How Should We Measure Poverty in a Changing World? Methodological Issues and Chinese Case Study

This paper asks whether, in a rapidly changing world, the estimated proportion of the world’s population with income below US $1 (adjusted according to purchasing power parity) per day is still a good measure of trends in poverty. It argues that strong economic growth in nations such as China implies that the commonly accepted international poverty line definition of one half median national equivalent income is increasingly relevant and that poverty intensity (the normalized deficit or Foster Greer Thorbecke (FGT) index of order one) is a better summary index. This index has a convenient graphical representation — the “poverty box”. Using the proposed poverty line and the example of ranking the level of rural poverty in Chinese provinces, the paper demonstrates how poverty intensity replicates the poverty rankings of the Sen family of poverty indices and captures most of the information content of higher order FGT indices.