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Measuring Global Poverty: Why PPP Methods Matter

Author

Listed:
  • Robert Ackland

    (Australian Demographic and Social Research Institute, Australian National University)

  • Steve Dowrick

    (School of Economics, Australian National University)

  • Benoit Freyens

    (Faculty of Business, Government, and Law, University of Canberra and Centre of Law and Economics, Australian National University)

Abstract

We present theory and evidence to suggest that, in the context of analyzing global poverty, the EKS approach to estimating purchasing power parities yields more appropriate international comparison of real incomes than the Geary-Khamis approach. Our analysis of the 1996 and 2005 International Comparison Project data confirms that the Geary-Khamis approach substantially overstates the relative incomes of the world's poorest nations, and this leads to misleading comparisons of poverty across regions and over time. The EKS index of real income is much closer to being a true index of economic welfare and is therefore preferred for assessment of global poverty. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Robert Ackland & Steve Dowrick & Benoit Freyens, 2013. "Measuring Global Poverty: Why PPP Methods Matter," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 813-824, July.
  • Handle: RePEc:tpr:restat:v:95:y:2013:i:3:p:813-824
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    References listed on IDEAS

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    Cited by:

    1. Michele Lenza, 2015. "The financial and macroeconomic effects of OMT announcements," Research Bulletin, European Central Bank, pages 12-16.
    2. Martin Ravallion & Shaohua Chen & Prem Sangraula, 2009. "Dollar a Day Revisited," World Bank Economic Review, World Bank Group, pages 163-184.
    3. Martin Ravallion & Shaohua Chen & Prem Sangraula, 2007. "New Evidence on the Urbanization of Global Poverty," Population and Development Review, The Population Council, Inc., pages 667-701.
    4. David Warner & Prasada Rao & William E. Griffiths & Duangkamon Chotikapanich, 2011. "Global Inequality: Levels and Trends, 1993-2005," Discussion Papers Series 436, School of Economics, University of Queensland, Australia.
    5. Isis Gaddis & Stephan Klasen, 2014. "Economic development, structural change, and women’s labor force participation:," Journal of Population Economics, Springer;European Society for Population Economics, pages 639-681.
    6. Fischer, Christoph & Hossfeld, Oliver, 2014. "A consistent set of multilateral productivity approach-based indicators of price competitiveness – Results for Pacific Rim economies," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 152-169.
    7. Marchand, J. & Smeeding, T., 2016. "Poverty and Aging," Handbook of the Economics of Population Aging, Elsevier.
      • Marchand, Joseph & Smeeding, Timothy, 2016. "Poverty and Aging," Working Papers 2016-11, University of Alberta, Department of Economics, revised 20 Nov 2016.
    8. Christoph Lakner & Branko Milanovic, 2016. "Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession," World Bank Economic Review, World Bank Group, pages 203-232.
    9. Martin Ravallion, 2011. "A Comparative Perspective on Poverty Reduction in Brazil, China, and India," World Bank Research Observer, World Bank Group, vol. 26(1), pages 71-104, February.
    10. Shaohua Chen & Martin Ravallion, 2010. "The Developing World is Poorer than We Thought, But No Less Successful in the Fight Against Poverty," The Quarterly Journal of Economics, Oxford University Press, pages 1577-1625.
    11. repec:oup:wbecrv:v:31:y:2017:i:2:p:504-530. is not listed on IDEAS
    12. Sudhir Anand & Paul Segal, 2014. "The Global Distribution of Income," Economics Series Working Papers 714, University of Oxford, Department of Economics.
    13. Martin Ravallion & Shaohua Chen, 2011. "Weakly Relative Poverty," The Review of Economics and Statistics, MIT Press, pages 1251-1261.
    14. Zaytsev, Alexander, 2014. "Душевой Ввп И Производительность Труда В России: Было Ли Догоняющее Развитие?
      [Russia`s per capita and per hour GDP dynamics: have we seen the cathing-up?]
      ," MPRA Paper 56312, University Library of Munich, Germany.
    15. Ferreira, Francisco H.G. & Ravallion, Martin, 2008. "Global poverty and inequality : a review of the evidence," Policy Research Working Paper Series 4623, The World Bank.
    16. John Gibson & Trinh Le & Bonggeun Kim, 2017. "Prices, Engel Curves, and Time-Space Deflation: Impacts on Poverty and Inequality in Vietnam," World Bank Economic Review, World Bank Group, pages 504-530.
    17. Camelia Minoiu & Sanjay Reddy, 2014. "Kernel density estimation on grouped data: the case of poverty assessment," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, pages 163-189.
    18. Graham Elliott & Allan Timmermann, 2016. "Economic Forecasting," Economics Books, Princeton University Press, edition 1, number 10740.
    19. Christoph Lakner & Branko Milanovic, 2015. "La distribución global del ingreso. De la caída del muro de Berlín a la gran recesión," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 17(32), pages 71-128, January-J.
    20. Fischer, Christoph & Hossfeld, Oliver, 2014. "A consistent set of multilateral productivity approach-based indicators of price competitiveness," Working Paper Series 1706, European Central Bank.
    21. Notermans Ton, 2015. "The EU's Convergence Dilemma," Baltic Journal of European Studies, De Gruyter Open, vol. 5(1), pages 36-55, February.

    More about this item

    Keywords

    global poverty;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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