2009 Reports

Use of Country Purchasing Power Parities for International Comparisons of Poverty Levels

Aten, Bettina; Heston, Alan

Individual scholars and expert groups have considered both physical and monetary measures to define a poverty line. Physical measures might be based upon caloric intake, or as considered in India, the number of square meals (thoughtfully defined) in a sample period and the purchase of clothing, with some experts also arguing for an inventory of physical household assets. The attraction of choosing physical measures is that they appear to avoid the necessity of converting currencies across countries to a common measure. However, the survey problems of identifying those below such thresholds, or of choosing equivalent food baskets across space to obtain the same caloric intake, involve problems as knotty as those using monetary measures. In any event, the focus of this paper is on monetary measures of poverty and takes up two interrelated issues of comparing poverty levels: what prices and what expenditure weights should be used when comparing the purchasing power parity (PPP) of currencies, either across or within countries, such as across rural and metropolitan areas.