# Was growth in average per capita consumption associated with poverty reduction?

Econ 181 Problem Set 1: Poverty & Inequality Assessment in Mexico

Due: April 20 in class

Directions: You may work on the quantitative analysis in groups up to 3, but each student must write their own answers. Each group should turn in one copy of their graphs/tables together with the other members’ individual typed answers (one “file” for the whole group). Place the names of all group members on the first page of the results, and individual names on the written sections.

The homework requires the use of computer software, either spreadsheet software (Excel) or statistical software (R, Stata). Online help for generating averages and graphs in most statistical packages is available and relatively easy to find (e.g. google “help Excel graph Lorenz Curve”)

Background:

Poverty assessments are a key World Bank contribution to help governments design poverty reduction strategies. The last available poverty assessment for Mexico was made using data for 2004 and it can be found on iLearn. You will conduct a poverty and inequality assessment for Mexico over the period 1998 to 2010. This is a period that saw overall economic growth, but also the impact of the 2006 food crisis and the 2007-09 Great Recession in the United States.

HW1_Excel_Data, available on iLearn, contains data taken from the 1998 and 2010 Mexican Encuesta Nacional de Ingresos y Gastos de los Hogares (ENIGH). The data you are given are the consumption levels for a nationally representative random sample of 300 Mexican households in 1998 and in 2010 (adjusted for household size and inflation).

At the end of this document is a blank “Summary Table”. Paste this blank template into another document and fill in your results. Paste the graphs you generate below the table. These together comprise the “group” part of the assignment and should be handed in together.

Note: You may skip one subsection of either question 2 or 3 (2a, 2b, 2c, 3a or 3b). If you do them all, your worst score on any of those sections will be thrown out.

1. Introduction

a) Skim the introductory section (“Summary and Key Messages”) of the 2004 World Bank poverty assessment report (available on iLearn).

What are 3 important policy recommendations it makes regarding poverty and inequality? Write 2-3 sentences describing each recommendation you list.

2. Poverty

a) Calculate the mean per capita consumption in each of the two years and compute the annual growth rate (fill in table).

How did consumption change over the period? Write 2-3 sentences describing and interpreting your results.

b) Calculate the P0 and P1 indicators for each year (fill in table). Calculate the annual rate of change in P0 (fill in table).

How did poverty rates and the depth of poverty change over the period? Write 3-4 sentences describing and interpreting your results.

c) Graph the poverty profiles for the two years on a single figure. Use different colors for the two years, and define these in a legend. Include the poverty line (z) on the graph as well. (paste graph into your group results)

By examining the poverty profiles visually, you can infer what happened to the P2 “severity of poverty” index. Explain in 3-4 sentences what happened to the P2 index and how that can be inferred from the graph.

3. Inequality

a) Calculate the 20/20 Kuznet’s Ratio for each year. (fill in table)

What happened to inequality over time as measured by the 20/20 Kuznet’s ratio? Write 2-3 sentences explaining and interpreting your results.

b) Graph the Lorenz curve for each of the two years on a single figure. (paste graph into your group results)

Explain how you can infer the change in the Gini coefficient from the graph above. Did it get bigger or smaller? Is that more or less inequality? Write 2-3 sentences explaining and interpreting your results.

4. Discuss your findings addressing the following questions (1 paragraph each)

a) Was growth in average per capita consumption associated with poverty reduction?

b) Was growth in per capita consumption associated with a change in inequality?

c) Choose one result from this exercise (a number, a graph, a fact) that you found interesting. What did you learn from it and/or why is it interesting to you?