Billions of people in the world are living in poverty. Adjusted for the purchasing power in each country, 85% of the world population live on less than $30 per day.

In an earlier post I said that ‘if we want global poverty to decline substantially then the economies that are home to the poorest billions of people need to grow.’ In this post I want to make this statement more concrete. I will look at the depth of global poverty today to get a quantitative sense of just how much the global income distribution would need to change to reduce global poverty substantially.

As a starting point for the discussion I will consider the inequality of incomes in the world today and think through a scenario that would allow the maximal reduction of global poverty under minimal global aggregate income growth. After calculating the minimum aggregate growth that is required to reduce global poverty substantially I will consider in which ways a possible more realistic scenario of the future might differ from the minimum scenario.

In an earlier text I asked who is considered poor in a high-income country. Based on existing national poverty lines – but also the size of social care payouts, a proposal for Universal Basic Income, and survey results – I found that $30 per day is, very approximately, the level below which people are considered poor in high-income countries.

One of the most important insights of economics is that people live in poverty not because of who they are, but because of where they are. A person’s knowledge, their skills, and how hard they work all matter for whether they are poor or not – but all these personal factors together matter less than the one factor that is entirely outside of a person’s control: whether the place they happen to be born into has a large, productive economy or not.

The comparison of a high-income country like Denmark and a much poorer country like Ethiopia makes clear just how important this aspect is. A person living in Denmark has a chance of 86% that they are not poor. A person who happens to be born into a country where the average income is low is almost certainly living in poverty. In Ethiopia more than 99% of the population live on less than $30 per day. This is why a rise in the average level of income in a country – economic growth – is so crucial for reducing poverty.

Throughout this entire text all poverty statistics are adjusted for differences in purchasing power across different countries. Without taking into account the price differences it is not possible to compare people’s living standards in different countries. See the footnote for a more detailed explanation of how poverty is measured.¹

This large visualization here shows the same comparison that we have just seen for Denmark and Ethiopia, but now for countries around the world. In purple you see the share of each country’s population living on less than $30 per day.

I ordered the countries by income: from the poorest countries on the very left of this chart to the richest countries on the right. The width of each country corresponds to the country’s population size.

This visualization shows the extent of global poverty today. The huge majority of the world lives in countries where the majority is poor. As you can read above this chart, 84% of the world population live in countries in which more than 80% live on less than $30 per day.

In the past it was unimaginable that it would ever be possible to reduce poverty. In a world in which every second child died and where hunger was widespread, the majority of people lived in poverty. And since poverty did not change, it was easy to believe that poverty was unchangeable.

Today we know that this was wrong, we know that poverty is not inevitable because poverty has declined very substantially in many countries. The population of Denmark was once as poor as the population of Ethiopia today, but since then poverty declined and living conditions improved: average incomes increased more than 25-fold, the child mortality rate declined from more than a quarter to less than half a percent – one of the lowest levels in the world – and Denmark is today one of the countries where people report to be most satisfied with their lives.

As such I will use Denmark as a benchmark of what it means for poverty to fall ‘substantially’. Using Denmark as a benchmark, we can ask: how equal and rich would countries around the world need to become for global poverty to be similarly low as in Denmark?

Denmark is not the only country with a small share living on less than $30, as the visualization above showed. In Norway and Switzerland an even smaller share of the population (7% and 12%) is living in such poverty. I chose Denmark, where 14% live in poverty, as a benchmark because the country is achieving this low poverty rate despite having a substantially lower average income than Switzerland or Norway.

Considering a scenario in which global poverty declines to the level of poverty in Denmark is a more modest scenario than one that considers an end of global poverty altogether. It is a scenario in which global poverty would fall from 85% to 14% and so it would certainly mean a substantial reduction of poverty.

If you think that my poverty line of $30 per day is too low or too high, or if you want to rely on a different country than Denmark as a benchmark, or if you would prefer a scenario in which no one in the world would remain in poverty, you can follow my methodology and replace my numbers with yours.² What I want to do in this text is to give an idea of the magnitude of the changes that are necessary to substantially reduce global poverty.

How do living standards in Denmark and a poorer country compare?

