Changes to the Extrapolation Method for Global Poverty Estimation

Daniel Mahler and David Newhouse

No 35, Global Poverty Monitoring Technical Note Series from The World Bank

Abstract: This technical note summarizes changes to how the Poverty and Inequality Platform (PIP) lines up survey-based estimates of poverty to a common reference year. The prior line-up method assumed that welfare vectors grow in accordance with growth in real Household Final Consumption Expenditure (HFCE) per capita for all countries except for countries in Sub-Saharan Africa, where growth in real GDP per capita was used instead. This note leverages PIP data to test various alternative line-up rules and evaluates their performance out of sample. It proposes an equally simple rule that can reduce the error as measured by the mean absolute deviation by 7.5%, which is estimated to amount to 60% of the potential error that can be reduced given available information. This rule is that upper middleincome and high-income countries use growth in real HFCE per capita, while low and lower middle-income countries use growth in real GDP per capita, and that only 70% of growth in either HFCE or GDP passes through to growth in consumption vectors.

Pages: 26 pages
Date: 2024-03
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