Measuring extreme poverty

Since the early 1960s, Asia has grown richer faster than any other region in the world, leading to a dramatic improvement in living standards. In 1990, 56 percent of people in East Asia and 54 percent in South Asia lived on less than 1.25 USD a day - the threshold for extreme poverty. By 2010, these rates had fallen to 12 percent and 31 percent, respectively. Last year, East Asia grew by 7.1 percent and South Asia by 5.2 percent, faster than any other region in the world.

However, according to a recently released report by the Asian Development Bank (ADB), rising food costs and vulnerability to natural and man-made crises are not adequately taken into account when measuring extreme poverty in Asia. The paper titled "Key Indicators for Asia and the Pacific 2014" therefore argues that 1.25 USD a day is not enough to maintain minimum welfare in many parts of the region.

Dr. Guanghua Wan, Principal Economist at ADB, says in a DW interview that under the suggested new calculation, Asia's estimated extreme poverty rate for 2010 would increase by 28.8 percentage points to 49.5 percent, thus raising the number of those considered poor by about 1.02 billion to 1.75 billion people.

DW: What are the key findings of the study?

Guanghua Wan: First, extreme poverty in Asia and the Pacific is much more serious than conventionally estimated. Taking the broader view of poverty used in our study, the extreme poverty rate is almost 50 percent in 2010 instead of less than 21 percent under the conventional 1.25 USD poverty line.

Second, our poverty projection indicates that by 2030 more than 17 percent of Asia's population is likely to remain extremely poor. This is a stark contrast to the 1.4 percent estimate of extreme poverty in 2030 under the conventional 1.25 USD poverty line. Finally, our research indicates the single most important underestimation of poverty in Asia is caused by neglecting the impact of vulnerability of the poor and near poor.

Why do you think the current 1.25 USD per day threshold does not fully capture the extent of extreme poverty?

There are two main reasons the 1.25 USD per day poverty line is not appropriate for Asia. First, this poverty line is an average of national poverty lines of 15 poor countries; 13 of which are from Africa, and only two are from Asia - Tajikistan and Nepal. So while 1.25 USD may represent a monetary yardstick for meeting the very basic needs of Africans, its ability to support even very basic living standards in Asia is questionable. Data shows a range of basic goods, including some food items, are more expensive in Asia on average than in Africa.

Second, basic needs differ from country to country and over time, but the data underlining the 1.25 USD poverty line is from 1988-2005. There is a clear need to use updated data from Asia to produce a regional poverty line for this region.

When we did this using broadly the same procedure used to determine the conventional 1.25 USD poverty line, the Asia-specific extreme poverty line is estimated to be 1.51 USD per person per day. Using this poverty line would raise Asia's poverty rate in 2010 by 9.8 percentage points, meaning the number of extreme poor would increase by 343 million people.

Why is it important to readjust the calculation?

What really matters to the poor is their welfare level or well-being, not the monetary value of a poverty line. Maintaining income or expenditure at a certain level has little meaning if the well-being that can be derived from the monetary income or expenditure is eroded. This is why the ADB report calls for the use of welfare as an indicator of standard of living and the need for a broader view of poverty that can help policymakers more fully understand the dynamics of poverty and develop policies to support poverty reduction.

What factors should play a role in the new definition of extreme poverty?

Three additional elements should be factored into the poverty picture: First is the cost of consumption specific to Asia's poor. The definition of extreme poverty is a dynamic concept and requires prompt data updating and adjustments, particularly in societies experiencing rapid change such as those in Asia.

The second factor is vulnerability. Many low income households living just above a poverty line can easily fall into poverty due to natural disasters, financial crises, illness or other negative shocks. It is critical that these people are on policymakers' radar.

Policies and programs to prevent them from falling back into poverty are important: an ounce of prevention is worth a pound of cure. Finally, food security must feature prominently in any discussion of poverty. It is unacceptable to regard anyone who suffers from hunger as non-poor regardless of their income or expenditure level.

If you apply these factors to today's figures, how many people would be living in extreme poverty in Asia at the moment as compared to the 1.25 USD measure?

Using the 1.25 USD per day poverty line there are estimated to be about 733 million people living in extreme poverty in Asia. The combined impact of accounting for the factors explored in our research would increase Asia's estimated extreme poverty rate for 2010 by 28.8 percentage points to 49.5 percent. This would increase the number of poor by about 1.02 billion to 1.75 billion people.

Will Asia' strong economic growth be able to reduce the number of people living in extreme poverty in the coming years?

Yes. Rapid economic growth in the region has led to a dramatic improvement in living standards in recent decades, pulling hundreds of millions of people out of poverty. Asia's success in this area is unprecedented. And sustained economic growth remains critical for poverty reduction. If past growth trends continue, the extreme poverty rate in Asia is expected to decline from 49.5 percent in 2010 to 31.7 percent in 2020 and 17.1 percent in 2030.

What can governments and civil society do to reduce this trend and tackle the elements fostering extreme poverty?

Promoting growth is fundamental. Beyond that governments, the development community, and civil society should make sure they consider vulnerability and food insecurity in both the design and implementation of poverty related policies, strategies, and programs.

Experience shows that productivity improvements and technological progress can improve food availability, and targeted food aid for the poor can help get it to those who need it most. To confront increasing vulnerability, governments can invest in risk-mapping and disaster risk reduction efforts such as early warning systems and livelihood diversification. Government can also promote market-based instruments such as crop insurance.

Dr. Guanghua Wan is Principal Economist at Asian Development Bank.