The previous chart showed that in the majority of the world’s countries the vast majority lives on less than $30 per day. The following chart zooms in from the global view of the previous chart to a more detailed comparison of just two countries: our benchmark country Denmark in red and Ethiopia in blue.

There is no global survey of incomes: researchers need to rely on the available national surveys. Such surveys are designed with cross-country comparability in mind, but because they reflect the circumstances and priorities of individual countries there are some important differences across countries. In most richer countries the surveys capture people’s incomes, while in poorer countries these surveys capture people’s consumption. The two concepts are closely related: the income of a household equals their consumption plus any saving (or minus any borrowing).³ When speaking about these statistics it would therefore be accurate to speak about ‘the income of people in richer countries and the monetary value of consumption in poorer countries’. But since it’d be a bit much to repeat this every time researchers simply speak of ‘living standards’ or ‘income’ instead. I do the same in this text.

It’s also important to remember that in poorer countries many work as subsistence farmers who do not, or only partly, rely on a monetary income. To properly capture their living standards, and allow comparisons between households, the statisticians who conduct the household surveys include an estimate of the monetary value of the food and other goods that they produce for their own consumption.⁴

What does the chart tell us about living standards in these two countries?

If we want to know how much the distribution of Ethiopia would need to change to reduce the share in poverty to Denmark’s level we can read it off the two parameters that describe the distribution – the average level of income and the inequality of those incomes.

Ethiopia has a much lower average income: an increase of average incomes is called economic growth and to increase the average from $3.30 per day to $55 would mean that Ethiopia would need to increase its income 16.7-fold (because $55 is 16.7-times higher than $3.30).⁵

Inequality is also higher in Ethiopia. To reach the same level of poverty at the same level of average income the Gini would have to fall by 5 points. But the current average is so far below $30 a day that without economic growth no amount of redistribution would lower the poverty rate relative to this threshold.⁶

A more than 16-fold increase in average incomes is certainly not easy to achieve, but it is also not impossible. The average income in Denmark grew by more than that over the last few generations, and such growth is not rare in recent economic history.

How would average incomes need to change globally?

We have seen that the average income in Ethiopia is 16.7-times lower than the average in Denmark. How do the incomes of people in all other countries in the world compare with Denmark?

The chart here shows us the answer by plotting the average incomes for all countries in the world. The height of each bar represents the average daily income in a country; the width of each country again corresponds to the country’s population size and again I have ordered the countries by income: from the poorest country on the very left to the richest country on the very right.

The reason why such substantial economic growth is necessary for reducing global poverty is that the average income in many countries in the world is very low: 82% of the world population live in countries where the mean income is less than $20 per day.

Denmark is highlighted in green. With an average income of $55 per day it is among the richest countries in the world, though there are several countries where average incomes are higher still.

How much would average incomes have to increase to reach the level of Denmark?

This next chart is based directly on the previous one and shows for every country by how much the mean income would need to increase to reach Denmark’s mean income.

I rotated the orientation of this chart so that now the height of each bar is proportional to the size of that country’s population. The population size is relevant because we need to take into account each country’s share in world population, and expected future population growth, in order to calculate the minimum necessary global aggregate growth that is required to reduce poverty.

The chart shows that Ethiopia is among the poorer countries and, as we have seen above, its average income would need to increase 16.7-fold to reach Denmark’s. The countries that have a lower average income than Ethiopia need higher economic growth to reach the level of Denmark; the countries that are already richer than Ethiopia require less.

The very richest countries don’t need additional growth to reach Denmark, they are already richer. If they would achieve a reduction of inequality they could reduce the share of their population living on less than $30 per day to the level of Denmark. Those countries I have shown in red and for the calculation of the minimum necessary global growth I assumed that these countries reduce the average income of the people that live there.

The simple idea of this hypothetical scenario is that every country that is poorer than Denmark increases average incomes to the level of Denmark and every country that is richer decreases the income of the people in those countries. And in addition to this every country in the world reduces its income inequality to the low level of Denmark.

How much growth would be needed in total?

