Glossary

Poverty Gap Index (PGI)

In order to summarize information on poverty, the WB (World Bank) typically uses two indexes, the first and most popular one, the headcount index for measuring the proportion of the population for whom consumption is less than the poverty line, and the second one, the poverty gap index (PGI), to measure the depth of poverty.

Explanation

The poverty gap (PG) is defined as the extent to which individuals on average fall below the poverty line, and expresses it as a percentage of the poverty line, or, in other words, the average difference between poor households' income and the poverty line.

 

Two countries with the same poverty headcount index may have quite different poverty levels. Country A and country B in the chart below both have the same headcount index (P_A = P_B, for PL_A = PL_B), although the depth of poverty is evidently much greater in country A. The latter has a higher poverty deficit, meaning that it would require a larger per capita amount of resources to bring all poor people above the poverty line.

 

   

 

WB's PGI allows to compare the poverty status in both countries A and B, by expressing the poverty gap as a percentage of the poverty line:

 

Benefits and shortcomings of PG and of PGI

• PG: The poverty gap is a headcount ratio, returning a simple percent count of all the people below a poverty line of a given population, considering them equally poor.
• PGI: The poverty gap index estimates the depth of poverty by considering how far, on the average, the poor are from that poverty line.
• PGI provides a value for the amount of money that should be transferred to the poor to bring them out of extreme poverty and up to the poverty line (see example below.)
• Both the PG, a percent ratio, and PGI, an average, fail to capture differences in the severity of poverty amongst the poor, and ignore inequality among the poor.

How to compute the PGI

For Country C, Population N=5, Poverty level P_l=110.

	Country					PGI
I (Income or expenditure)	80	90	100	110	120
PG (Poverty gap, for PG ≥ 0)	30	20	10	0	0
PG÷Pl	0.273	0.182	0.091	0	0	0.11
Total transfer (PGI×Pl×N)	60

PGI is the average of the individual PG÷P_l ratios (0.273+0.182+0.091+0+0=0.55÷5=0.11).

The total transfer required to bring all poor people up to the poverty line is simply the sum of all the poverty gaps in a population (30+20+10+0+0), or the multiplication of the country's poverty gap index by both the poverty line and the total number of individuals in the country (PGI×P_l×N).

Sources: Indicators for Monitoring the Millennium Development Goals. United Nations, New York. 2003. PovcalNet. World Bank, 2016.