Department of Social Systems and Management
Discussion Paper Series

No.1274

Growth with Equity for the Development of
Mexico:Poverty,Inequality, and Economic
Growth(1992-2008)

byAlberto J. INIGUEZ-MONTIEL

July 2011

UNIVERSITY OF TSUKUBA
Tsukuba, Ibaraki 305-8573
JAPAN

GROWTH WITH EQUITY FOR THE DEVELOPMENT OF MEXICO:POVERTY, INEQUALITY, AND ECONOMIC GROWTH (1992–2008) 䃩
Alberto J. Iniguez-Montiel
Graduate School of Systems and Information Engineering,
University of Tsukuba, 1-1-1 Tennodai, Tsukuba, Ibaraki, 305-8573 Japan.
E-mail: iniguez@sk.tsukuba.ac.jp
Tel.: +81-29-853-5175 / Fax: +81-29-853-5070
Abstract
How to decrease poverty has been extensively analyzed in the last two decades but,
especially so, after the adoption of the millennium declaration (United Nations, 2000),
which recognizes the elimination of poverty as one of the most important development
goals. There are two important factors contributing to poverty reduction: economic
growth and decrease in inequality. This paper constitutes an attempt to determine therelative contribution of changes in those variables to changes in poverty in Mexico by
applying standard decomposition techniques and other methodologies that have been
proposed to analyze the, sometimes, overlooked and underestimated impact ofinequality on poverty. Our findings clearly indicate that growth with redistribution (lower
income inequality) was indeed the key to reducing poverty continuously and in an
important manner during 2000–2006. However, after 2006, decreasing per-capita
income, and the persistently high inequality (Gini of 52%) in the country, caused thereversal of the favorable trend observed since 1996, raising poverty to pre-2002 levels.
It follows that, for Mexico, a middle-income country exhibiting quite low growth rates andhigh inequality levels, the further improvement in its distribution of income is essential if
Mexico’s 57% of the population (61 million people in 2008) is ever to be raised out ofpoverty. Consequently, the implementation of an active pro-poor growth policy should
be strongly encouraged.
Keywords: Poverty; inequality; redistribution; pro-poor growth; Mexico; Latin America.
JEL Classification: D31, I32, O12, O54.
䃩 This paper is based on part of my doctoral dissertation. I am grateful to Yoko Kijima for her

supreme supervision of my research. I also wish to thank Atsushi Yoshida, Kaori Miyazaki, Mari
Minowa, Seki Asano, Stephen Turnbull and Takashi Kurosaki, as well as seminar audiences at
the Bank of Mexico and the 2011 Japanese Economic Association conference, for helpfulcomments and suggestions. The financial support provided by the Bank of Mexico during myparticipation in its summer internship program, where I worked on the initial phase of thisresearch, is gratefully acknowledged. Of course, any remaining errors are my own.

1

1. INTRODUCTION
Poverty reduction is considered as one of the most important development goals
for developing and developed countries alike (United Nations, 2000). Progresson the realization of this goal is perhaps what policy makers, especially indeveloping countries, have sought so badly to attain in the last decades, bypromoting economic growth, implementing redistribution policies, or a
combination of the two. However, the poverty outcomes have varied widely
across countries depending on the particular success of their development
strategies.
By focusing on the specific impact of inequality and growth on poverty, several
studies have come to the conclusion that the distribution of income indeed
matters for the poor 1 (Datt and Ravallion (1992), Ravallion (1997, 2001, 2005),
Deininger and Squire (1998), Ravallion and Chen (2003), Bourguignon (2004),
Lopez (2006) among others) and that higher initial inequality tends to reduce thepositive, reducing impact of growth on absolute poverty (Ravallion (1997, 2005),
Lopez (2006), Lopez and Serven (2006)). In addition, it is now widely agreed
that economic growth alone is not a sufficient condition for successfully
achieving the goal of poverty reduction (Oxfam (2000), Addison and Cornia(2001), Ravallion and Datt (2002)). 2
With respect to the relationship between inequality and poverty, there are twoarguments as to why the level of inequality matters to subsequent rates ofpoverty reduction (Ravallion, 1997). The first, called the induced-growth
1

For a long time, income inequality (distribution) has been neglected by policymakers andregarded more as a normal and unavoidable part of the economic process. However,according to the literature, the distribution of income is said to matter for the poor in thesense that it is a fundamental factor to be considered for reducing poverty since poverty
reduction through growth is limited when income and assets inequality are high (Kakwani etal. (2000), Oxfam (2000), Addison & Cornia (2001)). Accordingly, an improved distribution ofincome is found to have a double poverty-reducing effect; one that works directly via
redistribution as lower-income households (people) are allowed to benefit more from thegains of growth, and another one that, by increasing economic growth, has a positive,
indirect impact on the level of poverty via the “trickle down” (van der Hoeven, 2008).
2
Economic growth is self-evidently good for poverty reduction, since without growth, theaverage incomes of the poor cannot rise over time, with attendant implications for poverty.
But growth is not the only requirement. At any given level of average income, the incidenceof poverty is determined by income distribution. The larger the share of any increment togrowth captured by the poor, the faster the rate of poverty reduction (Oxfam, 2000).
2

argument, has to do with the long-standing view that inequality is harmful for
growth (Galor and Zeira (1993), Banerjee and Newman (1993), Alesina andRodrik (1994), Benabou (1996), Deininger and Squire (1998), Ravallion and Datt(2002), Ravallion (2005), and Easterly (2007) among others) 3 and, therefore,
impedes progress in reducing absolute poverty. The second argument, or
growth-elasticity one, states that even if the distribution of income is irrelevant to
the rate of growth, it is important to assure that the distributional gains fromgrowth are more proportionally shared by the poor and do not benefit mostly therich (Ravallion, 2005, 2007). 4A few studies are found in the literature for the case of Mexico, analyzing therelationship between these variables. One of the pioneer papers in this field isthe one of Szekely (1995), who, after finding out that the increase in poverty in
1984–1989 was mainly attributed to the sharp inequality rise after 1984 andcarrying out some simulations, concluded that the improvements in the
distribution of income were as important or even more important than growth forthe increase in the well-being of the poor in Mexico. 5 Another study by Cortes etal. (2002) analyzed poverty in 1992–2000, using the methodology proposed by
Datt and Ravallion (1992). 6 The authors came to the conclusion that, during
1992–1996 and 1996–2000, average income growth determined for the mostpart changes in the poverty level, while distributional changes were mainly
unimportant at the national level but played an important role in the rural sector(significantly reducing poverty in 1992–1996, and increasing it considerably in
1996–2000).
The evolution of relative poverty in Mexico is said to have followed closely the3

The traditional view stating that inequality is growth-enhancing and a normal part of thedevelopment process (Kuznets, 1955) was put into question and challenged by a number of
empirical studies, which found a negative correlation between the average rate of growth
and a number of inequality measures. For a review of the literature, the reader is referred toAghion et al. (1999) and Thorbecke & Charumilind (2002).
4
According to the literature, inequality hampers poverty reduction, not only because of its
negative impact on the growth elasticity of poverty but also because of its negative impact
on the inequality elasticity of poverty (Lopez (2006), Lopez & Serven (2006)).
5
The poverty line of 30.37 dollars, considered in Szekely (1995), included the costs of theminimum necessary food, housing, health and education per month per head at September
1989 prices, which according to COPLAMAR (the governmental agency in charge ofalleviating extreme poverty in Mexico from the late 1970s to the early 1980s) represented
the value of the extreme poverty line in the country.
6
The methodology proposed in Datt & Ravallion (1992) is also applied in the present paper.
3

economic cycle, at least, until the year 2000 (Cortes et al., 2002). However,during 2000–2006, this was no longer the case and, even though the economy
was in recession in the early 2000s (2001–2003), poverty continued declining
until 2006. Thus, it is important to examine rigorously the causes of thisreduction in poverty after 2000, in order to determine whether the economic
growth is still the major reason for that or the redistribution played an importantrole for decreasing poverty.
The present study extends further the poverty analysis for Mexico along theprevious lines and attempts to identify the existent relationship between income
inequality and poverty from 1992 to 2008. We rely on the application of different
decomposition techniques and other methodologies that have been proposed toanalyze the, sometimes, overlooked and underestimated impact of inequality on
poverty. By doing so, this study additionally allows us to assess the overall
poverty alleviation/reduction strategy followed by the Mexican government in thelast two decades.
Our main findings relate to the important role played by income inequality(redistribution) for poverty reduction in Mexico. 7 We could, therefore,
corroborate that the high and persistent levels of income inequality that were
present during the 1990s counteracted the positive impact of growth andprevented the further decline of poverty, especially in 1996–2000. Moreover, it
was found that the improvement that took place along the distribution of income
in Mexico after 2000, 8 contributed in an important manner to reducing poverty in
2000–2006 but was unable to offset the strong, poverty-augmenting effect of
decreasing per-capita income in 2006–2008, which eventually led to the reversalof the favorable trend observed since the mid-1990s, raising poverty to pre-2002
levels.

7This is consistent with Ravallion (2005), who explains that the initial level of inequality andinequality changes over time are the two main proximate causes of the differing totalelasticities of poverty reduction.
8
The post-1990s improvement in the distribution of income in Mexico is associated to a
relatively small inequality reduction of less than 3% points in the Gini coefficient, from 54.64
to 52.03% in 2000 and 2002 respectively, which remained approximately constant thereafter,(Iniguez-Montiel, 2011) and a 25% average growth rate in the incomes of the poor
(households below the 40th percentile of the income distribution), identified in this study (seeSection 4, “Measuring Pro-poor Growth”).
4Thus, we argue that the further decline of income inequality in Mexico throughredistribution, along with the urgent economic development of the rural sector
long-ago indicated in McKinley and Alarcon (1995), should be regarded as a toppriority for policy makers if extreme and moderate poverty is ever to beeliminated. 9 This points towards an inclusive development strategy that focuseson pro-poor growth as the main engine of Mexico’s development and considers
all sectors of the population, particularly the agricultural one, as equallyimportant.
This paper is organized as follows. The next section provides a poverty profile of
Mexico in 2008, comparing it to the one observed in 1992, and gives an accountof the evolution of poverty, inequality and economic growth over the last decades.
Section 3 explains the applied methodologies, while section 4 shows anddiscusses the results. Finally, section 5 concludes.

