Adapted from the World Bank's World Development Indicators

Definition:
Population living on less than $1/day is the percent of the population of a country living on less than $1.08 a day at 1993 international prices (equivalent to $1 in 1985 prices, adjusted for purchasing power parity).

Years Covered and Frequency of Update:
The World Bank publishes the World Development Indicators each April. These values, updated and released in 2007, are based on country surveys conducted between 1989 and 2005. The data presented here are taken from the most recent survey year available. Data are updated as new surveys are conducted. This happens sporadically on a country-by-country basis.

Methodology:
Measures of poverty are derived from surveys prepared by the World Bank’s Development Research Group. These nationally representative primary household surveys are conducted by national statistical offices or private agencies under the supervision of government or international agencies and are obtained from government statistical offices and World Bank country departments. National poverty lines are based on the World Bank’s country poverty assessments. The World Bank has prepared an annual review of its poverty work since 1993. Please see the following World Bank publications for more information on data sources and methods:

"Partnerships in Development: Progress in the Fight Against Poverty"

Chen, S. and M. Ravaillion. 2004. "How Have the World's Poorest Fared Since the 1980s?" World Bank Research Observer 19(2): 141-69.

The commonly used $1 a day standard, measured in 1985 international prices and adjusted to local currency using purchasing power parity (PPP) rates, was chosen because it is typical of the poverty lines in low-income countries. PPP exchange rates, such as those from the Penn World Tables or the World Bank, are used because they take into account the local prices and goods and services not traded internationally. For more information on PPP, please see EarthTrends' technical notes on PPP. In past years, the World Bank has calculated poverty estimates using PPPs from the Penn World Tables. Beginning in 2002, the World Bank used 1993 consumption PPP estimates produced at the Bank.

The surveys used for these data were administered to randomly sampled households in each individual country. Surveys asked households to report either their consumption or their income. Whenever possible, consumption data was used to calculate poverty figures. Prior to the 2003 release of the World Bank poverty data, income was adjusted to accord with consumption and income data from national accounts. However, it was determined that the differences between income and consumption measurements were statistically insignificant. Therefore, in this current data, income data are used to estimate poverty directly, with no adjustment of the income mean.

In all cases, measurements of poverty have been calculated from primary data sources (tabulations or household data) rather than existing estimates. Estimation from tabulations requires an interpolation method; the method chosen utilizes Lorenz curves with flexible functional forms, which have proved reliable in past work. A Lorenz curve illustrates income distribution by graphing population vs. the proportion of national income received. Empirical Lorenz curves were weighted by household size, so they are based on percentiles of population, not households.

Data Reliability:
International comparisons of poverty data entail both conceptual and practical problems. Although local currency is adjusted with PPP rates to make data more comparable, these data do not necessarily reflect the same degree of deprivation or need across countries. PPP was originally intended to be used in national accounts, not for poverty data. Any revisions in the PPP of a country to incorporate better price indexes can produce dramatically different poverty lines in local currency.

In addition, there may be problems comparing poverty measures within a country. For example, the cost of living is often higher in urban areas than rural areas. In these cases, the urban poverty line would be higher than the rural poverty line. Although this is not always the case, applying a single poverty line throughout the country may not give an accurate representation of the status of all urban and rural households.

Comparisons of countries with different levels of development can also be problematic due to the variations in the relative importance of nonmarket goods. The local market value of all consumption (including consumption from own production, particularly important in underdeveloped rural economies) should be included in the measure of total consumption expenditure. Similarly, the imputed profit from production of nonmarket goods should be included in income. This is not always done, though such omissions were a far bigger problem in surveys before the 1980s. Most survey data now include valuations for consumption or income from own production. Nonetheless, valuation methods vary. For example, some surveys use the price in the nearest market, while others use the average farm gate selling price.

The measurement of household living standards can also pose some difficulties. One issue is the choice between income and consumption. Income is generally more difficult to measure accurately, and consumption accords better with the idea of the standard of living than does income, which can vary over time even if the standard of living does not. But consumption data are not always available, and when they are not there is little choice but to use income. Household income can also differ widely, for example, in the number of distinct categories of consumer goods they identify. Survey quality varies and even similar surveys may not be strictly comparable.

Development Data Group, The World Bank. 2007. 2007 World Development Indicators Online. Washington, DC: The World Bank. Available at: http://go.worldbank.org/3JU2HA60D0.