Jack Austin Centre hosts Asian Development Bank

The established world standard for indicating extreme poverty – currently measured as income or expenditure of $1.25 a day per person – does not fully capture the extent of Asian poverty levels, and should be adjusted to include additional factors.

This was the key revelation presented by Dr. Shang-Jin Wei, Chief Economist of the Asian Development Bank (ADB), at a special event hosted by the Jack Austin Centre for Asia Pacific Business Studies at the Beedie School of Business on Monday 6 October.

Wei presented findings from the ADB’s Key Indicator’s for Asia and the Pacific 2014 Report, highlighting the latest available economic, financial, social and environmental indicators for 48 regional economies of Asia and the Pacific.

The event was chaired by Stewart Beck, President and CEO of the Asia Pacific Foundation, Canada. It featured discussion with Jeff Nankivell, Director General of Programming, Asia Pacific, at the Department of Foreign Affairs, Trade and Development Canada.

Wei opened the session by detailing some of the key findings from the report, including a forecast of economic prosperity for India in 2015. It also found that Asia’s domestic fundamentals were helping to offset the slower than expected advanced economic recovery, and noted that inflation in Asia would remain moderate at approximately 3.5% through 2015.

An opportunity for questions following the first session resulted in a number of queries about the ongoing protests in Hong Kong. Wei noted that the peaceful nature of the protests has meant that there has so far been no effect on business. He did, however, warn that if they were to change perceptions of Hong Kong as a place to do business, it could affect Hong Kong’s position as an important financial centre for the Chinese economy.

Following the Q&A session, Wei moved on to discussing the report’s findings concerning the established extreme poverty measurement. He said that if using the conventional definition of extreme poverty, then in 1981 nearly 1.6 billion people in Asia were categorized as living below the $1.25 a day cut off. However the substantial economic growth in the region now sees less than half that number categorized as living in extreme poverty – some 733 billion.

The report points out though, that the conventional definition of poverty is not applicable in Asia, and that extenuating factors must be considered, such as food prices rising faster than general commodity pricing levels, and the inability of the impoverished to manage the effects of risk, such as natural disasters.

The poverty line, Wei explained, is meant to be our best guess for what meets one’s basic survival needs. Broadly speaking, when a country’s income goes down, the country’s poverty line goes down – except when you reach very low income, at which point the poverty line stops going down. At some point, therefore, the poverty line needs to stop dropping as income goes down.

The world community had determined the extreme poverty measurement by looking at the national poverty line of the fifteen poorest countries, thirteen of which happened to be African. In a strict sense, therefore, the poverty line was the cost of meeting the base needs for the poorest African countries.

When they applied this to the poorest Asian countries, it resulted in an increased Asia specific extreme poverty line of $1.51 per person per day. Naturally, this leads to different outcomes, with a poverty rate in Asia of 30.5 percent, instead of the reported 20.7 percent.

“The point of this report is to point out additional factors that can affect poor peoples’ well being,” said Wei. “Very poor people tend to allocate a greater share of their income on food than an average person, so the conventional notion of $1.25 threshold is not realistic. A relevant price adjustment for very poor households should be much faster than for better off households.”

The report concludes that establishing this new threshold results in a number of policy implications, such as disaster risk reduction, climate change mitigation, and a need to help the insurance market develop insurance products that are relevant and affordable for the poor. In addition, it states that addressing vulnerability and food affordability and reliability are important for anti-poverty strategies.

For more information on the Jack Austin Centre for Asia Pacific Business Studies, visit beedie.sfu.ca/jack-austin-centre/