2. POVERTY, INEQUALITY AND ECONOMIC GROWTH IN MEXICODATA
The information that will be used corresponds to the Household Income andExpenditure Survey (ENIGH) for the years 1992, 1994, 1996, 1998, 2000, 2002,
2004, 2006 and 2008. ENIGH is a nationally representative sample, coveringboth the rural and urban populations in the 32 Mexican states, conducted by the
National Institute of Statistics, Geography and Informatics (INEGI). All thesurveys were carried out during the same months of the year, using similar
questionnaires and identical sampling techniques. Thus they are fullycomparable between them. Additionally, it should be noted that the data is set inconstant prices of July 2009, using the national consumer price index (CPI), 10 inorder to get comparable figures across time.
POVERTY MEASURES AND LINES
9

According to Dagdeviren et al. (2004), redistribution is far more effective in reducing
poverty than increases in economic growth that are distribution neutral. The authors
concluded that redistribution of current income and assets, or redistribution of an economy’s
growth increment are the most effective forms of poverty reduction for most countries but,
especially so, for middle-income ones (Dagdeviren et al., 2004).
10
The CPI was obtained from the Bank of Mexico’s web page at the following address:
http://www.banxico.org.mx/politica-monetaria-e-inflacion/servicios/calculadora-inflacion.html.
5

The poverty measures and lines considered in this study are the following:
Poverty Measures:x Headcount (H) index: Proportion of households (people) that are consideredpoor in a society.
x Poverty-gap (PG) index: Proportion of total per-capita income that isnecessary to raise the incomes of the poor to the poverty line.
x Foster-Greer-Thorbecke (FGT) index: This measure corresponds to thesquared poverty-gap index proposed by Foster et al. (1984).
Poverty Lines: 11
x Food Poverty: Official poverty line in Mexico that considers the minimum,
monthly household per-capita income to satisfy food necessities.
x Capacities (Extreme) Poverty: Official poverty line in Mexico that considers
the minimum, monthly household per-capita income to satisfy food, educationand health necessities. It is related to extreme poverty and, consequently, to
the Oportunidades program. 12
x Basic-Needs Poverty: Official poverty line in Mexico that considers theminimum, monthly household per-capita income to satisfy food, education,
health, clothing, housing and transportation necessities.
x Overall Poverty: Poverty line proposed by the Technical Committee for the
Measurement of Poverty (CTMP, 2002) in Mexico, which considers additional
basic necessities, to those included in the official basic-needs poverty line,that are essential to live in the modern Mexican society, like culture,
recreation and retirement savings. It has been completely ignored from any
policy debate and is not considered for the evaluation of poverty by the
National Council for the Evaluation of Social Development Policy (CONEVAL)
in Mexico.
x Moderate Poverty: Poverty condition that is suffered by those households
11

It should be noted that all poverty lines, except the overall-poverty one, were obtained
directly from the National Council for the Evaluation of Social Development Policy(CONEVAL) in Mexico. The rural and urban overall-poverty lines were calculated by using
the inverse of the Engel coefficients of 2.2624 and 2.5, respectively, which are suggested in
CTMP (2002).
12
Oportunidades (formerly Progresa) is a conditional cash and in-kind transfer program of
the federal government, aiming at the reduction and alleviation of extreme poverty in Mexico
through the development of the human capital of poor households. It was launched in theyear 1997 with a total beneficiary population of 300,000 households. Since the year 2004,
the program benefits about 5 million families, or 26 million people, in Mexico.
6

(people) beyond extreme poverty in Mexico. It is obtained by subtracting
extreme from overall poverty.
MEXICO’S POVERTY PROFILEThis section provides a general overview of Mexico’s poverty profile in order toappreciate the changes and/or improvements in the condition of the poor during
the last two decades. We divide the analysis in two parts: I.) Economic Structure
and II.) Within-group Poverty and Contribution to Poverty, each of them
organized by education, occupation and location factors.
I. ECONOMIC STRUCTUREEDUCATION
According to the World Bank (2007), there is a high level of education inequality
in Mexico, where higher-income groups have substantially higher levels of
education than the rest of the population. This situation, consequently,
contributes to the high level of income inequality and limits the pool of skilledworkers, ultimately limiting the potential of Mexico to compete with otherknowledge-driven economies (World Bank, 2007). Without doubt, educational
and income inequalities are one of the main factors responsible for the highlevels of poverty in Mexico, working at the disadvantage for the poor. Table 1,
showing the distribution of the population among the analyzed groups,
corroborates the educational-inequality issue in Mexico, where only a minority(around 7.5%) of household heads hold a university degree, while a large
majority (more than 75%) has an educational level equal or less than middle
school. However, it is important to note that inequality of education has
decreased considerably over time and, consequently, the proportion of head ofhouseholds with no formal education declined by 15% points from 45.8 to 30.9%
in 1992 and 2008. Additionally, it is possible to verify as well that the proportionof household heads with a level of education equal to middle and secondary
school increased by 73 and 52%, reaching 22.6 and 16.4% respectively in 2008.
OCCUPATION
Traditionally, there are some occupations that are more related to poverty in
Mexico than others. This is the case, for example, of agricultural andself-employed workers. As for the distribution of the population by occupation, it
7has not suffered dramatic changes in the last decades with the exception of afew categories. According to Table 1, the proportion of agricultural and industrial
workers declined considerably in 1992–2008, especially that of the former group,
whose population shrank by 32% from 18.6 to 12.6%. In contrast, the inactive
population, the self-employed workers and sellers, and the service workers
increased their relative populations by 47, 6 and 58% respectively within the
period. As shown in the following subsection, these distributional changes
determined to some extent the observed increase (reduction) in the contribution
to poverty as the poor moved in (out) of these occupations.
LOCATION
Geographical location is another factor that is highly related to the condition of
being poor in Mexico. 13 According to our calculations (see Table 6), 47 and 32%of the rural sector were considered as extremely and moderately poor
respectively in 2008, which means that 79% of the total population in rural areas
could not satisfy their basic necessities in some way or another. Contrastingly,
only 12 and 28% of the urban population were regarded as extremely andmoderately poor respectively in the same year. On the other hand, there arecertain regions where poverty tends to be more acute as it is the case of theSouthern and Central areas of the country. These patterns must definitelydetermine mobility within and between states, regions and sectors in Mexico.
As it is possible to see in Table 1, the distribution of the population by statesremained practically unchanged in 1992–2008. There were only three mainchanges occurring in the states of Mexico and Quintana Roo, and the federal
district, where the populations of the first two evidently increased, while that of
the capital decreased by 1.5% points. Most probably, this situation reflects, inpart, the mobility taking place between Mexico City and the state of Mexico(located next to each other) and other states, as people moves from the overly
congested capital to medium-sized industrial cities in search for better
opportunities and living conditions. 14 Additionally, in the case of Quintana Roo,
13

A majority of the world’s poor are still located in the rural areas and this is likely to remaintrue for some time to come (Ravallion, 2002, 2005).
14
According to Currit & Easterling (2009), the adoption of the maquiladora model in Mexico,after the dismantling of the import-substitution development strategy in the 1980’s, caused achange in population patterns across the country, which led to industrial and population
deconcentration trends away from Mexico City and towards the least urbanized areas in8its sharp population increase must be attributed to its growing tourism industry,
which grew to be the largest source of income and economic growth in theregion, comprising nearly 80% of the state’s GDP in 2008 (Carte et al., 2010).
Finally, it should be mentioned that the distribution of the population between therural and urban sectors has experienced important changes. Therefore, it ispossible to verify that, while Mexico’s overall population has been rising, therural population is on the fall (see Table 1), which is related in great part to theeconomic stagnation of the rural sector since the 1980s, forcing people to moveout from the countryside to the cities or abroad. According to the literature (Carteet al. (2010), Currit and Easterling (2009)), the magnitude of rural-urban
migration in Mexico is considerable and increased after the country’s insertion
into the global economy, due to the development of emergent patterns of growththat favor economic activity in the urban sector while strongly discouraging thatin the rural areas. 15
II. WITHIN-GROUP POVERTY AND CONTRIBUTION TO POVERTY 16
EDUCATION
Education, or human capital in general, is one of the factors determining thepoverty level in a country, which is closely related to the condition of the poor. 17
each region, paricularly northern Mexico. Accordingly, Mexico’s nothern border cities haveundergone enormous population growth mainly due to internal migration (Esparza et al.,2001), driven by growth in the maquiladora industry (Currit & Easterling, 2009).
15
Visceral manifestations of economic status, improved welfare and material gains
achieved through migration and remittances, stand out in the otherwise impoverished rurallandscapes, serving as powerful signifiers of the asymmetrical opportunity structures
afforded by migration as opposed to agricultural livelihoods in Mexico (Carte et al., 2010).
Moreover, according to Currit & Easterling (2009), as the population decline of the ruralsector is followed by decreases in total available income, limiting economic opportunities
and fostering declines in rural infrastructure, livelihoods and wellbeing, this results inadditional pressure to migrate to places where job availability is perceived to be greater, as
is the case of the Mexico’s-northern-border industrialized cities (Currit & Easterling, 2009) or
the urban tourist poles of the Yucatan Peninsula (Carte et al., 2010).
16
The percentage contribution to poverty is obtained by multiplying the headcount ratio foreach category by its population weight – the percentage of the total population found in eachcategory – and then dividing this by the overall headcount ratio (McKinley & Alarcon, 1995).
The reader is referred to Foster et al. (1984) for an implicit explanation of the methodology
regarding all Foster-Greer-Thorbecke measures.
17
That higher educational attainment during youth leads to higher incomes later in life isprobably the most documented finding in empirical microeconomics. At the same time,poverty leads to lower human capital formation through various mechanisms such as credit
constraints, returns to education that increase markedly with the level of education,
9

Consequently, there is a strong relationship between the educational-attainment
level and poverty, which is usually accentuated in developing countries, 18 where
the lower the education level, the higher the probability of being poor. Mexico is acommon example of this situation. This can be verified in Table 2 (”Overall
Poverty” column), where up to 71, 59 and 49% of households, whose head had
no education or completed primary or junior-high school respectively, were poor
in 1992 or 2008. Additionally, as shown in Figure 1 and Table 3, this was also
true, regardless of the poverty line used, but the probability of being poor
(contribution to poverty) with a basic educational level (primary and middle
school) increased in the latter year, especially for lower-secondary school
graduates, while it decreased by 20% points for people with no education. 19 On
the other hand, it is possible to corroborate as well that the probability of beingpoor while attaining an educational level equal to or higher than secondary
education was small (less than 10%) but increased considerably in 2008 (from4.2 to 9.4% for overall poverty), and this situation is exacerbated the higher thevalue of the poverty line. 20 Overall, we could not find great differences between
the two analyzed years given the fact that it is mostly the unskilled population the
one that was forced to stay poor due to its limited access to education during thewhole period. 21 Therefore, it is possible to corroborate that the strong correlation,
identified in McKinley and Alarcon (1995), between lack or low levels of
education and poverty is still present in Mexico.
underinvestment traps among others (Arias, 2006).
18
This occurs mostly in developing countries because rates of return increase sharply thehigher the educational level and particularly so for college graduates (de Ferranti et al.
(2003), IDB (2004), Bourguignon et al. (2005)). Consequently, this situation contributes tothe increase in the skill-premium gap, between low- and high-skilled workers, which isdefinitely more pronounced in developing countries, where labor markets are far lessdeveloped, fiscal policy is much less progressive, and minimum wages are usually below
subsistence levels. For instance, in Mexico, according to Mayer-Foulkes (2008), there are
extraordinary (above equilibrium) returns to education and early child development, at levels
not accessed by most of the population (about 75%), contributing to the formation of anintergenerational human-development poverty trap.
19
This occurred due to the educational-inequality decline observed in the country, attributed
mainly to the sharp decreases in the proportion of adults with an educational level equal orless than some elementary school (Iniguez-Montiel, 2011).
20
As shown in Table 1, all of these changes are explained in great part by theeducation-distributional improvement that occurred during the period, decreasing the
proportion of adults with no education dramatically while that of lower- and upper secondary
cohorts rose correspondingly.
21
According to Mayer-Foulkes (2008), there is a low human-capital development trap in
Mexico; the poverty trap exists if a high enough proportion of the population suffers strong
enough barriers to its access to human capital (education, health, nutrition among others).
10

OCCUPATIONAs shown in Table 4, the occupations with the highest proportion of overall poor
households were, without doubt, agricultural workers with 81%, followed byskilled- and unskilled-industrial workers and the unemployed with 55, 71 and61%, respectively, in 2008. Contrastingly, there was only one classification,
standing out among all other occupations, whose population was mostly
non-poor in either year by 95%, and this has to do with the “Public Servants andFirm Managers” group.
Moreover, according to Figure 2, the situation in 2008 was not that different fromthat in 1992, as the poor families were mainly those whose head of household
worked as agricultural workers, particularly those below the extreme (capacities)
poverty line. For example, the figure shows that about 50 and 40% of thefamilies considered as extremely poor were households whose head was
employed as a laborer in the agricultural sector in 1992 and 2008 respectively.
Additionally, it is also possible to corroborate in the figure and Table 3 that otherhouseholds highly associated to the condition of being poor in both years were
those whose head worked as industrial and self-employed workers, sellers orthat were inactive. 22 On the other hand, there are some occupations, inparticular, that are not related to poverty in Mexico at all, implying that the headsof household employed in those jobs and their families have a high probability of
being out of extreme and moderate poverty. Those occupations were thefollowing in both years: arts, sports and entertainment workers; industrial
supervisors and control workers; professional and technical workers, andprofessors; and public servants and firm managers.
It is possible to conclude, therefore, that the condition of being poor in Mexico ishighly related to agricultural jobs or occupations that are associated to theunskilled or people with an educational level lower than secondary school, which22

