP per capita?


The United Nations and the World Bank define those living in extreme poverty as those living on less than $US1.25 per day. On a global scale, aggregating all possible measures of poverty into a single quantitative measure brings with it objectivity and consistency. But on a fundamental level, it fails to account for the multifaceted nature of what it means to be living in extreme poverty. The issue is not simply one that can be illustrated through accounting and balancing the books; there are much deeper political, structural and social issues that contribute to the incidence of global poverty.

Poverty implies deprivation and economic inequality, whether relative or absolute, and it is multidimensional by nature, taking on all facets of life. It is imperative that indicators of poverty extend beyond mere GDP figures of income per capita. Through the eyes of a developmental economist, such indicators may include the incidence of corruption, food insecurity and ill health.

A recent study conducted by Oxford University addressed the problem of defining and evaluating poverty. The Oxford Poverty and Human Development Initiative analysed 22 countries using a Multidimensional Poverty Index (MPI), which bundles ten indicators of poverty – nutrition, child mortality, years of schooling and attendance, cooking fuel, water, sanitation, electricity assets and even the things we take for granted like a covered floor, into three dimensions of poverty – health, education and living standards.

It found that at the current pace of multidimensional poverty reduction, there is a possibility that global poverty may be eradicated entirely within the next 20 years. The ‘star performer’ nations that have experienced the greatest reduction in absolute poverty are Bangladesh, Rwanda and Nepal, with Ghana, Tanzania, Cambodia and Bolivia following close behind. 

This study comes after the UN’s latest development report, which suggests that global poverty reduction drives in the developing world are exceeding all expectations. The report takes into account the wellbeing of one billion of the world’s poorest people. The use of the updated MPI index paints a more detailed picture of what state the world’s poorest are living in, rather than reducing the efforts of the government, international community and NGOs into a single quantitative figure. The report explains the reduction of poverty in terms of international and national aid and development projects invested in schools, health clinics, housing, infrastructure and improved access to water.

According to the 2010 United Nations Development Report, the number of people living in extreme poverty in Asia had fallen but malnourishment remained rampant and widespread. The use of the traditional measure of poverty would have yielded positive results, but the use of the MPI index here was effective in providing a more realistic picture of global poverty, through helping researchers determine where poverty was located, as well as what particular forms it had taken.

The MPI measure recognises and links the importance of flexible and innovative public policy decision-making to better address the issue of global poverty. By allowing results to be measured in multidimensional terms, the initiative provides insight to better educate and incentivise governments and international donors  to develop effective policies with the aim of targeting particular areas.

That being said, problems will inevitably arise from the use of a multidimensional index. The expansive nature of the aggregated MPI index opens up the possibility that results are negatively affected by the subjectivity of researchers responsible for assigning arbitrary values to the poverty indicators. It is difficult to say what implications this may have on the formulation of policy recommendations.

The debate continues over the benefits of calculating multidimensional poverty over consumption poverty, but according to Dr Daniel Suryadarma (a development economics expert from the Department of Economics at the Australian National University), whichever way we go about measuring global poverty, it has generally fallen in many countries thanks to economic growth – “the most powerful poverty reduction tool” of all. 

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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