This metric quantifies the average shortfall of the total population from the poverty line, expressed as a percentage of that poverty line. For example, if a nation’s poverty line is defined as $10 per day, and the average income of those below the poverty line is $6 per day, the index reflects a 40% gap. This indicates the level of resources needed to eliminate poverty, assuming perfect targeting of transfers.
Its importance lies in providing a more nuanced understanding of poverty than simply counting the number of people below the poverty line. It reveals the depth of poverty and helps policymakers to assess the impact of policies designed to alleviate poverty. Historical context demonstrates its use in monitoring progress towards poverty reduction targets at national and international levels, serving as a critical benchmark for evaluating development interventions.