It should be noted, however, that the contribution to overall poverty of agricultural andindustrial workers decreased over time due to the reduction in both the proportion of thepoor among those workers (see Table 4) as well as the proportion of their respective
populations (see Table 1). In contrast, as the population of the self-employed and service
workers and sellers increased (see Table 1), their respective contributions to overall povertyrose consequently (see Table 3) even though the proportion of poor people among themdecreased or stayed the same in 2008 as shown in Table 4.
11

corroborates again the strong relationship between education and poverty in
Mexico identified in the previous subsection.
LOCATION
There is an interesting pattern to be observed in Table 5, which shows theheadcount index by state, considering extreme, moderate and overall poverty.
First, it is evident that the proportion of extremely poor households was reduced
considerably in at least 22 of the 32 Mexican states, increased significantly inBaja California Norte and only marginally in Quintana Roo and Sonora, while therest of the states showed little or no variation. Consequently, extreme poverty at
the national level decreased by 5% points from 24 to 19% in 1992 and 2008
respectively. Second, in general, moderate poverty at the national level did notchange in the long run because it increased in some states as often as it
decreased in others, or, in some cases, remained practically unchanged.
Therefore, we can conclude that the overall reduction in national poverty from 53
to 48% is mostly owned to the important decline of extreme poverty that wasachieved in about 70% of the Mexican states. Moreover, as it is possible tocorroborate in Table 6, the most important reduction in extreme poverty (around
10% points) during the analyzed period was mainly due to changes in thepoverty level in the rural sector, while poverty decreased only by 2% points in theurban areas. On the other hand, however, moderate poverty increased by 4.6%
points in the rural sector, 23 and decreased by 1.7% points in the urban one,yielding a neutral-overall change at the national level.
As shown in Figure 3 (Graph 1), there are some Mexican states wheretraditionally the proportion of extremely poor households is concentrated. 24 That23

The increase in moderate poverty within the rural sector should be attributed in part to thelack of government assistance besides that provided by the Oportunidades program, whichaims at alleviating and reducing extreme poverty through conditional cash transfers and byinvesting in the human capital of poor households. Actually, the Mexican government has
been criticized for reducing Mexico’s social model to a system that is almost exclusively
concerned with protection for those living in extreme poverty (Bayon, 2009). Therefore, it ismost probable that, while some rural households are able to overcome their severely poor
condition, they continue to be “moderately” poor as their income is insufficient to satisfy
other basic necessities like clothing, decent shelter, transportation and recreation.
24
The sample design of the ENIGHs does not provide statistical significance for each of the
32 Mexican states. Actually, the ENIGH’s sample is only representative at the rural andurban levels, which are considered as those populations with less and more than 2,500
inhabitants respectively. Consequently, the results and interpretations made in this12

is the case, for example, of Chiapas, Estado de Mexico, Veracruz, Puebla,
Oaxaca, Guerrero, Guanajuato and Michoacan whose contribution to national
extreme poverty in 2008 was 11.5, 11.2, 10.1, 7.5, 6.0, 5.5, 4.8 and 4.5%
respectively. Coincidentally, the same states concentrated the highest proportionof the extremely poor in 1992 as well. This means that part of the central andsouthern regions, covering 8 states only, accommodate the majority (61% in2008) of the poorest households in the country. In contrast, the states with thelowest proportion of extremely poor families (Baja California Sur, Colima, Baja
California Norte, Aguascalientes, Campeche, Quintana Roo, Queretaro, Morelos,
Nayarit and Nuevo Leon) were mainly located in the northern regions in both
years. This may be attributed in great part to the sectoral pattern of growth,which favors the northern states, over the southern ones, due to their proximity
to the United States of America.
Additionally, it can be seen in Figure 3 (Graph 2) and Table 3 that the highest
proportion of poor households, in terms of overall poverty, is mostly located instates like Estado de Mexico, Veracruz, Puebla, Chiapas, Jalisco, Mexico City,
Guanajuato, Oaxaca, Michoacan and Guerrero, which individually contributed tonational poverty by 13.8, 8.2, 6.8, 6.3, 5.4, 5.2, 5.0, 4.4, 4.0 and 3.8%
respectively, representing 63% of the total in 2008. Again, it should be noted thatthose states are located in the central and southern regions of the country;
however, the states that contributed the less to overall poverty are primarily
those in the northern part of Mexico, which resembles the situation explained in
the previous paragraph regarding extremely poor households.
Finally, it is possible to corroborate that the contribution to poverty of the ruralsector declined from 37 to 34% in 1992–2008, and, consequently, that of theurban sector increased to 66% in 2008 (see Table 3). While the reduction in thecontribution to overall poverty of the rural areas could be attributed to either the
reduction of the population or the poverty decline in that sector, it is certain thatthe increase in the contribution to poverty of the urban sector is due to its
population rise, given the fact that overall urban poverty declined in the analyzed
period (see Table 6).
THE EVOLUTION OF POVERTY, INEQUALITY AND ECONOMIC GROWTH IN MEXICO
subsection should be considered with care and are just intended for informative purposes.
13

POVERTY
As shown in Figure 4, the headcount ratio, as measured by any of the poverty
lines considered, increased sharply after 1994, reaching its highest level in 1996.
Thereafter, there was a remarkable change that caused the poverty level todecline continuously until attaining its lowest level of the analyzed period in 2006.
However, the favorable (decreasing) trend observed since the mid-1990s was
finally reversed in 2007–2008, locating the poverty levels around those found in
2000–2002.
Moreover, it is possible to corroborate in Figure 5 that, while overall poverty
seems poorly correlated with moderate poverty, which remained approximately
constant over the whole period (see Table 7), changes in total poverty were
mostly determined by changes in extreme poverty in the short and long terms, 25
confirming our results in the previous subsection.
INEQUALITY
The inequality considered in this study is that of total household per-capita
income as represented by the Gini coefficient. Figure 6 shows the inequality
trend followed in Mexico since 1984 in order to appreciate the sharp increase ininequality that took place in the mid-1980s. According to that figure, income
inequality increased quite sharply between 1984 and 1989, 26 the Gini coefficientincreasing from 0.49 to 0.54, remained high during the 1990s (fluctuating around0.53 to 0.55), and, declining between 2000 and 2002, the Gini coefficient25

A similar conclusion can be drawn when analyzing absolute poverty in Mexico (see Table7). However, in that case, it is possible to identify clearly that moderate poverty continuously
increased from 5.5 to 7.8 million households in 1992–2008, which definitely had a negative
impact on overall poverty. Nevertheless, it was the changes in extreme poverty once again
the ones that were mostly responsible for the changes in overall poverty during the analyzed
period, where a similar pattern as that portrayed in Figure 5, regarding extreme and overall
poverty, is observed in the case of absolute poverty too. It should be noted that the same
arguments apply to relative and absolute poverty in terms of persons. However, the figuresincrease dramatically if one considers persons in poverty instead of households (see Table
7).
26
It is argued that income inequality, as well as poverty, rose in the years following 1984,
after declining continuously since the mid-1960s, due to Mexico’s economic-model change
and the drastic economic policies implemented as a consequence of the 1982 financial
crisis. For excellent reading on this, see Lustig (1992), Szekely (1998, 2005),
Hernandez-Laos & Velazquez-Roa (2003) and Rueda-Peiro (2009).
14

dropping by 0.03 to 0.52, remained approximately constant thereafter(Iniguez-Montiel, 2011).
In addition, it is clear in the figure that there were two main falls in the inequality
measure; the first occurred in 1996 as a consequence of the 1994–1995
financial crisis (Cortes, 2003). The second and, actually, most important decline
of income inequality during the whole analyzed period took place right after 2000
but, this time, it occurred through a combination of market forces and state
action (Iniguez-Montiel, 2011). 27 It will be shown later in the analysis that these
two income-distributional changes, particularly the post-2000 one, had important
poverty-reducing effects in Mexico.
ECONOMIC GROWTH 28
According to Figure 7, economic fluctuations are quite common in Mexico’s
recent history. 29 It is, therefore, possible to see in the figure that, after
recovering from a recession in 1993–1994, the Mexican economy entered into asevere recession in 1995, which was mainly caused by the 1994–95 financial
crisis. However, the economy recovered quite quickly in 1996, maintaining
relatively high growth rates during the rest of the decade. After 2000, there wasanother recession that lasted until 2003, and then, from 2004 to 2006, positive
growth rates followed. Finally, in 2007–2008, an economic slowdown can beobserved in the graph, which, according to INEGI’s official figures, 30 continued
and worsened during the year 2009 (with negative GDP growth rates averaging
27

According to Iniguez-Montiel (2011), income inequality in Mexico remained high in the
1990s mainly due to the unequalizing effect of the rates of return to assets (real andfinancial), demographics and education. On the other hand, the post-2000
income-distributional improvement was greatly associated with three factors: education(returns and distribution), financial assets (returns and distribution), and the betterment in
the rates of returns to the rural areas and, in particular, the South of the country(Iniguez-Montiel, 2011).
28
Given that the micro data (ENIGH) used in this paper comes from a biannually conductedsurvey, we decided to show, in this subsection only, the information of the Penn World Table
6.3 (Heston et al., 2009) (corresponding to the period 1992–2007) and the 2008-INEGI’s
macroeconomic indicator, regarding the growth rates of real GDP per capita (grgdpch) andof GDP respectively, in order to have a clearer view of the performance of the Mexican
economy during the analyzed period.
29
It should be noted that, according to the Penn World Table 6.3 (Heston et al., 2009),
economic instability (volatility with negative growth rates) has been part of the Mexican
economy since the early 1980s.
30
Economic Information Database, based on the Mexican National Accounts and available
through INEGI’s webpage at http://dgcnesyp.inegi.org.mx/bdiesi/bdie.html.
15

6.6%) and ended in the present year (2010) with positive growth rates.
Through the analysis carried out in this paper, we carefully explain how changes
in economic growth and income inequality determined the changes in thepoverty level in Mexico. For that purpose, we make use of standard
decomposition techniques and other methodologies, which are explained in thefollowing section and the appendix respectively.
3. METHODOLOGY
There are four methodologies that were applied in this study, which are
explained below. But first, it is important to mention that, for the analysis ofpoverty made with two methodologies, 31 we focus on poverty measures (P) thatcan be fully characterized in a general form as follows:Pt

P ( Pt , z, Lt ),where P t is the mean income, z is the poverty line and Lt is a vector of parameters
fully describing the Lorenz curve at date t.
DECOMPOSITION OF POVERTY CHANGES INTOGROWTH AND DISTRIBUTION COMPONENTS
The first decomposition to be applied is the one of Datt and Ravallion (1992).
This technique is of particular interest as it allows to identify the specificcontribution of growth and income-distribution changes to poverty reduction
between two periods for the Foster-Greer-Thorbecke (FGT) class of measures,
namely the headcount index (H), the poverty gap index (PG) and the FGT index,
which are all additively decomposable (Foster et al., 1984). According to themethodology, a change in poverty over dates t and t+n can be decomposed into
the growth and distributional effects as follows:Pt  n  Pt

