How to Monitor Poverty for the Millennium Development Goals

I discuss the choice of a
single international line, converted using purchasing power parity (PPP)
exchange rates, versus the use of country-specific poverty lines. I note the
difficulties in constructing PPP exchange rates but argue in favor of a single
international line, converted at PPP rates, which would be regularly updated
using domestic price indexes. Re-basing, using updated PPP rates, would be
done infrequently. For example, if the global poverty numbers were estimated
annually, the PPP rates might be updated once a decade. In any case, it is
important that the poverty estimates be calculated much more frequently
than the PPP rates are revised. I discuss whether monitoring should be
performed using national accounts data on income or consumption, supplemented
by distributional data so as to make inferences about poverty, or
using data from household survey data. I argue that data from the national
accounts are not suitable for measuring poverty and that their use requires
assumptions that are unlikely to hold. In particular, monitoring poverty
through the national accounts runs the risk of pre-judging important issues
that are properly the subject of measurement, not assumption, such as the
extent to which aggregate growth benefits the poor. I argue that poverty
should be directly measured using household survey data, and I discuss what
needs to be done to enable such monitoring to be placed on a sounder basis.