Poverty Global Practice, The World Bank
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Poverty Global Practice, The World Bank
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Last updated January 31, 2023
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Publication(World Bank, Washington, DC, 2016-08) Rodriguez Castelan, Carlos ; Lopez-Calva, Luis F. ; Lustig, Nora ; Valderrama, DanielSince the early 2000s, after a long period of wide and persistent gaps, Latin America has experienced a steady decline in income inequality. This paper presents evidence of a trend reversal in labor income inequality, which is considered the main factor behind such a decline in income inequality across the region. The analysis shows that, while labor income inequality increased during the 1990s, with heterogeneous experiences across countries, it fell in a synchronized way across countries beginning in the early 2000s. This systematic decline was supported by an expansion in real hourly earnings among the bottom of the wage distribution and, to a lesser extent, the middle part of the earnings distribution, thus reducing upper and lower tail inequality. This trend reversal is explained by a lower dispersion of earnings among workers with observable different attributes and by a much less extensive dispersion of residual labor inequality. Regarding the earnings differentials among workers with observable different attributes, the analysis concludes that the decline in labor inequality in Latin America has been closely associated with a reduction in the college/primary education premium and in the urban-rural earnings gap, coupled with a steady drop in the high school/primary education premium, which accelerated markedly since the 2000s, as well as a reduction in the experience premium across all age groups.
Publication(World Bank, Washington, DC, 2016-11) Lopez-Calva, Luis F. ; Rodríguez-Castelán, CarlosGrowth is an important channel for poverty reduction. Policies to make growth more "inclusive" have permeated the development debate and "pro-poor growth" has been the subject of a wide range of papers in the literature, including issues related to measurement, modeling, and policy. However, the analytical and particularly empirical literature to support the idea that equity-enhancing policies have a positive effect on growth is more scarce and limited, especially on the potential policy links. This paper proposes a simple conceptual framework to identify the main elements that contribute to the income generation of households, building on the notion that growth can be seen partly as the aggregate outcome of the income generation capacity of households. The framework relies on an asset-based approach, and offers insights on how a more equitable distribution of assets and opportunities for their productive use can feed back into higher growth in the long term. Using this framework, the paper links the World Bank's twin goals to specific policy channels that have direct impacts on the income generation capacity of households, with a particular focus on households at the bottom of the income distribution. The four key policy channels include (i) implementing equitable, efficient and sustainable fiscal policy and macroeconomic management, (ii) strengthening fair and transparent institutions capable of delivering quality basic services, (iii) enabling well-functioning markets, and (iv) establishing adequate risk management instruments at the macro and household levels.
Publication(World Bank, Washington, DC, 2017-04) Bolch, Kimberly B. ; Ceriani, Lidia ; Lopez-Calva, Luis F.The 2015 United Nations resolution on Financing for Development stresses the importance of effective resource mobilization and use of domestic resources to pursue sustainable development. The first Sustainable Development Goal is to eradicate extreme poverty for all people everywhere by 2030. This paper proposes an accounting exercise to assess whether it is feasible for countries to eliminate poverty using only domestic resources, in other words, by mere redistribution. Moreover, the paper argues that the concentration of resources in the hands of fewer individuals in the society may hinder the feasibility of implementing effective fiscal policies (from the revenue side and the social spending side) to reduce poverty. The paper provides a new tool to assess the capacity of countries to eliminate poverty through redistribution, and a new tool to approximate the concentration of political influence in a country. The new methodologies are applied to the most recent surveys available for more than 120 developing countries. The findings show that countries with the same fiscal capacity to mobilize resources for poverty eradication differ widely in the political feasibility of such redistribution policies.
Publication(World Bank, Washington, DC, 2019-10) Lopez-Calva, Luis F. ; Ortiz-Juarez, Eduardo ; Rodriguez-Castelan, CarlosThis paper exploits a novel municipal-level data set to explore patterns of convergence in income and poverty in Mexico during 1992-2014. The paper finds that, despite a context of overall stagnant economic growth and poverty reduction, there is evidence of income and poverty convergence at the municipal level. The findings suggest that these convergence processes stem from a combination of considerable positive performance among the poorest municipalities and stagnant and deteriorating performance among richer municipalities. Re distributive programs, such as federal transfers to poor municipalities and cash transfers to poor households, seem to have played an important role in driving these results by bolstering income growth among the poorest municipalities, while also inducing progressive changes in the distribution of income.
Publication(Elsevier, 2016-05) Enamorado, Ted ; López-Calva, Luis F. ; Rodríguez-Castelán, Carlos ; Winkler, HernánThe goal of this paper is to examine the effect of inequality on crime rates in a unique context, Mexico's drug war. The analysis exploits an original dataset containing inequality and crime statistics on more than 2000 Mexican municipalities over a 20-year period. To uncover the causal effect of inequality on crime, we use an instrumental variable for the Gini coefficient that combines the initial income distribution at the municipality level with national trends. Our estimates indicate that a one-point increment in the Gini coefficient between 2007 and 2010 translates into an increase of more that 36% in the number of drug-related homicides per 100,000 inhabitants. The fact that the effect found during the drug war is substantially greater is likely caused by the rise in rents to be extracted through crime and an expansion in the employment opportunities in the illegal sector through the proliferation of drug trafficking organizations (DTOs), accompanied by a decline in legal job opportunities and a reduction in the probability of being caught given the resource constraints faced by the law enforcement system. Combined, the latter factors made the expected benefits of criminal activity shift in a socially undesirable direction after 2007.
Publication(Published by Oxford University Press on behalf of the World Bank, 2020-06) Levy, Santiago ; López-Calva, Luis F.Over the last two decades, Mexico has experienced macroeconomic stability, an open trade regime, and substantial progress in education. Yet average workers’ earnings have stagnated, and earnings of those with higher schooling have fallen, compressing the earnings distribution and lowering the returns to education. This paper argues that distortions that misallocate resources toward less-productive firms explain these phenomena, because these firms are less intensive in well-educated workers compared with more-productive ones. It shows that while the relative supply of workers with more years of schooling has increased, misallocation of resources toward less-productive firms has persisted. These two trends have generated a widening mismatch between the supply of, and the demand for, educated workers. The paper breaks down worker earnings into observable and unobservable firm and individual worker characteristics, and computes a counterfactual earnings distribution in the absence of misallocation. The main finding is that in the absence of misallocation average earnings would be higher, and that earnings differentials across schooling levels would widen, raising the returns to education. A no-misallocation path is constructed for the wage premium. Depending on parameter values, this path is found to be rising or constant, in contrast to the observed downward path. The paper concludes arguing that the persistence of misallocation impedes Mexico from taking full advantage of its investments in the education of its workforce.