G (t , t  n; r )  D (t , t  n; r )  R(t , t  n; r )(Growth Effect)(Distributional Effect)(Residual)

in which the growth and distributional effects are given by

31

These correspond to the decomposition of poverty changes into its growth anddistribution components (Datt & Ravallion, 1992) and the analysis of poverty in the medium
and long terms (Chavez & Gomez, 2009).
16

G (t , t  n; r ) { P ( z / P t  n , Lr )  P ( z / P t , Lr ),D (t , t  n; r ) { P ( z / P r , Lt  n )  P ( z / P r , Lt ),while R( ) denotes the residual. 32 In each case, the first two arguments in theparenthesis (t and t+n) refer to the initial and terminal dates of the decomposition
period, and the last argument (r) makes explicit the reference date with respect
to which the observed change in poverty is decomposed.
Therefore, the growth effect of a change in the poverty measure is defined as thechange in poverty due to a change in the mean while holding the Lorenz curve
constant at some reference level Lr . The distribution effect is the change inpoverty due to a change in the Lorenz curve while keeping the mean income
constant at the reference level P r (Datt and Ravallion, 1992).
SECTORAL DECOMPOSITION OF THE CHANGE IN POVERTY
Tables 1 and 6 show that within-rural poverty decreased from 1992 to 2008 as
well as the share of the rural population declined in this period. As it is not clear
whether the decrease in poverty in Mexico is explained mainly by rural-urban
migration or not, we apply a second decomposition, originally proposed by
Ravallion and Huppi (1991), to decompose the changes in national poverty into
a population-shift effect and a within-sector effect. The methodology aims toassess the relative gains to the poor within specific sectors and the contributionof changes in the distribution of the population across those sectors (Ravallionand Huppi, 1991). Letting Pt denote the poverty measure for date t, while Pt i
is the measure for sector i = r,u (rural, urban), with corresponding population
shares nti , we can write an exact decomposition of the change in poverty as:Pt n  Pt

[ntrn ( Pt r n  Pt r )  ntu n ( Pt u n  Pt u )]  [( Pt u  Pt r )( ntu n  ntu )](Within-sector Effect)(Population-shift Effect)

The within-sector effect is the change in poverty in each sector weighted by the
final year population shares, while the population-shift effect measures thecontribution of urbanization, weighted by the initial urban–rural difference inpoverty measures. The population-shift effect should be interpreted as the partial
32

Refer to Datt & Ravallion (1992) for details on how to obtain the residual.
17effect of rural–urban migration, in that it does not allow for any effects of
migration and remittances on poverty levels within rural and urban areas(Ravallion and Chen, 2007).
This methodology will be applied to the long-run period (1992–2008) and twoconsecutive periods in between the former, namely, 1992–2000 and 2000–2008,
in order to be able to identify the within-sector and population-shift effects that
occurred in Mexico. 33

4. RESULTS
DECOMPOSITION OF POVERTY CHANGES INTOGROWTH AND DISTRIBUTION COMPONENTS
The proposed methodology in Datt and Ravallion (1992) was applied to thelong-run period (1992–2008) and four consecutive and different periods in
between the former. 34 This could give us the possibility of identifying the specificcontribution of the changes in the income inequality and economic growth tochanges in the level of poverty in Mexico in the short, medium and long terms.
Long-run period: 1992–2008
Table 8 shows the results of the decomposition exercise for the five periods
under analysis. As it is possible to corroborate in the table, there was a relatively
even contribution of inequality and economic growth to the reduction of poverty
between 1992 and 2008, especially within the food and capacities (extreme)poverty lines. On the other hand, for higher poverty lines, there seems to be a
relative dominance of the economic-growth effect, contributing by 59% to the
reduction of poverty. However, it should also be observed, that the contributionof the redistributive effect was not minor, accounting to by no less than 43% of
33

As we have seen in previous sections, the relationship between growth, inequality andpoverty seems to change in the 1990s and the 2000s. To highlight this change, we use two
sub-periods: 1992–2000 and 2000–2008.
34
The four analyzed periods in between 1992–2008 correspond to 1992–1996, 1996–2000,
2000–2004, and 2004–2008. Our reason to divide the long-run period in this manner is that,as shown in Section 2, there were clearly two periods where income inequality declined(1992–96 & 2000–04) and some other periods where economic growth was evidently
achieved (e.g. 1996–2000 & 2004–08). We believe this will facilitate our analysis and clarify
in a better way the relationship between poverty, inequality, and economic growth in Mexico.
18

the poverty decline in Mexico in the long-run period (see Figure 8). 35
It is, therefore, possible to say that both changes in economic growth and in the
distribution of income in Mexico were both important determinants of the
reduction in the poverty level in 1992–2008 as suggested in the literature. This isparticularly an important finding that confirms the positive and sizable impact ofredistribution on poverty in Mexico, even though the reduction of income
inequality after 2000 was less than 3 percentage points. Let us continue
analyzing the decomposition results for the periods in between 1992–2008 to
obtain more detail information in this respect.
Decomposition: 1992–1996
The results in Table 8, regarding the period 1992–96, give a rather different
picture of the contribution of growth and inequality to poverty in Mexico. As
shown in the table, changes in economic growth were completely responsible forthe increase in the poverty level during the period, whereas, changes in the
distribution of income acted as a cushion that prevented the level of poverty torise even further.
We may recall that, during this period, there was a strong economic contractionthat was the result of the 1994–95 financial crisis, the worst crisis since the1930s according to the Bank of Mexico (1996). Additionally, the data shows that,as a result of the same crisis, income inequality in Mexico declined from a Gini
coefficient of 54.3 to 52.7% in 1994 and 1996 respectively. 36
Consequently, it is possible to say that changes in the distribution of income inthe country had a positive and considerable impact on the level of poverty thatpartially counteracted the negative and strong effect of the economic recession.
On the other hand, the negative growth rates that followed the 1994–95 crisis
35

To facilitate the analysis and for ease of understanding, only the results regarding the
FGT index are shown in this and the following subsection. However, it must be noted thatthe complete analysis was carried out for the H and PG indexes as well, obtaining similar
results to those for the FGT measure. As our main concern is about the impact of inequality
on poverty, the FGT index constitutes the most appropriate measure to be considered
without doubt, given the fact that, as opposed to the other two indexes, inequality among thepoor is fully accounted within this indicator (Foster et al., 1984). The complete
decomposition results are available from the author upon request.
36
See Table 7 and Figure 6.
19

mainly contributed to the formation of the highest poverty levels ever recorded in
Mexico since 1950 (Szekely, 2005).
Decomposition: 1996–2000
It is possible to see in the same table, that the opposite effects from those found
for the period 1992–96 occurred in this latter period. 37 Therefore, while
economic growth contributed positively to the reduction of poverty in Mexico,changes in the distribution of income (inequality rise) had a poverty-increasing
effect, which is consistent with economic theory and reasoning again, at each of
the poverty lines considered. Thus the decline of the poverty level during
1996–2000 was due to the strong and positive contribution of the growth effect,
which was substantially diminished by the higher concentration of income that
happen to prevail in the period. Consequently, it may be possible to say that anincome-distribution deterioration in Mexico drastically reduces the positive
impact of growth on poverty.
Decomposition: 2000–2004
The results for the period 2000–04, shown in Table 8, are similar to thoseobtained for the long-run period (1992–2008). However, it is possible to see inthe table that the growth effect dominates the redistribution effect at every
poverty line considered. Nevertheless, the poverty-reducing effect of theinequality decline was fairly large as well. Consequently, both changes in thegrowth and the distribution of income contributed to the considerable decline ofpoverty in Mexico during 2000–04.
It should be noted that the abovementioned effects on poverty were achieved
through a combination of positive economic growth and the improvement in the
distribution of income in Mexico after 2000, which is a different cause of thepoverty reduction observed before 2000.
Decomposition: 2004–2008
As shown in Section 2, this latter period marks the end of a continuous decline in37

It should be noted, however, that, as explained in Cortes et al. (2002), the growth effectcontinued to be the dominant factor in this latter period, determining the change in thepoverty level in 1992–2000.
20

the level of poverty since 1996. According to the data, the poverty reduction
ended in 2006 and was followed by a sharp increase in the level of absolute andrelative poverty in 2008 (see Table 7), similar to, or even higher than, the levels
recorded in 2000 and/or in the early 1990’s. This dramatic reversal of the poverty
level, which is said to have worsened in 2009 and 2010, provides evidence ofthe vulnerability of the Mexican economy to external shocks (or financial crises)
and of the inherent weaknesses in the country’s development strategy.
According to Table 8, the worsening in the level of extreme poverty in 2004–08
was primarily caused by the income-growth effect, implying that themean-income (per-capita) level was lower in 2008 than in 2004 due todecreasing growth rates in the latter year. Moreover, the distribution effect also
contributed, although minimally, to the rise in the poverty level. This means that
income inequality among the poorest households in Mexico increased, affecting
adversely the extremely poor. 38 Contrastingly, if we analyze the basic-needs
and overall poverty, then the distributive effect had a positive impact on poor
households, which somehow counteracted the stronger, negative effect of thechanges in economic growth during the period. 39
SECTORAL DECOMPOSITION OF THE CHANGE IN POVERTY 40
Long-run period: 1992–2008
According to the decomposition results in Table 9, the reduction in the level ofextreme poverty in the long-run in Mexico was mainly determined by the poverty
38

The inequality rise for households below the 25th percentile of the income distribution as
well as the per-capita income decline at each percentile of the distribution in 2004–08 wereboth corroborated with the data.
39
It is important to mention that our results for this latter period are supported in
Hernandez-Licona (2010). However, Hernandez-Licona (2010) finds that the increment in
the level of poverty in 2008 was additionally determined by the relative increases in foodprices in Mexico as well. This can be easily identified by comparing the value of the 2004
and 2008 poverty lines at constant prices. But, as the decomposition methodology proposedby Datt and Ravallion (1992) assumes a constant, exogenously-determined, poverty line
within the model, the changes in the value of the poverty line over time are not considered inthis study.
40
The decomposition exercises in this subsection were performed with respect to people
and not to households in poverty, as was done in the previous subsection, so that the
population-shift effect is more meaningful. Consequently, the total changes in poverty shownin both types of decompositions, particularly the ones corresponding to the long-run period,
are not identical.
21

changes (poverty decline) within the rural sector and the changes in the
distribution of the population between the rural and urban sectors. Between
these two effects, it was definitely the rural-sector effect the one with the highest
contribution (67%). Nevertheless, the population-shift effect also contributed in
an important manner to the reduction of extreme poverty, accounting to about
30% of the decline, while the changes in poverty within the urban sector weremainly unimportant (see Figure 9).
On the other hand, when higher poverty lines are evaluated, it is still the decline
in rural poverty the main, dominating effect, with an overall contribution tonational poverty of about 40%. However, this time, the reduction of poverty
within the urban sector turns out to be more important for the determination ofpoverty, with a sizable impact of 35%, than the changes associated to the
distribution of the population, which had an average, positive contribution of 27%
in the period.
In order to have a clearer picture of the effects considered in this decomposition,
the exercise was carried out for two different and consecutive periods in
between 1992–2008. These periods correspond to 1992–2000 and 2000–2008,
whose results are explained in the following lines.
Decomposition: 1992–2000
In this former period, it is evident that the increases in poverty in the rural sector
were mostly responsible for the rise in national poverty, regardless of the poverty
line that is used (see Table 9). Therefore, when analyzing food and capacities
poverty, the combined negative effect of rising poverty in the rural and urban
sectors, but especially in the former, caused the sharp increase in extreme
poverty observed at the national level, while the changes in the distribution of the
population between sectors partially, although minimally, counteracted thenegative impact.
On the other hand, even though the changes in urban poverty, together with the
population-shift effect, had a positive and considerable effect on poverty (beyond
the extreme-poverty line), basic-needs and overall poverty did actually augment

