Country Brief:New PPP Poverty Estimates for
The Dominican Republic
Quick summary: The new PPP poverty estimate for the Dominican Republic is 4.98 percent in 2005, using the new international poverty line of $1.25 a day in 2005 PPP. This is lower than the national estimate of extreme poverty because the Dominican Republic uses a higher poverty line to define extreme poverty. However, the trends in the PPP poverty estimates and the national estimates are similar.
Why are we contacting you?
We are contacting you because the World Bank has updated its estimates of poverty rates for developing countries using the new Purchasing Power Parities (PPPs) derived from the 2005 International Comparisons Program (ICP). As a result of improvements in price data collection, the World Bank has discovered that the cost of living is higher in the developing world than what was thought previously and, as a consequence, has now recommended the use of $1.25 a day in 2005 PPP for an international poverty line, rather than the $1.08 a day in 1993 PPP line that had been used previously. For Latin American countries, the World Bank has suggested that a more appropriate international poverty line would be $2 a day in 2005 PPP.
It is natural that PPP poverty estimates should be revised periodically. Regular updates are needed because changes in relative prices induce changes in the composition of expenditure which are not taken into account when the PPP is projected forward over time. The longer the time since the price survey data was collected, the less reliable are the values of PPP and, hence, the less reliable are PPP poverty estimates. The OECD recommends that price surveys be carried out every three years. Since the previous round of price surveys in developing countries was carried out in 1993, it is evident that this update was long overdue. In addition, there had been concerns about the quality of the price survey data that had been collected in previous rounds. The 2005 ICP round is considered to have done a better job collecting internationally comparable prices than previous rounds.
The release of the new PPP estimates can change perceptions of poverty, particularly of the relative poverty across countries. The PPP poverty estimates can differ from national poverty estimates because they use a common international poverty line converted into local currency units, whereas the national poverty lines are based on poverty lines chosen by the countries. To the extent that they present a different picture, making these new PPP poverty estimates publically available may generate some reaction from government officials, the media, local analysts and the general public - and these groups may turn to the World Bank Country Offices for more information. This brief is being prepared by LCSPP to help you respond. In this country brief, we present the revised PPP poverty estimates based on the 2005 PPP for the Dominican Republic and compare that to the Dominican Republic’s national poverty estimates and the previous PPP poverty numbers based on the 1993 PPP estimates. In a companion brief, we present some comparative data on all LAC countries and explain why and how the new PPP poverty estimates were produced.
How and when will the new PPP poverty estimates be released to the public?
The World Bank has published the results of the updated poverty rates at the regional and world level and will publish the individual country results in November 2008 in a supplement to the World Development Indicators (WDI). However, the individual country poverty estimates have recently been made available to the public on October 14, 2008 through the re-launching of the World Bank’s software tool, POVCALNET[1], which is now based on the updated 2005 PPP estimates. The revised poverty estimates for years prior to 2005 are obtained by projecting the 2005 PPP poverty line in local currency back to previous years taking into account domestic inflation. In the previous version of POVCALNET, PPP poverty estimates for survey years beyond 1993 were estimated by projecting forward the 1993 PPP poverty line using domestic inflation. The individual country PPP Poverty estimates published in the 2007 WDI were calculated in this fashion.
POVCALNET allows the user to specify a poverty line for any country and will generate a variety of poverty-related indicators, including the poverty headcount. The default poverty line in the program is set for $1.25 a day ($38 a month), but this can easily be changed.
POVCALNET has been around for several years. In each Latin American country, it has been used mainly by poverty specialists who are, by now, familiar with the tool and who can be expected to analyze quickly the new numbers. It should not take long for the information on the new estimates to flow from the more academic specialists to a wider audience.
What are the results for The Dominican Republic?
We do not expect the Dominican Republic to be one of the countries where the release of the new PPP poverty estimates would create much of a reaction. This is based on the observations that:
1)Both the new PPP poverty estimates and the national poverty estimates present a picture of relative stagnation in poverty between 2003 and 2005.
2)There is not a large difference between the new $1.25 /day poverty estimate using 2005 PPP and the old $1.08/day poverty estimate using 1993 PPP estimate for 2001. Part of the increase is due to the higher poverty line and part due to the higher price levels in the sample of countries used in the regression that predicts the Dominican Republic’s PPP. Because the PPP estimate for both 1993 and 2005 are based on regressions, one should not be overly concerned about small changes in the values.
Table 1 – Dominican RepublicUD$ 1 a day and National Extreme Poverty Rates / Table 2 – Dominican Republic
UD$ 2 a day and National Moderate Poverty Rates
Year / Old WB Using 1993 PPP
($1.08) / New WB Using 2005 PPP
($1.25) / National Extreme Poverty / Old WB Using
1993 PPP
($2.00) / New WB Using 2005 PPP projected
($2.00) / National Moderate Poverty
1996 / 5.87 / 9.50 / 15.73 / 29.30
1997 / 9.60 / 26.70
1998 / 25.80
2000 / 4.41 / 9.00 / 12.36 / 27.70
2001 / 8.20 / 27.70
2002 / 10.00 / 28.00
2003 / 6.12 / 11.80 / 16.29 / 35.30
2004 / 2.79 / 14.80 / 16.22 / 41.70
2005 / 4.98 / 12.00 / 15.08 / 36.75
2006 / 8.80 / 31.00
Source: New WB (01/14/2009); Old WB (05/05/2008); SEDLAC
Universe: All available years.
Figure 1. Trends in Poverty (PPP poverty estimate vs. national poverty estimate)
What do you need to do?
It is not necessary for you to go out actively and inform users of the new PPP poverty numbers. The main policy dialogue concerning poverty should still revolve around the national poverty estimates, particularly when, as in the case of the Dominican Republic, the PPP Poverty estimates are based on PPP generated by regressions not calculated from price survey data from the country. The PPP poverty estimates are useful for global and cross country analysis, but measure the extent of poverty with a different poverty line, one that is a common international line across countries. We do not want to confuse people by proactively promoting the new PPP poverty estimates.
While people may come to you with questions now, this is more likely to occur after the publication of the WDI Supplement in November, 2008. For those who regularly interact with the press and outside actors, it would be a good idea to familiarize yourself with the new Poverty PPP estimates and be ready and able to explain how the estimates differ from previously available estimates. All you need in order to provide this explanation should be contained in this brief.
Who can you contact if you have a question?
If the information in this brief is not sufficient or if you have any questions, we are here to help. You may contact any of the people listed below on the World Bank’s email system or give us a call:
John 202-458-8033
Carolina 202-458-1128
Joao Pedro Wagner de 202-473-0518
Ezequiel 202-473-3375
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[1] The external version of POVCALNET can be accessed at: