“Crecimiento económico y pobreza en México; una estimación panel del impacto salarial sobre los niveles de

pobreza, 1987-2004”

Baruch Ramírez RodríguezUdG-INSP

Presentation Reminder

1. Background2. Theoretical considerations

1. What is pro-poor growth?2. literature review

3. Data4. So, growth is good for the poor?5. What about wages and poverty6. Conclusions

Background• UNDP millennium development goals• –International development community came to an

agreement that it was shameful to have such a poverty and deprivation in the World in the light of the new millennium.

• –2015 was set as the year the world should at least reach some targets

• •Goal No. 1: To halve poverty • –Others,… but the focus of this research is set on

poverty…• –There was a huge consensus towards this goal, but.

Background• International financial institutions reacted by

bringing their own evidence as to what the best way to reduce poverty is. Although their position is somehow ambiguous:– On the one hand, World Bank fully embrace and

promoted the millennium development goals (institutional reaction)

– On the other hand, within the World Bank an academic position grew. This piece of research is based on “hard empirical evidence” and states that “on average growth is as good for the poor as it is for everyone else” (Dollar and Kraay; 2000, 2002, 2004)

Background

• Mexico became one of the most globalised economies after signing NAFTA.

• There were huge excitement about the imminent incoming benefits for all, but specially for the poorest. So that arguments were made in favour of openness in addition to structural reforms as it was a necessary step to reach stable high rates of economic growth…

6

Background • fastest and best way to reduce poverty is by having

a growing open economy, so that commodities become cheaper and therefore more affordable

• The higher the rate of growth, the fastest poverty declines!

• In other words,…

OPEN TRADE AND STRUCTURALREFORMS

HIGHER RATESOF ECONOMIC

GROWTH

FASTER POVERTYREDUCTION

Background

Theoretical considerations

• Ok, but what does theory say about growth and poverty?– A good deal of authors revisited Kuznets hypothesis

and proposed slightly modified versions. For example, World Bank economists argued that all Mexico needed to do was to fully embrace globalisation, and in turn poverty would lower as benefits of economic growth reach everyone.

– Few were skeptical and argue that inequality does play against the poor (Kakwani, Srinivasan, Bawhati), and so a case for pro-poor growth research was made

Theoretical considerationsWhat is pro-poor growth?•“It is poverty elasticity to growth”, Ravallion and Datt, (1999)•“It is economic growth reducing poverty headcount”, Winters cited in White and Anderson, (White and Anderson 2000).•“it occurs when those below the poverty line or in the bottom quintile gain relatively or absolutely more income per capita than the average increase in per capita income” (Klasen 2004).•“It occurs when those below the poverty line grows more than the incomes of those above the poverty line” (Bhalla 2003).•“It occurs when economic growth is in tandem with declining inequality so that the poor benefit from growth more than the rich” (Kakwani and Pernia 2000).•“It occurs when the average income in the bottom quintile increases twice that of the average income overall (high pro-poor growth) or at least faster than average income” (Cling 2003).•“It occurs when the poor’s proportion of incremental income is greater than one of the following: a) their current share, b) their share of the population and c) some international norm, Lipton cited in White and Anderson, (2000).

Literature review

Data

• Data come from Mexican Budget surveys (ENIGHS), editions 1984-2004– ComparabilityIt means that working with such a long period one

needs to make sure that numbers have the same meaning as there are several methodological changes

– ReliabilityUnlike Dollar and Kraay whose unit of observations are

countries the richest and the poorest pooled together, ours is more comparable and less biased as they belong to one sinle country.

Data

Data

Data

So, growth is good for the poor?

• Estimation modelling differences

Income of the extreme poor

Nafta and the income of the poor

Nafta and the income of the extreme poor

Lowest quintil approach

Income and poverty indicators

What about wages and poverty?

Income sources and IGFT

Panel estimations

Panel estimation for rural/urban differences

Gracias!!

Please let me know your thoughts about this presentation either way at

the seminar or at rrbaruch@gmail.com