22due to the strong, negative impact of increasing poverty in the rural areas. 41
Decomposition: 2000–2008
A completely different picture emerges from the sectoral decomposition in
2000–08 (see Table 9), especially with respect to the changes in poverty within
the rural sector. In this latter period, the estimated reduction in national poverty
was mainly associated to the decline of poverty within the rural sector, in stark
contrast with the decomposition results obtained for the former period.
As for the changes in poverty in the urban sector, they also contributed positively
to decreasing national poverty although to a much lower degree than thechanges in rural poverty that were observed. Moreover, the population-shifteffect was positive, as usual, along the whole decomposition exercise,contributing in an important manner to the decline of national poverty and being
the second most important determinant of the level of extreme poverty, after therural-sector effect, in 2000–08.
In the following subsection, it will become clearer the reason of the sudden andpositive change that was experienced within the rural sector in particular, which
actually caused the level of poverty to decline until 2006, and even during the
economic recession that occurred in 2001–2003.
MEASURING PRO-POOR GROWTH 42
In order to have a better understanding of the changes in national, rural andurban poverty, we made use of the Growth Incidence Curves (GICs), whichshow the income-growth rates of households at each percentile of the
distribution, and additionally measured the rate of pro-poor growth in Mexico
during 1992–2008, 1992–2000, and 2000–2008.
41

It is possible to affirm that the sharp rises in rural poverty, determining the poverty
increase at the national level in 1992–2000, were the direct result of the severe economic
contraction that followed the 1994–95 crisis and the high inequality levels that persisted
during the 1990s. Therefore, both effects (growth and distribution) affected adversely thepoor in Mexico, but mostly those in the rural sector, during the period. This situation is
actually corroborated in the following subsection: “Measuring Pro-poor Growth”.
42
Growth is considered pro-poor if, in addition to reducing poverty, it also decreases
inequality (Nissanke & Thorbecke, 2006). Refer to the appendix for an explanation on how
to measure pro-poor growth.
23National Level
By looking at the GICs for the different analyzed periods, it is possible tocorroborate the sectoral-decomposition results explained in the previous
subsection. The GIC for the long-run period (Figure 10) shows that it was thepoor-income households (those below the 40th percentile of the income
distribution) the ones whose income grew at higher rates during the whole period
at the national level. According to our calculations (see Table 10), the rate ofpro-poor growth for poor-income households was 22.5%, compared to the
13.3% growth rate in average income that was observed during the period.
Moreover, it is also possible to see in the same figure that, while the income of
the richer families grew at below-average rates, above-average income-growth
rates were attained by middle-income households in general. We can, therefore,
conclude that growth in 1992–2008 was absolutely pro-poor, meaning by thisthat the dynamic process adopted in Mexico was able to reduce poverty andinequality at the same time. Let us analyze the GIC curves for the periods in
between the long run in detail in order to obtain more information on this issue.
Figure 11 portrays the national GICs for the periods 1992–2000 and 2000–08.
As it is possible to confirm in that figure, the period 1992–2000 wascharacterized by pro-rich growth and negative growth rates for households
below the 95th percentile of the income distribution. Contrastingly, in 2000–08,
growth was definitely pro-poor (25.4% (see Table 10)), with positive growth rates
for all households below the 95th percentile and negative ones for those at the
top 5th percentile.
This means that, while there was an income distributional worsening in
1992–2000 where most of the gains from growth, if not all, were captured by thehighest-income groups, an important decline in income inequality took place in
2000–2008, affecting positively middle- but, especially, lower-income families,
which caused the decline in national poverty that was observed in the latter
period. Therefore, growth with redistribution, or pro-poor growth, was the key toachieve the considerable decline in the poverty level after 2000 in Mexico.
Rural & Urban Sectors
By analyzing the 1992–2000 and 2000–2008 GICs for the rural and urban

24

sectors separately, it is possible to observe a similar pattern than the one
obtained at the national level. This gives us additional information as to why thegrowth and inequality changes within both sectors contributed to the rise anddecrease of national poverty in 1992–2000 and 2000–08 respectively.
As shown in Figure 12, income growth was mainly negative for rural households
below the 93rd percentile of the distribution in 1992–2000, and only positive fromthere on. While the average growth rate was actually negative by 0.1%, the rateof pro-poor growth was much lower (-7.5%) for households below the 40th
percentile (see Table 10). Consequently, during this period, growth was only
attained by higher-income households, which explains to a great extent theinequality rise that was observed as well as the increase in the level of poverty inthe rural sector.
On the other hand, there was a drastic change that occurred in the rural sector in
2000–08 (see Figure 12), which shifted the gains from growth to above-averagelevels for lower- and middle-income households, as opposed to the former
period, causing an improvement in the distribution of income that was
responsible for the decline of poverty within that sector.
Moreover, Figure 13 shows a pretty similar picture to the one explained for therural sector. Therefore, growth in the urban sector was not pro-poor in
1992–2000, while it was definitely so during the latter period but at lower growth
rates (the average- and pro-poor growth rates were 8.8 and 13.4% respectively)
than in the rural sector, where the average- and pro-poor growth rates were 26.6
and 39.1% respectively in 2000–08 (see Table 10). Thus, economic growth andthe income-distributional improvement that occurred after 2000 both determined
the income-poverty decline in the urban sector in 2000–08 as well.
POVERTY ANALYSIS IN THE MEDIUM AND LONG TERMS 43
This final analysis, which is based on the application of the methodology
proposed by Chavez and Gomez (2009), has as one of its main purposes toprove that, by maintaining a high level of inequality in Mexico, the reduction ofpoverty through growth (especially low growth as the one achieved in the
43

The methodology for the analysis of poverty in the medium and long terms is included in
the appendix.
25

country in the last three decades (Heston et al. (2009), Levy and Walton (2009),
Arias et al. (2010)) is indeed limited as suggested in the literature (Ravallion(1997, 2005), Hanmer and Naschold (2000), Oxfam (2000), Addison and Cornia(2001), Bourguignon (2004), Lopez (2006) among others). 44
Even though, the point was implicitly and partially proven by Chavez and Gomez(2009) for food poverty, using the 2005 ENIGH data, we consider it isappropriate to show the results by using the most recent available informationand considering higher poverty lines, which could be said to be more relevant tothe study of poverty in Mexico given its current level of development. Therefore,
our analysis consists in determining the required time and necessary growth rate
to eradicate extreme and overall poverty given the conditions in Mexico in 2008.
We carried out the analysis for the H, PG and FGT indexes at the national, ruraland urban levels. However, only the results regarding the H index are shown inhere as they resemble those for the other poverty measures considered.
Eradicating Extreme Poverty
Table 11 shows our results regarding extreme poverty in Mexico. It can be seenin that table that if the country maintained an average income per-capita growthrate of 1%, given a capacities poverty line of $1,149 pesos (at July 2009
constant prices) and an inequality level of 52% measured by the Gini coefficient,poverty in Mexico could be eradicated in about 70 years. Analogously, if thatpoverty goal were targeted in a more reasonable time horizon of 20 years,
extreme poverty in Mexico could be overcome by achieving an annual growthrate in the mean income of 3.6%.
The first of the above-mentioned scenarios does not seem so implausible at thenational level given the fact that the annual, average income growth rate in
Mexico in 1992–2008 was around 0.83% and increased to 1.51% in 2000–08(see Table 10: “Growth rate in the mean income”). However, if extreme poverty
were to be eradicated in the medium term or within one generation (20 to 30
44

Poverty reduction through growth is limited when income and assets inequality are high;growth is then concentrated in a few groups, bypasses poor smallholders andmicroentrepreneurs, and creates little employment for the unskilled. It is not surprising, forexample, that Latin America’s poor have derived so little benefit from its periods of growth.
Growth must be very fast indeed to achieve any poverty reduction when a society exhibits
both high initial inequality and rising inequality (Addison & Cornia, 2001).
26

years), then the average per-capita income in the country would have to grow ata faster pace indeed or, at least, the double of what it has grown in the last
decade.
Similarly, if the Mexican government aimed at eradicating poverty in the rural
areas within 20 years (see Table 11), an annual growth rate in the mean incomeof 5.9% would be needed, which is about 4 times the rate of growth achieved inthat sector since the early 1990s (see Table 10). Additionally, if the average
per-capita income in the rural sector grew at only 1% per year, extreme poverty
could be eliminated in approximately 115 years. However, if current trends inincome per-capita growth rates persisted, resembling those observed during
2000–08 for the rural areas, 45 poverty eradication would be attained in less than
40 years, which is still far less encouraging than it sounds given the low value ofthe (monthly) extreme poverty line of $876 pesos, or $66.1 dollars ($2.2 dollars aday), at July 2009 constant prices. 46
Likewise, the eradication of extreme poverty in the urban sector seems anunlikely event in the medium term as well. Most likely, as shown in Table 11 andgiven the growth rate in the mean income achieved within the last decade in that
sector (see Table 10), it would take about 42 years for Mexico to overcome its
severely poor condition if the high income disparities observed in the pastremained unchanged due to distributionally neutral growth. On the other hand, a
relatively low annual growth rate in average incomes of 2.1%, or twice the rate of
growth in 2000–08, would be necessary to eliminate extreme poverty in theurban sector in just 20 years.
Eradicating Overall Poverty
Table 12 shows a quite similar picture to the one presented above. However, theresults increased considerably as we are dealing now with the more difficult
problem of eliminating overall poverty. Therefore, in order to eradicate poverty in45

According to our calculations, the annual growth rate in the mean income per capita in
the rural sector was around 3.3% in 2000–2008, or 26.6% during the whole period (seeTable 10).
46
For the conversion of the poverty line into dollars, an exchange rate of $13.26 pesos wasapplied, representing the rate determined by the monetary authority on July 31, 2009. It was
obtained from the Bank of Mexico’s web page at the following address:
http://www.banxico.org.mx/portal-mercado-cambiario/index.html.
27

Mexico in 50 years, given a constant poverty line of $2,318 pesos and an
inequality level of 52% (Gini), average incomes must grow at an annual rate ofabout 2.8%. Nevertheless, if they grew at only 1% on average, overall poverty
would be overcome in as many as 141 years.
Of course, the results obtained for the rural sector were more dramatic thanthose for the nation as a whole, and the ones related to the urban sector wererelatively less so. Consequently, in order to eradicate total poverty in the ruraland urban sectors, it would take approximately 180 and 113 years respectively if
per capita incomes grew at 1% per year in each sector. On the other hand, if thepoverty goal of eradicating overall poverty in the rural and urban areas weretargeted on a more sensible time horizon of 50 years, average incomes would
have to grow at 3.6 and 2.3% per year respectively, which again points towards
the great challenge that the Mexican government faces at generating thenecessary level of economic activity within both sectors as well as a more
equitable pattern of growth between them. Perhaps, this could be partially
accomplished by promoting the urgent development of the agricultural sector(where most of the have-nots happen to be), 47 along with the creation ofwell-remunerated, quality jobs that could match the increasing supply of new
entrants into the labor market, equivalent to over 1.3 million people each year
(Hernandez-Laos & Velazquez-Roa, 2003). By doing so, Mexico will be able tocope with the severe problem of its huge and increasing informal sector, 48 andto induce a more equitable distribution of income and assets, which seems to beat the core of a successful development strategy for the country (Levy and47

