# **1. Introduction**

The world has made remarkable progress during the past two decades in raising the living standards of the poorest. In 1990, approximately two billion people, or 37 percent of the global population, lived on less than the current international poverty line of $1.90 a day. By 2013, the year for which the latest global poverty estimates are available, the number of extremely poor persons had fallen by over 60 percent. During the same period, the proportion of the global population living in extreme poverty fell even faster, from 37 to 11 percent. The Millennium Development Goal of halving extreme poverty in developing countries between 1990 and 2015 was met in 2010, five years ahead of time.

Despite these impressive achievements, the latest estimate is that 770 million persons remained in extreme poverty as of 2013, a figure in the ballpark of the combined population of the European Union and the United States. Eradicating extreme poverty is a critical priority of the international development community. Ending poverty in all its forms is the first of the 17 Sustainable Development Goals adopted by the United Nations, and the World Bank has set an ambitious goal of reducing the rate of extreme poverty to 3 percent by 2030.

Achieving this goal poses a formidable challenge. Economic growth is a key driver for poverty reduction, but several studies conclude that maintaining the pace of economic growth of the recent past will not be sufficient to meet the target.<sup>2</sup> For example, based on current projections of GDP growth from 2005 to 2015, global poverty is projected to be 4.2 percent by 2030, falling shy of the World Bank’s goal by over a percentage point (Ferreira et al. 2015). Global growth has slowed in recent years, and it is far from clear that the high rates of economic growth observed in the developing world during the past decade can be sustained for the next 15 years. Therefore, the pace of poverty reduction depends critically on engendering growth that reflects broadly shared prosperity and improves the living standards of the poorest. Evidence on where the extreme poor live, in which sectors they work, their demographic characteristics, and how they differ from the non-poor can help inform the strategies of country governments, multilateral development organizations and non-government organizations committed to reducing extreme poverty.

Serious knowledge gaps remain, however, about the characteristics of the extreme poor in the developing world, mainly due to the lack of globally harmonized household survey data. Countryspecific poverty profiles are valuable inputs into national poverty reduction strategies, but are not internationally comparable because each country adopts a unique national poverty line. Studies that combine data from multiple countries therefore convert welfare to a common currency using Purchasing Power Parity (PPP) exchange rates, which despite their many conceptual and practical shortcomings remain the consensus method to compare welfare across countries.<sup>3</sup> Cross-country studies based on PPP exchange rates, however, often have limited geographic coverage. Banerjee and Duflo (2010), for example, provide an extensive analysis of the poor’s economic behavior, including levels of saving, and investment in education and health, based on data for 13 low- and middle-income countries. Olinto et al. (2013) provide a preliminary analysis of the characteristics

> 2 Ferreira et al. 2015, Jolliffe et al. 2014, WDI 2016, Yoshida et al 2014.

> 3 See Deaton (2016) for a detailed discussion of the issues associated with using PPPs to make welfare measures comparable across countries.

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