I. Critical review of the Mexico Poverty AssessmentPP 253/ARE 253, Fall 2008Quantitative Policy Case #1Poverty Assessment in MexicoDue in class on Friday, September 26To be done by teams of two. Your paper should not exceed 12 pages, including text, tables, and graphs. Pleasefollow the structure of the assignment, including the question numbers, to facilitate the correction. I. Critical review of the Mexico Poverty AssessmentPoverty assessments are a key World Bank contribution to help governments design poverty reductionstrategies. Typically, these assessments review levels and changes over time and across regions in poverty andinequality, and derive policy implications from this analysis. Information and guidelines on poverty assessment canbe found on the World Bank Poverty Net webpage (see Poverty Assessments/LAC/Mexico):http://www.worldbank.org/poverty/wbactivities/pa/Among the poverty assessments, you will find that for Mexico made in 2004: Poverty in Mexico: AnAssessment of Conditions, Trends, and Government Strategy. Download and read in particular:Summary and Key MessagesChapter 3: The structure and trends in deprivation1.1. In not more than a couple of pages, indicate:What issues motivated the report.What analytical tools did the report use to analyze poverty and inequality.What are the main results of the poverty assessment.What are the main policy recommendations.1.2. With a focus on the heterogeneity of poverty, indicate which aspects of poverty appear to be most in need ofdetailed analysis when making a poverty assessment for Mexico.II. Macroeconomic context for your 1998-2004 poverty assessmentYour analysis of poverty and inequality in Mexico will be for the 1998-2004 period. To understand whatyou will observe in the data, it is important for you to know what was the macroeconomic context for this period.For this, find the World Bank’s World Development Indicators on line database at:http://go.worldbank.org/6HAYAHG8H0Download the GDP per capita in constant local currency units (LCU) for Mexico over the 1965-2007 period in anExcel file. You will see three successive crises: the debt crisis in 1982, the peso crisis in 1994, and the 9/11 shock in2001. Construct an Excel graph with the GDPpc time series. Indicate your two sample years with vertical bars. Wasthe 1998-2004 period one of growth or recession? What can you expect in terms of changes in poverty?III. Your poverty assessmentYou will find on the course webpage a data file taken from the 1998 and 2004 Mexican Encuesta Nacionalde Ingresos y Gastos de los Hogares (ENIGH). It consists in a random sample of observations on 2,000 and 3,000households for 1998 and 2004, respectively. The file gives information on region of residence, demographiccharacteristics, education, job characteristics of the head of household, as well as indicators on the quality of thedwelling and ownership of durable goods. For each household, you also have the consumption per capita and theincome per capita in 2004 pesos for both years. The poverty line for consumption per capita is set at 1000.4 pesos inrural areas and 1487.3 pesos in urban areas. Both values are measured in 2004 pesos and apply to both years. Although this survey, like most others used a stratified random sample scheme, you will ignore this in theanalysis and pretend that you have a random sample of Mexican households. Furthermore, you will consider the1 1/14/19household as a unit of analysis and ignore its size and composition. Hence poverty rates will be given aspercentages of households rather than percentages of individuals that are in poverty. For these two reasons, yourresults will be different from what you will read in the Poverty Assessment. Just see this assignment as a first stepfor you to learn how to do a poverty analysis.3.1. Correlates of poverty in 2004Useful guidelines for poverty analysis are found in the World Bank’s Poverty Manual at:http://web.worldbank.org/WBSITE/EXTERNAL/WBI/WBIPROGRAMS/PGLP/0,,contentMDK:20284296~menuPK:461269~pagePK:64156158~piPK:64152884~theSitePK:461246,00.htmlSee in particular Chapter 7, Describing Poverty: Poverty Profiles.How to characterize the poor was also discussed in class.Provide a description of the poor (in contrast to the non-poor) in 2004 answering the following questions: Who are the poor (gender and education of the household head, and family size)? Where do they live (rural/urban, regions)? What do they do (employment position/sector of the household head)? What are their living conditions (dwelling quality)?In order to do this, construct a table with the average values of the following variables for the poor and forthe non-poor in 2004: female head, head with less than primary education, household size, rural, live in the Southregion, head is self-employed, head is self-employed in commerce, has running water in dwelling, number of personper room. Analyze the differences in means or percentages between poor and non-poor for each characteristic.Make sure to use a test of the significance of these differences (t-test for difference in means of continuous variables,chi2 for difference in percentages). Comment on your findings.3.2. Poverty profilesDraw on one graph the two poverty profiles for the sample populations in 1998 and in 2004, including thepoverty line. What do these profiles tell you about changes in poverty over the period? Are your conclusions aboutchange in poverty between the two periods robust to the choice of the poverty line?3.3. Poverty indicatorsCalculate the P0, P1, and P2 indicators for 1998 and 2004. Discuss what they tell you about poverty in thesetwo periods? Calculate P0 of the sample population for the following subgroups in 2004: Rural vs. urban, and householdswith a head with at most primary education vs. more than primary education. Discuss what this is telling you aboutthe structure of poverty in Mexico.For the rural/urban dichotomy, compute the contribution that each group makes to total poverty accordingto the P0 indicator in 2004. IV. Your inequality assessment4.1. Inequality indicatorsCompute the Gini coefficients and a selected Kuznets ratio for the rural and urban populations for the twoyears 1998 and 2004, using the formulas given in the class handout. What do they show? 4.2. Lorenz curvesDraw the Lorenz curves for the rural and urban populations for 2004. What do they tell you?V. Your
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