According to McKinley & Alarcon (1995), who made a poverty profile of Mexico for theyear 1989, rural wage workers and peasants of Mexico were the most numerous among thepoor and experienced the greatest depths and severity of poverty. It seems that thissituation has not changed much since then as corroborated in the present study (seeMexico’s poverty profile in Section 2). Moreover, the authors explained that poverty cannot
be expected to decrease as long as agriculture is a stagnant, low-productivity, crisis-ridden
sector, and that the revitalization of agriculture is key not only to poverty reduction, but also
to the development of Mexico as a whole (McKinley & Alarcon, 1995). The previous
statement is complemented by Carte et al. (2010), who suggest building on a moresustainable and truly regional economic development model in Mexico that supports rather
than abandons regional agriculture, which has been systematically discouraged while thedevelopment in the urban core is systematically advantaged.
48
Informal employment in Mexico represented 40% of the labor force by 2003 and isconstituted by individuals in the non-agricultural sector that form two large types of groups:
the “precarious employment” and the “workers without any fringe benefit” (Samaniego,
2005). According to ILO (2007), the figure increased to 45.4% in 2006.
28

Walton (2009), Iniguez-Montiel (2011)). 49
5. CONCLUSIONSThis study attempts to estimate the contribution of changes in economic growthand in the distribution of income to poverty reduction in Mexico during
1992–2008 by using standard decomposition techniques and othermethodologies that have been proposed to analyze the, sometimes, overlooked
and underestimated impact of inequality on poverty. Our findings point clearly tothe important role of redistribution and the level of inequality for reducing poverty
in Mexico, either in the short, medium or long term, as suggested in the literature.
Thus, in addition to the poverty-reducing effect of growth that was identified, ourresults show that the observed decline of income inequality contributed quite
evenly to the reduction of extreme poverty and had an important, sizable impact
on decreasing overall poverty in the long run as well.
Over the short to medium term, the relative improvement in the distribution ofincome, representing a decline of less than 3 percentage points in the Gini
coefficient after 2000, was able to explain a large part of the reduction in poverty
in 2000–2004 and partially counteracted the strong, poverty-augmenting effectof decreasing per-capita income in 2004–2008.
Moreover, we could also identify that the poverty reduction in Mexico after 2000
was greatly attributed to the poverty decline in the rural sector, which is
associated to a 39% pro-poor growth rate for households below the 40th
percentile of the income distribution in 2000–2008. On the other hand, growth
was also pro-poor in the urban sector during the same period but it was only athird (13%) of that observed in the rural areas. Nevertheless, it also contributed
to reducing poverty at the national level.
Therefore, we could conclude that growth with redistribution was indeed the key
to reducing poverty continuously and in an important manner during 2000–2006,
49

Mexico will be unable to cope with the risk of social fracture it faces today unless its
economic and social development strategy is redirected towards a solidarity-based inclusivemodel that cannot only provide for the most disadvantaged groups, but also reduce poverty,
vulnerability and the shocking differences in opportunity that so typify the Mexican society(Bayon, 2009).
29

which corroborates what has been suggested in the literature about theimportant contribution of an improved distribution of income (lower inequality) topoverty reduction, particularly in highly-unequal developing countries (Ravallion(1997, 2005, 2007), Oxfam (2000), Addison and Cornia (2001), Bourguignon(2004), Lopez (2006)). Additionally, our results indicate as well that the highlevels of inequality that persisted during the 1990s diminished considerably thepoverty-reducing impact of growth that was achieved throughout the decade but,
especially so, in 1996–2000.
Furthermore, an additional factor, which invariably had a considerable andpositive impact on poverty in Mexico during the whole analyzed period(1992–2008), was the “Kuznets process” of migration (Ravallion and Chen,
2007) or the changes in the distribution of the population between the rural andurban sectors. Overall, this important factor contributed to about 25% of the
reduction in national poverty, meaning that the decline of poverty in Mexico ispartly caused by the population transfer from the traditional to the modern sectorof the economy. Unfortunately, for the case of Mexico and due to the sluggish
performance of the Mexican economy since the 1980s (Levy and Walton (2009),
Arias et al. (2010)), this does not necessarily mean that there is less poverty inthe country but a slow down of the rate at which poverty is reduced in the urban
sector, which increases in size constantly and where a huge and increasing
portion of the labor force (45% in 2006 (Bayon, 2009)) is employed in theinformal economy.
Finally, an important conclusion that can be reached is the one related to thenecessity of continuing with the effort of decreasing the high levels of income
inequality that persist in the country (Iniguez-Montiel, 2011), not only on equity(moral) but on economic efficiency grounds as well (Aghion et al. (1999), Oxfam(2000), Cornia et al. (2004), Cullity (2004), Dagdeviren et al. (2004), Culpeper(2005), van der Hoeven (2008), Levy and Walton (2009)), in order to eliminate
gradually, but effectively, the poverty suffered by Mexico’s 57% of the population(61 million people in 2008) and, in this way, accelerate the development process
in the country. It is partly true that the majority of the population in Mexico
remains poor due to the failure of the economy to grow at potentially higher rates,
which could relocate the country out of its divergent, development path (OECD,2009). However, on the other hand, the rather high levels of poverty that30

continue to prevail in the country are definitely the reflection of the great
concentration of income and assets (wealth) that lies in quite a few hands,
constraining the vast majority of people from benefiting from the gains of growth
and realizing its full potential, in most of the cases because of the low
human-capital accumulation trap that is present in the economy (Mayer-Foulkes,
2008).
Consequently, recognizing the importance of growth with equity is crucial forovercoming absolute poverty in Mexico in the foreseeable future, as it is mostprobably the case of middle-income, high-inequality countries too. According toour results, and based on economic theory, if the actual level of inequality (Giniof 52% in 2008) were to be maintained, poverty in Mexico could only be reduced
via economic growth, at particularly high growth rates for the rural sector.
Therefore, it seems that the most appropriate strategy for achieving a significant
and permanent reduction in the poverty level has to do with the one that, in
addition to promoting the economic development of the rural sector long-ago
indicated in McKinley and Alarcon (1995), focuses on improving the distributionof income further, so as to reduce the high income disparities that persist in the
country across individuals and regions (World Bank (2007), Levy and Walton(2009), Iniguez-Montiel (2011)) and between the rural and urban sectors as well.
No doubt, this could only be achieved by pursuing an active pro-poor growthpolicy that takes into consideration the combined effects of growth and inequality
on poverty, as well as the sectoral composition of growth in Mexico.
APPENDIXMEASURING PRO-POOR GROWTH
By using the Growth Incidence Curves (GICs) suggested by Ravallion and Chen
(2003), we intend to analyze and measure the rate of pro-poor growth that wasachieved in Mexico during 1992–2008 and two different sub-periods in between
the former: 1992–2000 and 2000–2008. This will give us the possibility ofassessing how the gains from aggregate economic growth were distributed
across households according to their initial incomes but, in particular, those
accruing to the households considered as poor in Mexico according to different
poverty lines. Additionally, the GICs will allow us to deepen our understanding of
inequality in Mexico by graphically identifying the income distribution changes

31that took place along the whole distribution of income during the analyzed
periods. This will facilitate our study of the relationship between poverty andinequality.
Following Ravallion and Chen (2003) we have that, if comparing two dates, t –1
and

t,

the

growth

rate

in

the

income

of

the

pth

quantile

is gt ( p ) [ yt ( p ) / yt 1 ( p )]  1 . Letting p vary from zero to one, g t ( p ) traces out what
is called the ‘growth incidence curve’ (GIC). Following Gastwirth (1971) we havethat y t ( p )Ft 1 ( p )Ltc( p ) P t ( y tc ( p ) ! 0 ), where Lt ( p ) is the Lorenz curveand P t is the mean income of the distribution. Therefore,gt ( p)where J t

Ltc( p )(J t  1)  1
Ltc1 ( p )( P t / P t 1 )  1 is the growth rate in Pt .

Then, the rate of pro-poor growth can be measured as the mean growth rate forthe poor as follows:Ht³ g ( p)dp / H , which is the actual growth rate multiplied0tt

by the ratio of the actual change in the Watts index to the change that would
have been observed with the same growth rate but no change in inequality(Ravallion and Chen, 2003).

ANALYSIS OF POVERTY IN THE MEDIUM AND LONG TERMS
Chavez and Gomez (2009) developed a methodology to analyze the feasibilityof reaching different poverty goals, under different growth scenarios, bycalculating the required time and the minimum necessary growth rate to meetthe desired targets as follows:
Let P * be a poverty goal. The needed mean income, P * , to meet this poverty goal
for a given income distribution, L, and an exogenous poverty line, z, is defined
as:
32

P*

inf{P : P( P , z , L) d P * } .

Therefore, the time taken to meet the poverty goal, P * , given P , L, z, and anannual per capita growth rate, g , can be written as:t(g )§ § P * ·1 / ln(1 g ) ·¸.
ln¨ ¨¨ ¸¸¨© P ¹¸©
¹

Analogously, the minimum necessary growth rate of per capita income, g (t ) , tomeet the poverty goal, P * , in t years, holding both the income distribution andthe poverty line constant, is:1/ tg (t )§ P* ·
¨¨ ¸¸
© P ¹

 1.

It should be noted that Chavez and Gomez (2009) calculated the required timeand grow rate to halve poverty incidence and intensity in Mexico, considering theone- and two-dollar a day poverty lines, as well as the official food poverty line.
In this respect, our analysis departs from theirs in two important aspects. First,
we consider two additional, higher poverty lines, which could be said to be more
relevant to the study of poverty in Mexico, given its current level of development,
and that are related to capacities (extreme) and overall poverty. 50 Second, weare not only interested in estimating the required time and growth rate that arenecessary to halve poverty in Mexico but our analysis mainly focuses on theeradication of poverty, considering the abovementioned poverty lines.

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40

TABLE 1: Descriptive Statistics on Distribution of the Populationby Education Level, Occupation and Location (1992-2008)
1992

2008

Educational Level

1992

2008

Location

No Education

45.8%

30.9%

North Region

Primary

22.9%

22.3%

Chihuahua

3.6%

3.6%

Middle

13.1%

22.6%

Coahuila

2.7%

2.6%

Secondary

10.8%

16.4%

Durango

1.6%

1.4%

Tertiary

7.4%

7.7%

San Luis Potosi

2.4%

2.3%

Zacatecas

1.4%

1.4%

Occupation

Centre Region

Unemployed

1.1%

1.7%

Hidalgo

2.4%

2.2%

Inactive

13.3%

19.6%

Mexico

11.9%

13.1%

7.0%

7.7%

Morelos

1.5%

1.6%

0.8%

0.6%

Puebla

4.3%

4.8%

2.9%

2.4%

Queretaro

1.3%

1.5%

18.6%

12.6%

Tlaxcala

0.9%

0.9%

1.7%

1.8%

Federal District

17.8%

15.7%

D.F.

10.5%

9.1%

Professional &Technical
Workers, & Professors
Arts, Sports &Entertaintment Workers
Public Servants& Firm Managers
Agricultural Workers
Industrial Supervisors& Control Workers
Industrial Workers
Unskilled Industrial
Workers
Drivers

4.4%

5.0%

Centre-West Region

5.9%

5.4%

Aguascalientes

0.8%

1.0%

Administrative Workers

5.2%

5.8%

Colima

0.6%

0.6%

12.4%

13.2%

Guanajuato

4.4%

4.3%

3.6%

5.7%

Jalisco

6.4%

6.2%

2.4%

2.6%

Michoacan

4.3%

3.7%

2.9%

0.2%

South Region

Self-employed Workers& SellersService Workers
Protection &Vigilant Workers
Other Workers

Tabasco

1.8%

1.9%

Location

Veracruz

7.6%

7.1%

North-West Region

South-West Region

Baja California

2.6%

3.0%

Chiapas

3.4%

3.9%

Baja California Sur

0.4%

0.6%

Guerrero

3.1%

2.7%

Nayarit

1.1%

1.0%

Oaxaca3.4%

3.2%

Sinaloa

2.8%

2.5%

South-East Region

Sonora2.3%

2.5%

Campeche

0.7%

0.7%

Quintana Roo

0.7%

1.3%

Yucatan

1.7%

1.8%

Rural

23.5%

20.7%

Urban

76.6%

79.3%

North-East Region
Nuevo Leon

4.0%

4.3%

Tamaulipas

3.2%

3.3%
Sector

Source: Own calculations based on the Household Income and Expenditure Surveys by INEGI.

