updated February 2013
As each national poverty line in poorer countries reflects their varying definitions of essential food and goods, an alternative method is needed to aggregate global poverty on a consistent basis.
The World Bank calculates an international poverty line by reference to the national poverty lines in 10-20 of the world’s poorest countries. These figures are converted into US dollars, not by standard currency exchange rates, but by purchasing power parity (PPP) rates. This exercise was last completed using 2005 data, the average figure becoming the international poverty line of $1.25 per day.
The spending power of $1.25 in the United States at 2005 prices therefore provides an indication of the experience of poverty for 1.29 billion people. This aggregate 2008 figure for global poverty was calculated by comparing the $1.25 benchmark with the income and consumption data from hundreds of household surveys conducted in developing countries in the period immediately preceding 2008. This is the most recent year for which data is considered adequate.
This process inevitably leads to confusion in countries whose choice of national poverty line differs significantly from the international benchmark. A prolonged and controversial review of the national poverty line in India was provoked in part because it had fallen in value so far behind the $1.25 figure.
A second tier international poverty line of $2 per day is derived from the average of national poverty lines in all lower and middle income countries. The World Bank reports that 2.5 billion people lived below this benchmark in 2008, a figure which has changed little since 1981.