You find the calculation in the footnote. The minimum necessary growth to reduce global poverty to the level of poverty in Denmark is 410%.⁷

An increase by 100% would mean that the size of the economy would double. A 410% increase is therefore a 5.1-fold increase of the global economy.

Or put differently, a world economy with substantially less poverty is at a minimum 5-times bigger than today’s global economy.

A five-fold increase is a minimum estimate of the economic growth that is necessary to reduce global poverty substantially. In the following box I discuss in which ways a more realistic expectation of what the future might look like would imply larger economic growth.

In which ways does a realistic scenario differ from the minimum scenario?

Reducing poverty is not the only goal

Reducing global poverty is not the only important global goal, it will also be crucial to reduce humanity’s very large impact on the environment. Yes, it will be hard to achieve both goals at the same time and I believe we should be clear about the difficulty of this challenge:

• In considering this challenge you might come to the conclusion that it is impossible to decouple economic growth from environmental impact. If this is the conclusion that you arrive at, then you necessarily have to make the decision whether you are willing to accept large environmental impacts or whether you are willing to accept widespread global poverty.
• Or you consider this challenge and you come to the opposite conclusion – that it is possible to decouple growth from environmental harm. In this case you decide that you want to see in which ways humanity can reduce its impact on the environment while continuing to make progress against global poverty. Much of our work on Our World in Data is dedicated to this goal – we document humanity’s impact on the environment and consider possible solutions for how to reduce this harm (some of the texts you might be interested in, in this regard: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and many more).

What is not helpful however is to pretend that there are easy ways out. If you consider someone who lives on less than $30 per day to be poor then it is not possible to reduce global poverty substantially without very large aggregate growth.

Is it possible for poor countries to achieve this growth?

Before discussing the possibilities for future growth I also want to stress that the level of economic inequality matters for the reduction of poverty. We saw this in the data above: the average income in the US is higher than in Denmark, yet because these incomes are much less equally distributed there is a higher share of Americans living in poverty.

But whether or not global poverty can possibly decline that much – from the current level of 85% to Denmark’s level of 14% – overwhelmingly depends on whether the average incomes in those countries that are home to the poorest billions of people in the world will increase or not.

One reason why you might want to consider that this is possible is the reality of those countries in which the majority left poverty behind in recent decades. As we have seen before, even a country like Denmark was extremely poor until recently and there is no reason to believe that the productivity increases that made economic growth in Denmark possible should not be possible elsewhere.

Another reason to think that many countries in the world can make progress against poverty in the future is to consider some of the reasons that were holding these countries back in the past. One important reason why a large number of people live in poverty today is that these countries were exploited by colonial powers that did not allow those economies to grow and instead impoverished them. The actions of rich countries still harm the prospects of poorer countries in many ways, but the end of colonialism was extremely important for the prospects of billions of people in the world and since the end of colonial rule many former colonies did substantially reduce poverty.

A third aspect to consider is that countries around the world saw large improvements in health and education in recent years. Health and education do not automatically translate into higher prosperity, but surely make it more likely that a country can leave poverty behind.

A fourth reason is to see that ’catch-up growth’ can be very fast: several countries have achieved annual growth rates of more than 5% in recent decades.

And a last reason to consider is that up to the pandemic the majority of countries in the world – but not all – did make progress against poverty. Global poverty has declined very substantially in recent decades, no matter what poverty line you want to draw.

Increasing productivity substantially and reducing humanity’s impact on the environment are certainly not easy, but these are some of the points to consider when thinking about the question of whether it might be possible to make progress towards these two goals.

Conclusion

What this post has shown is that if you consider a person who lives on less than $30 per day to be poor, then the extent of poverty in our world today requires very large global aggregate growth to substantially reduce global poverty.

Personally I certainly believe that a person who lives on less than $30 per day is poor and I believe it is unjust that in most countries in the world the majority lives in such poverty. This is why I believe that the economies that are home to the poorest billions of people need to grow if we want global poverty to decline substantially.

If you are opposed to global economic growth for one reason or another, then I hope this post is helpful in considering the implications of this opposition.

Acknowledgement: I would like to thank Joe Hasell for his thoughtful comments on draft versions of this article.

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