41

TABLE 2
Poverty (H) among households in Mexico by Educational Level (1992-2008)
Extreme Poverty

Moderate Poverty

Overall Poverty

1992

2008

1992

2008

1992

2008

No Education

38.5%

31.9%

32.4%

33.6%

70.9%

65.5%

Primary

21.4%

21.7%

37.3%

33.8%

58.8%

55.5%

Middle

9.2%

15.4%

30.9%

33.6%

40.1%

49.1%

Secondary

2.2%

5.4%

15.4%

18.1%

17.5%

23.5%

Tertiary

0.3%

0.9%

4.4%

7.7%

4.7%

8.6%

Total (National)

24%

19%

29%

29%

53%

48%

H stands for the headcount index
Source: Own calculations based on the Household Income and Expenditure Surveys by INEGI.

42

TABLE 3
Contribution to Overall Poverty by Education Level, Occupation and Location (1992-2008)
1992

2008

Educational Level

1992

2008

Location

No Education

60.76%

41.97%

North Region

Primary

25.20%

25.64%

Chihuahua

2.3%

2.8%

Middle9.85%

23.01%

Coahuila

2.6%

2.3%

Secondary

3.53%

8.01%

Durango

1.7%

1.7%

Tertiary

0.66%

1.37%

San Luis Potosi

3.0%

2.4%

Zacatecas

1.8%

1.4%

Occupation

Centre Region

Unemployed

0.8%

2.2%

Hidalgo

3.0%

3.1%

Inactive

10.3%

17.9%

Mexico

10.9%

13.8%

2.2%

2.3%

Morelos

1.6%

1.5%

0.6%

0.4%

Puebla

5.8%

6.8%

0.3%

0.3%

Queretaro

1.3%

1.4%

29.7%

21.1%

Tlaxcala

1.3%

1.2%

0.6%

0.8%

Federal District

20.5%

18.0%

D.F.

6.2%

5.2%

Professional &Technical
Workers, & Professors
Arts, Sports &Entertaintment Workers
Public Servants& Firm Managers
Agricultural Workers
Industrial Supervisors& Control Workers
Industrial Workers
Unskilled Industrial
Workers
Drivers

6.6%

7.3%

Centre-West Region

6.4%

5.6%

Aguascalientes

1.0%

0.8%

Administrative Workers

2.0%

2.9%

Colima

0.4%

0.4%

10.9%

12.9%

Guanajuato

5.5%

4.9%

3.6%

5.8%

Jalisco

5.4%

5.4%

2.7%

2.4%

Michoacan

5.6%

4.1%

2.8%

0.2%

South Region

Self-employed Workers& SellersService Workers
Protection &Vigilant Workers
Other Workers

Tabasco

1.8%

2.3%

Location

Veracruz

8.7%

8.2%

North-West Region

South-West Region

Baja California

1.2%

1.9%

Chiapas

5.3%

6.3%

Baja California Sur

0.3%

0.2%

Guerrero

4.1%

3.8%

Nayarit

1.2%

1.1%

Oaxaca5.2%

4.4%

Sinaloa

2.5%

2.0%

South-East Region

Sonora1.5%

1.8%

Campeche

1.0%

0.7%

Quintana Roo

0.5%

0.9%

Yucatan

2.2%

2.0%

Rural

37.0%

33.6%

Urban

63.0%

66.4%

North-East Region
Nuevo Leon

2.6%

2.2%

Tamaulipas

2.5%

2.9%
Sector

Source: Own calculations based on the Household Income and Expenditure Surveys by INEGI.

43

TABLE 4
Poverty (H) among households in Mexico by Occupation (1992-2008)
Occupation

Extreme Poverty

Moderate Poverty

1992

1992

2008

2008

Overall Poverty
1992

2008

Unemployed

18.0%

27.6%

22.7%

33.1%

40.8%

60.7%

Inactive

13.7%

16.5%

27.6%

27.5%

41.3%

44.0%

2.2%

1.8%

15.0%

12.4%

17.2%

14.2%

23.0%

5.9%

15.6%

23.1%

38.6%

29.0%

0.7%

1.3%

4.1%

3.8%

4.9%

5.0%

60%

55%

24.9%

26.1%

85%

81%

3%

2%

15.0%

20.8%

18%

23%

21%

17%

40.9%

38.7%

62%

55%

Professional &Technical
Workers, & Professors
Arts, Sports &Entertaintment Workers
Public Servants& Firm Managers
Agricultural Workers
Industrial Supervisors& Control Workers
Industrial Workers
Unskilled Industrial
Workers
Drivers

42%

32%

37.5%

39.2%

80%

71%

14%

12%

43.4%

38.7%

58%

50%

Administrative Workers

5%

4%

16.0%

19.4%

21%

24%

15%

16%

31.7%

31.0%

47%

47%

17%

14%

36.6%

35.2%

54%

49%

Self-employed Workers& SellersService Workers
Protection &Vigilant Workers
Other Workers

19%

9%

40.7%

35.8%

60%

45%

27%

37%

25.8%

17.7%

53%

54%

Total (National)

24%

19%

29%

29%

53%

48%

H stands for the headcount index
Source: Own calculations based on the Household Income and Expenditure Surveys by INEGI.

44

TABLE 5
Poverty (H) among households in Mexico by Location (1992-2008)
Extreme Poverty

Moderate Poverty

1992

1992

2008

2008

Overall Poverty
1992

2008

North-West Region
Baja California

4.4%

7.9%

21.0%

22.0%

25.5%

30.0%

Baja California Sur

8.3%

4.6%

31.3%

17.1%

39.6%

21.7%

Nayarit

25.5%

21.2%

33.5%

30.6%

58.9%

51.8%

Sinaloa

18.6%

14.7%

27.7%

23.3%

46.3%

37.9%

Sonora

8.0%

10.6%

25.7%

24.0%

33.7%

34.5%

Nuevo Leon

8.2%

5.2%

27.2%

20.0%

35.4%

25.1%

Tamaulipas

11.0%

10.6%

31.5%

31.0%

42.5%

41.5%

10.4%

10.2%

24.4%

28.3%

34.8%

38.5%

North-East Region

North Region
Chihuahua
Coahuila

22.7%

11.4%

29.9%

31.8%

52.6%

43.3%

Durango

26.8%

23.7%

29.8%

35.6%

56.7%

59.4%

San Luis Potosi

32.0%

24.3%

34.5%

26.2%

66.5%

50.5%

Zacatecas

38.5%

19.6%

29.0%

30.7%

67.4%

50.3%

39.9%

32.8%

28.3%

35.6%

68.2%

68.5%

Centre Region
HidalgoMexico

15.0%

16.4%

34.0%

34.5%

48.9%

50.8%

Morelos

24.1%

12.7%

32.2%

31.1%

56.3%

43.8%

Puebla

51.8%

29.7%

20.0%

38.8%

71.8%

68.5%

Queretaro

24.7%

14.7%

28.6%

28.9%

53.3%

43.7%

Tlaxcala

45.8%

24.1%

32.0%

37.6%

77.9%

61.7%

5.5%

5.6%

25.7%

22.2%

31.2%

27.8%

Aguascalientes

23.2%

13.2%

38.9%

25.1%

62.2%

38.4%

Colima

12.4%

8.6%

26.6%

24.9%

39.0%

33.4%

Federal District
D.F.
Centre-West Region

Guanajuato

31.8%

21.5%

34.5%

34.3%

66.3%

55.8%

Jalisco

11.3%

12.7%

33.7%

29.9%

44.9%

42.6%

Michoacan

33.8%

23.7%

35.6%

29.6%

69.4%

53.3%

South Region
Tabasco

35.5%

25.4%

17.8%

33.4%

53.2%

58.8%

Veracruz

29.4%

27.4%

31.6%

28.7%

61.0%

56.1%

South-West Region
Chiapas

54.5%

56.1%

28.6%

21.3%

83.0%

77.4%

Guerrero

47.3%

39.1%

23.4%

28.1%

70.7%

67.2%

Oaxaca

58.1%

35.5%

23.1%

29.6%

81.2%

65.1%

37.2%

16.4%

33.3%

28.0%

70.5%

44.3%

South-East Region
Campeche
Quintana Roo

11.8%

14.0%

28.0%

21.9%

39.8%

36.0%

Yucatan

26.1%

17.8%

42.7%

37.2%

68.8%

55.0%

Total (National)

24%

19%

29%

29%

53%

48%

H stands for the headcount index
Source: Own calculations based on the Household Income and Expenditure Surveys by INEGI.

45

TABLE 6
Rural, urban and national poverty (H) in Mexico (1992-2008)
Extreme Poverty

Moderate Poverty

Overall Poverty

1992

2008

1992

2008

1992

2008

Rural

57.0%

46.7%

27.2%

31.8%

84.2%

78.5%

Urban

13.9%

12.0%

30.1%

28.4%

44.0%

40.4%

National

24%

19%

29%

29%

53%

48%

H stands for the headcount index
Source: Own calculations based on the Household Income and Expenditure Surveys by INEGI.

46

TABLE 7
Poverty and Inequality in Mexico: Summary of Main Indicators (1992-2008)
Relative Poverty(Households)
ExtremeAbsolue Poverty(Millions of Households)
ExtremeAbsolue Poverty(Millions of Persons)Inequality

24.0%

Moderate
29.4%

4.5

Moderate
5.5

1994

22.6%

28.2%

50.8%

4.5

5.6

10.0

30.0%

30.2%

60.2%

26.9

27.1

54.0

54.3%

1996

35.8%

30.7%

66.5%

7.3

6.3

13.6

45.3%

29.8%

75.1%

42.0

27.7

69.7

52.7%

1998

31.2%

30.7%

61.9%

6.9

6.8

13.8

39.6%

30.8%

70.4%

37.8

29.4

67.1

54.7%

2000

24.2%

28.8%

53.0%

5.7

6.8

12.5

31.4%

30.0%

61.4%

30.9

29.5

60.4

54.6%

2002

17.4%

28.0%

45.4%

4.3

6.9

11.1

23.3%

30.6%

53.9%

23.6

31.0

54.6

52.0%

2004

15.0%

27.7%

42.7%

3.8

7.1

10.9

20.0%

31.2%

51.2%

20.6

32.1

52.7

52.8%

2006

11.8%

26.2%

38.0%

3.1

7.0

10.1

16.5%

30.4%

46.9%

17.3

31.9

49.2

52.0%

2008

19.2%

29.1%

48.3%

5.1

7.8

12.9

24.8%

32.0%

56.8%

26.5

34.1

60.6

52.2%

1992

Overall
53.4%

Relative Poverty(Persons)

Overall
9.9

Extreme31.5%

Moderate
31.3%

Overall
62.8%

Extreme27.4

Moderate
27.2

Overall
54.6

Gini Index
53.5%

Source: Own calculations based on the Household Income and Expenditure Surveys by INEGI.

