Poverty Gap

The poverty gap is the average shortfall of the total population from the poverty line. This measurement is used to reflect the intensity of poverty. The poverty line used to measure this gap is the amount typical to the poorest countries in the world combined with the latest information on the cost of living in developing countries. The poverty line is indicated by the widely accepted international standard for extreme poverty. This standard is $1.25 daily. However, it's been difficult to set a common international poverty threshold since different countries have different thresholds for poverty.

The poverty gap indicator is produced by the World Bank Development Research Group. It measures poverty using information from household per capita income/consumption. The poverty gap data is available for 115 countries worldwide and is updated semiannually in April and September.

The poverty gap statistic is most valuable to economists and government officials for calculating the poverty gap index. The poverty gap index is a more accurate measure of poverty than the commonly used poverty headcount ratio, which provides for a simple count of all the people below a poverty line in a given population, considering them equally poor. Two regions may have the similar headcount ratio, but distinctly different poverty gap indexes. A higher poverty gap index means that poverty is more severe. The poverty gap index estimates the depth of poverty by considering how far, on the average, the poor are from that poverty line.

If you multiply a country's poverty gap index by both the poverty line and the total number of individuals in the country, you get the total amount of money needed to bring the poor in the population out of extreme poverty and up to the poverty line, assuming perfect targeting of transfers.

For example, suppose a country had 10 million citizens and a poverty line of $500 per year and a poverty gap index of 5 percent. In such a case, an average increase of $25 per individual, per year, would eliminate extreme poverty. The $25 is 5 percent of the poverty line, and the total increase needed to eliminate poverty is $250 million—$25 multiplied by 10 million individuals.

The poverty gap index is additive. In other words, the index can be used as an aggregate poverty measure, as well as decomposed for various sub-groups of the population, such as by region, employment sector, education level, gender, age or ethnic group.