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PovertyAss06 Berkeley ARE 253
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  • Title: PovertyAss06
  • Type: Notes
  • School: Berkeley
  • Course: ARE 253
  • Term: Fall

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Public Policy 253 - Agricultural and Resource Economics 253, Fall 2006 Poverty Assessment in Mexico Quantitative Policy Case #1 To be done by teams of two Due in class on Friday, September 29 I. Background on Poverty Assessments Poverty assessments are a key World Bank instrument to design poverty reduction strategies. Typically, these assessments review levels and changes over time and across regions in poverty and inequality, and derive policy implications from this analysis. Information and guidelines on poverty assessment can be found on the World Bank Poverty Net webpage (see Poverty Assessments): http://www.worldbank.org/poverty/wbactivities/pa/ Among the poverty assessments, you ill find that for Mexico made in 2004: Poverty in Mexico: An Assessment of Conditions, Trends and Government Strategy II. Critical review of the Mexico Poverty Assessment Look at the 2004 Poverty in Mexico report. Download and read in particular: Summary and Key Messages Chapter 3: The structure and trends in deprivation 2.1. In not more than a couple of pages, indicate: What issues motivated the report Summarize the main results of the poverty assessment Summarize and critically discuss the policy recommendations made. 2.2. With a focus on the heterogeneity of poverty, indicate which aspects of poverty appear to be most in need of detailed analysis when making a poverty assessment for Mexico. III. Macroeconomic context for your 1998-2004 poverty assessment Your analysis of poverty and inequality in Mexico will be for the 1998-2004 period. To understand what you will observe in the data, it is important for you to know what was the macroeconomic context for this period. For this, look at the World Bank s World Development Indicators data at: http://devdata.worldbank.org/dataonline/ Extract the GDP per capita in constant local currency units (LCU) for Mexico over the 1965-2004 period. You will see three successive crises: the debt crisis in 1982, the peso crisis in 1994, and the 9/11 shock in 2001. Draw an Excel graph with the GDPpc time series. Indicate your two sample years with vertical bars. Was the 1998-2004 period one of growth or recession? IV. The data You will find on the course webpage a data file taken from the 1998 and 2004 Mexican Encuesta Nacional de Ingresos y Gastos de los Hogares (ENIGH). It consists in a random sample of observations on 2,000 and 3,000 households for 1998 and 2004, respectively. The file gives information on region of residence, demographic characteristics, education, job characteristics of the head of household, as well as indicators on the quality of the dwelling and ownership of durable goods. For each household, you also have the consumption per capita and the income per capita in 2004 pesos for both years. There are two poverty lines one for extreme poverty and the other for poverty. The poverty lines, measured per capita and in 2004 pesos in both years, are the same for 1998 and 2004. Perform all the analysis with only one of them. 1 9/10/06 Note about the sample design. Like for most household surveys, the sample was not a random sample of the population, but a stratified random sample with surveys grouped in clusters. This is an efficient way to design a survey that ensures sufficient representation of small segments of the population. The cost of this method is that each observation carries a weight which in some way tells the number of units it represents in the whole population. In principle all the statistics that you calculate with such a data should be done taking into account this weighting scheme. Stata has a special series of command just for that. Those are svy: --- For those of you that are already familiar with Stata, and wants to do the analysis with those weights, you could do it. The household sampling scheme is characterized by: svyset [pweight=factor]; For the other students, I suggest that we pretend that we have a random sample and forget about the sampling scheme. The results will be quite different from what you will read in the Poverty Assessment. Just see this assignment as a first step for you to learn Stata and how to do a poverty analysis. Note about computing poverty rate at the individual level: The data that you have are at the household level. Here are some hints on how to compute poverty (or other characteristics) at the individual level. For each household, you have for example the number of person in the household (household_size). To compute the total number of poor individuals, you would need to get the sum of all these individuals in poverty. Let s say you have a variable p0 equal to 1 if the household is poor. Then people in poverty in each household are household_size*p0, and you can compute the sum over your sample of this number. To compute the poverty rate at the individual level, you need to give a weight to the household that is proportional to its number of member. You can apply the same method to compute the poverty rate of the children, using the number of children instead of the number of members. V. Your own poverty analysis 5.1. Correlates of poverty Following the World Bank s guidelines in the Chapter by Aline Couduel et al. in the reading list, provide a description of the poor (in contrast to the non-poor) in 1998 and 2004 answering the following questions: Who are the poor (e.g., gender, age group, education, family size, etc.)? Where do they live (e.g., rural/urban, regions)? What do they do (e.g., employment position/sector)? What are the main characteristics of their poverty (e.g., dwellings, access to public goods, etc.)? You can do a table with the average such characteristics for the poor and for the non-poor, and analyze the differences in means or percentages between poor and non-poor for each characteristic. Make sure to make a test of the significance of these differences (t-test for difference in means, chi2 for difference in percentages or distributions). You can also, for a selected continuous variable of interest, give the frequency distribution of the variable for the poor and non-poor on a same graph. What did you learn from this analysis about poverty in Mexico and how it evolved over the period analyzed? 5.2. Poverty profile: Draw on one graph the poverty profiles for the sample population in 1998 and 2004, including the two poverty lines. What do these profiles tell you about changes in poverty over the period? Are your conclusions about change in poverty between the two periods robust to the choice of poverty line? 5.3. Poverty indicators Calculate the P0, P 1, and P 2 indicators for 1998 and 2004. What do they tell you about poverty in these two periods? 5.4. Population subgroups Calculate P0 of the sample population for the following subgroups in each year: Rural vs. urban Households with a head with at most primary education vs. more than primary education Discuss what this is telling you about the structure of poverty in Mexico. 5.5. Shares in total poverty For the rural/urban dichotomy, compute the contribution that each group makes to total poverty according to the P0 indicator in each period. VI. Your own inequality analysis 6.1. Inequality indicators Calculate the Gini coefficients for the rural and urban populations for the two periods. Calculate a Kuznets ratio for the rural and urban populations for the two periods. What do they show? 6.2. Lorenz curves Draw the Lorenz curves for the rural and urban populations for the two periods. What do they tell you? VII. Your conclusions and policy recommendations 7.1. Summary of findings Briefly summarize the main message of your analysis. Who gained and who lost from the changes that occurred during the period? How can you contrast what happened with poverty with what happened with inequality 7.2. Policy implications for the new president of Mexico What are the policy implications of your results for the social policy that Mr. felipe calderon should pursue? 3 9/10/06

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