47

TABLE 8: Decomposition of Changes in National Poverty in Mexico into its Growth and Distribution Components(% point change in the FGT index)
1992 - 2008

1992 - 1996

1996 - 2000

2000 - 2004

2004 - 2008

EffectBasicBasicBasicBasicBasicFood Capacities
Overall Food Capacities
Overall Food Capacities
Overall Food Capacities
Overall Food Capacities
Overall
Needs
Needs
Needs
Needs
Needs
Poverty Poverty
Poverty Poverty Poverty
Poverty Poverty Poverty
Poverty Poverty Poverty
Poverty Poverty Poverty
Poverty
Poverty
Poverty
Poverty
Poverty
Poverty

Growth

-0.79

-1.17

-2.17

-2.61

2.32

3.12

5.12

5.95

-2.1

-3.04

-5.38

-6.32

-0.98

-1.52

-2.93

-3.54

0.18

0.34

0.8

1.02

(contribution)

56%

55%

57%

59%

190%

165%

131%

122%

145%

144%

137%

134%

71%

68%

66%

66%

86%

97%

123%

134%

Distribution

-0.82

-1.15

-1.78

-1.90

-0.81

-1.05

-1.27

-1.22

1.01

1.25

1.61

1.66

-0.67

-1.02

-1.73

-1.94

0.03

0.02

-0.13

-0.24

(contribution)

58%

54%

47%

43%

-66%

-56%

-32%

-25%

-70%

-59%

-41%

-35%

48%

45%

39%

36%

14%

6%

-20%

-32%

Residual

0.20

0.20

0.13

0.06

-0.29

-0.18

0.06

0.13

-0.36

-0.32

-0.16

-0.07

0.26

0.29

0.21

0.14

0.00

-0.01

-0.02

-0.02

(contribution)

-14%

-9%

-4%

-2%

-24%

-9%

1%

3%

25%

15%

4%

1%

-19%

-13%

-5%

-2%

0%

-3%

-3%

-2%

Total change

-1.41

-2.12

-3.82

-4.45

1.22

1.89

3.91

4.86

-1.45

-2.11

-3.93

-4.73

-1.39

-2.25

-4.45

-5.34

0.21

0.35

0.65

0.76

Note: The applied decomposition methodology was proposed by Datt & Ravallion (1992) in the Journal of Development Economics.
The FGT index corresponds to the squared poverty-gap measure proposed by Foster et al. (1984).

48

TABLE 9: Sectoral Decomposition of the Change in Poverty in Mexico(% point change in the FGT index)
1992 - 2008
EffectFood
Capacities
Poverty
Poverty

1992 - 2000

BasicNeeds
Poverty

Overall
Poverty

Food
Capacities
Poverty
Poverty2000 - 2008

BasicNeeds
Poverty

Overall
Poverty

Food
Capacities
Poverty
Poverty

BasicNeeds
Poverty

Overall
Poverty

Within-Rural

-0.85

-1.26

-1.45

-1.54

0.50

0.59

0.64

0.61

-1.30

-1.58

-2.02

-2.08

(contribution)

61%

67%

43%

39%

98%

109%

213%

763%

68%

65%

55%

51%

Within-Urban

-0.12

-0.06

-0.99

-1.40

0.11

0.08

-0.13

-0.29

-0.23

-0.34

-0.85

-1.10

(contribution)

9%

3%

30%

35%

22%

15%

-43%

-363%

12%

14%

23%

27%

Population-Shift

-0.42

-0.56

-0.91

-1.04

-0.10

-0.13

-0.21

-0.24

-0.38

-0.50

-0.78

-0.88

(contribution)

30%

30%

27%

26%

-20%

-24%

-70%

-300%

20%

21%

21%

22%

Total change

-1.39

-1.88

-3.35

-3.98

0.51

0.54

0.30

0.08

-1.91

-2.42

-3.65

-4.06

Note: The applied decomposition methodology was proposed by Ravallion & Huppi (1991) in The World Bank Economic Review.
The FGT index corresponds to the squared poverty-gap measure proposed by Foster et al. (1984).

49

TABLE 10: "National, Rural and Urban Growth Rates"
National

Rural

Urban

1992-2008 1992-2000 2000-2008 1992-2008 1992-2000 2000-2008 1992-2008 1992-2000

2000-2008

Growth rate in the mean income

Growth rate in the mean income

Growth rate in the mean income

13.3%

26.5%

9.5%

1.1%

12.1%

Rate of pro-poor growth
for the poorest p%

p

-0.1%

26.6%

Rate of pro-poor growth
for the poorest p%

0.7%

8.8%

Rate of pro-poor growth
for the poorest p%

10

25.0%

-5.6%

32.5%

25.4%

-9.7%

38.9%

8.8%

-2.0%

11.0%

20

23.7%

-4.2%

29.3%

28.2%

-7.9%

39.3%

11.1%

-1.5%

12.7%

30

23.0%

-3.2%

27.1%

28.6%

-7.3%

38.8%

12.2%

-1.0%

13.3%

40

22.5%

-2.2%

25.4%

28.7%

-7.5%

39.1%

12.5%

-0.8%

13.4%

Source: Own calculations based on the Household Income and Expenditure Surveys by INEGI.

TABLE 11
Eradicating Extreme Poverty in Mexico‫כ‬Years to Eradicate Poverty

Required Growth Rate

Sectorܲ

National

0

1,149

8,121

70.4

23.7

14.4

10.4

7.26%

3.57%

Rural

0

876

5,727

114.7

38.6

23.4

16.9

12.09%

5.87%

Urban

0

1,221

6,964

41.6

14.0

8.5

6.1

4.23%

2.09%

z

P

*

t (0.01)t (0.03)t (0.05)t (0.07)g (10)g (20)

Source: Own calculations based on the Household Income and Expenditure Surveys by INEGI.

ܲ‫ = כ‬poverty goal; ‫ = ݖ‬poverty line; P * = income needed to meet poverty goal; t (G ) = number of years in which the poverty

goal would be met if annual growth rate were G ; g (t ) = minimum income growth rate necessary to eradicate poverty in t years.

TABLE 12
Eradicating Overall Poverty in MexicoYears to Eradicate Poverty

Sectorܲ‫כ‬zPNational

0

2,318

Rural

0

Urban

0

*

Required Growth Ratet (0.01)t (0.03)t (0.05)t (0.07)g (25)g (50)

16,377

140.9

47.4

28.7

20.7

5.77%

2.84%

1,674

10,947

179.8

60.5

36.7

26.4

7.42%

3.64%

2,486

14,181

113.1

38.1

23.1

16.6

4.60%

2.28%

Source: Own calculations based on the Household Income and Expenditure Surveys by INEGI.

ܲ‫ = כ‬poverty goal; ‫ = ݖ‬poverty line; P * = income needed to meet poverty goal; t (G ) = number of years in which the poverty

goal would be met if annual growth rate were G ; g (t ) = minimum income growth rate necessary to eradicate poverty in t years.

50

FIGURE 1
Contribution  to  Poverty  by  Educational  Level  (1992)
90%

80%

70%

60%

No  Education

50%

Primary
Middle40%

Secondary
Tertiary

30%

20%

10%

0%
Food  Poverty

Extreme  Poverty

Basic-­‐Needs  Poverty

Overall  Poverty

Contribution  to  Poverty  by  Educational  Level  (2008)
60%

50%

40%

No  Education
Primary

30%

MiddleSecondary
Tertiary

20%

10%

0%
Food  Poverty

Extreme  Poverty

Basic-­‐Needs  Poverty

51

Overall  Poverty

FIGURE 2
Contribution  to  Poverty  by  Occupation  (1992)
60%

50%

40%

30%

20%

10%

0%

Food  Poverty

Extreme  Poverty

Basic-­‐Needs  Poverty

Overall  Poverty

Contribution  to  Poverty  by  Occupation  (2008)
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Food  Poverty

Extreme  Poverty

Basic-­‐Needs  Poverty

52

Overall  Poverty

FIGURE 3
GRAPH 1
Contribution  to  Extreme  Poverty  by  States
14%

12%

10%

8%

6%

4%

2%

0%

1992

2008

GRAPH 2Contribution  to  Overall  Poverty  by  States
16%

14%

12%

10%

8%

6%

4%

2%

0%

1992

53

2008

FIGURE 4
Poverty  (H)  Evolution  in  Mexico(Households)

70%

60%

50%

40%

30%

20%

10%

0%
1992

1994

1996

Food  Poverty

1998

2000

Extreme  Poverty

2002

B-­‐N  Poverty

2004

2006

2008

Overall  Poverty

Note: H stands for the headcount index

FIGURE 5
Extreme,  Moderate  and  Overall  Poverty  (H)  in  Mexico(Households)
70%

60%

50%

40%

30%

20%

10%

0%
1992

1994

1996

Extreme  Poverty

1998

2000

Moderate  Poverty

Note: H stands for the headcount index

54

2002

2004

Overall  Poverty

2006

2008

FIGURE 6
Income  Inequality  in  Mexico  (1984-­‐2008)
0.56

0.54

0.52

0.50

0.48

0.46

0.44
84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

Year

Gini  Coefficient

Source: Iniguez-Montiel (2011).

1994–1995 financial crisis

FIGURE 7
Economic  Growth  in  Mexico  (1992-­‐2008)
8

6

4

2

Percentage

0
1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

-­‐2

-­‐4

-­‐6

-­‐8

-­‐10

-­‐12

Source: Heston et al. (2009) and INEGI’s 2008 macroeconomic indicator.
1994–1995 financial crisis

55

2004

2005

2006

2007

2008

FIGURE 8

Contribution  of  Growth  and  Redistribution                                                                                                                                                          to  the  Reduction  of  Poverty  in  Mexico  in  1992-­‐2008

100%

80%

43%

47%
54%

58%

60%

40%

20%

56%

55%

-­‐14%

-­‐9%

59%

57%

0%

-­‐4%

-­‐2%

B-­‐N  Poverty

Overall  Poverty-­‐20%
Food  Poverty

Extreme  Poverty

Growth  EffectDistribution  EffectResidual

FIGURE 9Contribution  of  Rural,  Urban  and  Population-­‐shift  Effects                                                                        to  the  Reduction  of  Poverty  in  Mexico  in  1992-­‐2008
70%

67%
61%

50%
43%
39%
35%
30%

30%

10%

30%

30%

27%

26%

9%
3%
Food  Poverty

Extreme  Poverty

Basic-­‐Needs  Poverty-­‐10%
Within-­‐Rural

Within-­‐Urban

56

Population-­‐Shift

Overall  Poverty

FIGURE 10

Growth Incidence Curve 1992-2008 (National)

Growth Rate (%)

30

20

10

0
0

20

60
40
Per Capita Income Percentiles

80

bandwidth = .3

Growth incidence curve: actual and smoothed
Growth rate in the mean income

Zero growth rate

57

100

FIGURE 11

Growth Incidence Curve 1992-2000 (National)
15

Growth Rate (%)

10

5

0

-5

-10
0

20

40
60
Per Capita Income Percentiles

80

100

bandwidth = .3

Growth Incidence Curve 2000-2008 (National)
40

Growth Rate (%)

30

20

10

0

-10
0

20

40
60
Per Capita Income Percentiles

bandwidth = .3

Growth incidence curve: actual and smoothed
Growth rate in the mean income

Zero growth rate

58

80

100

FIGURE 12

Growth Incidence Curve 1992-2000 (Rural)

Growth Rate (%)

20

10

0

-10

-20
0

20

40
60
Per Capita Income Percentiles

80

100

bandwidth = .3

Growth Incidence Curve 2000-2008 (Rural)
50

Growth Rate (%)

40

30

20

10

0
0

20

40
60
Per Capita Income Percentiles

80

bandwidth = .3

Growth incidence curve: actual and smoothed
Growth rate in the mean income

Zero growth rate

59

100

FIGURE 13

Growth Incidence Curve 1992-2000 (Urban)

Growth Rate (%)

20

10

0

-10
0

20

40
60
Per Capita Income Percentiles

80

100

bandwidth = .3

Growth Incidence Curve 2000-2008 (Urban)
15

Growth Rate (%)

10

5

0

-5

-10
0

20

40
60
Per Capita Income Percentiles

bandwidth = .3

Growth incidence curve: actual and smoothed
Growth rate in the mean income

Zero growth rate

60

80

100