I. Critical review of the Mexico Poverty AssessmentINTRODUCTION TO POVERTYANALYSISsiteresources.worldbank.org/PGLP/Resources/PovertyManual.pdfSee in particular Chapter 7, “Describing Poverty: Poverty Profiles”. How to characterize the poor was also discussed in class.PP 253/ARE 253, Fall 2009Quantitative Policy Case #1Poverty Assessment in MexicoDue in class on Friday, October 2To 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 reductionstrategy papers (PRSP). Typically, these assessments review levels and changes over time and across regions inpoverty and inequality, and derive policy implications from this analysis. Information and guidelines on povertyassessment can be found on the World Bank Poverty Net webpage:http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/EXTPA/0,,contentMDK:20210352~menuPK:435735~pagePK:148956~piPK:216618~theSitePK:430367,00.htmlAmong the poverty assessments on this website, you will find that for Mexico made in 2004: Poverty inMexico: An Assessment of Conditions, Trends, and Government Strategy. Download and read the following sections:Summary and Key MessagesChapter 3: The structure and trends in deprivation (pp. 39 to 108)1.1. In not more than a couple of pages, indicate:What issues motivated the report?What poverty lines and what indicators of poverty were used for the analysis?What are the main results of the poverty assessment?What are the main policy recommendations made by the report?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://ddp-ext.worldbank.org/ext/DDPQQ/member.do?method=getMembers&userid=1&queryId=6Download the GDP per capita in constant local currency units (LCU) for Mexico over the 1965-2007 period in anExcel file. Construct an Excel graph with the GDPpc time series. You will see three successive crises: the debt crisisin 1982, the peso crisis in 1994, and the 9/11 shock in 2001. 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 the1 1/15/19income 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 thehousehold 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 on Google at:INTRODUCTION TO POVERTYANALYSISsiteresources.worldbank.org/PGLP/Resources/PovertyManual.pdfSee in particular Chapter 7, “Describing Poverty: Poverty Profiles”. How to characterize the poor was also discussedin 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 for the non-poor in 2004: female head, head with less than primary education, household size, rural, live in the South region,head is self-employed, head is self-employed in commerce, has running water in dwelling, number of person perroom. Analyze the differences in means or percentages between poor and non-poor for each characteristic. Makesure to use a test of the significance of these differences (t-test for difference in means of continuous variables, chi2for difference in percentages). You can also estimate a linear probability model (OLS regression) using a 0/1 indicator for nonpoor/poor on the leftand side, and the above characteristics on the right hand side. This will help you see which variables aresignificantly correlated with the status of being poor.Comment on your findings: what did you learn from this analysis?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? 3.4. Contributions to poverty by population
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