If you only read one thing this week…


Another day, another $1.08… by ifyouonlyreadonethingthisweek
July 28, 2007, 11:14 pm
Filed under: Articles, Development theory, If you only have 15 mins, Megatrend

The Economist is running an article about the catchy measure of poverty, the ‘dollar a day index’ here. They describe an article in the Journal of Economic Perspectives in which Abhijit Banerjee and Ester Duflo from MIT discuss the index both in terms of its rhetorical power, but also the practical usage of an index that converts local expenditure into a common unit of purchasing parity (the dollar a day unit is the equivalent purchasing parity, not the exchange rate value, so that an Indian in 1960 can be said to be living on a dollar a day if they spend 15 rupees a month, the unit is adjusted to reflect different costs of living). The current version of the measure is adjusted to $1.08 at 1993 prices, or $1.53 in 2007.

The article challenges some of the commonly held wisdom about how well the poor understand their own economic interests. In particular, it highlights the very high relative levels of spending on alcohol, cigarettes, and festivals.

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