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Economic inequality, poverty, and social exclusion in Latin America
"Wherever there is great property, there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many". (Adam Smith, An Inquiry into the Nature and  Causes of the Wealth of Nations, (Book 5, Ch. 1, Part II p.580)

On planning for development:Inequality and social exclusion
Economic inequality, poverty and corruption in
Africa- Asia - Latin America - China - United States of America

Three Decades of Neoliberal Economics in Chile. Achievements, Failures and Dilemmas
Andrés Solimano - June 2009

The Chilean development story of the last two to three decades is a mix of successes in the macro, growth, poverty and trade fronts but also of failure in reducing chronic inequality of income and wealth. In addition, the current growth patterns have serious impacts on the environment, natural resources and energy demand. Adverse features of the Chilean development model include urban insecurity and rising crime, pollution, pressure on natural resources, congestion and social stratification in access to education, health and pensions. A reduction in social inequality would require changes in several fronts: more public-sector resources devoted to education; curtailing current concentration of wealth and market shares in banking, retail trade, and private pensions systems, private health provision, and other sectors; more effective regulation of big business; rebalancing of labour unions’ bargaining power capacities and …/.

Melanie Grosse, Kenneth Harttgen, and Stephan Klasen
Measuring Pro-Poor Progress towards the Non-Income Millennium Development Goals - (PDF 346KB)
In order to track progress in MDG1 and explicitly link growth, inequality, and poverty reduction, several measures of ‘pro-poor growth’ have been proposed in the literature and used in applied academic and policy work. These measures, particularly the ones derived from the growth incidence curve, allow a much more detailed assessment of the distributional impact of growth and its link to poverty reduction. However, there are no corresponding measures for tracking the distribution of progress in non-income dimensions of poverty, and thus the distribution of progress towards MDGs 2-7. In this paper, we propose to extend the pro-poor growth measurement to non-income dimensions of poverty (particularly health and education). We empirically illustrate the approach for Bolivia and show that it allows a much more detailed assessment of progress towards MDGs 2-7 by focusing on the distribution of progress. Furthermore, this extension also allows an explicit assessment of the linkage between progress in MDG1 and MDGs 2-7 as well as extends traditional incidence analysis by quantifying outcomes in non-income dimensions of poverty along the income distribution.

George Rapsomanikis and Alexander Sarris
The Impact of Domestic and International Commodity Price Volatility on Agricultural Income Instability: Ghana, Vietnam and Peru (PDF 152KB)
The extent to which commodity price volatility affects the income of producing households and their vulnerability to poverty and food insecurity depends on household diversification patterns and the degree of their exposure to markets. This article focuses on estimating agricultural income uncertainties for a number of different household types in Ghana, Vietnam and Peru. We develop explicit formulae for household income variance, and we combine information from household datasets and commodity price time-series in order to estimate the income uncertainty that emanates from price and production volatility under different scenarios of exposure to international and domestic markets shocks. Our results indicate that market and nonmarket uncertainties significantly affect the variability of agricultural income of households in these countries, and especially households that are specialized in a few commodities. However, it turns out that, under current policies, almost all of their income variability is due to domestic factors, with international prices not contributing much, at least in the short run. Wider exposure to international markets would increase the income variability of producers who have been subjected to domestic market stabilization policies in Ghana and Vietnam, while it would decrease it in the case of Peru.

Javier Escobal and Máximo Torero:
Adverse Geography and Differences in Welfare in Peru - (PDF 3120KB)
In Peru, a country with an astonishing variety of different ecological areas, with 84 different climate zones and landscapes, with rainforests, high mountain ranges and dry deserts, the geographical context may not be all that matters, but it could be very significant in explaining regional variations in income and poverty. The major question this paper tries to answer is: what role do geographic variables, both natural and manmade, play in explaining per capita expenditure differentials across regions within Peru? How have these influences changed over time, through what channels have they been transmitted, and has access to private and public assets compensated for the effects of an adverse geography?
We have shown that what seem to be sizeable geographic differences in poverty rates in Peru can be almost fully explained when one takes into account the spatial concentration of households with readily observable non-geographic characteristics, in particular public and private assets. In other words, the same observationally equivalent household has a similar expenditure level in one place as another with different geographic characteristics such as altitude or temperature. This does not mean, however, that geography is not important but that its influence on poverty, expenditure level and growth differential comes about through a spatially uneven provision of public infrastructure…/…

Rafael E. De Hoyos
The Microeconomics of Inequality, Poverty and Market Liberalizing Reforms (PDF 472KB)
This paper illustrates how the use of microeconometric techniques can be used to uncover the micro dynamics behind macro shocks. Using Mexican micro data we find out that—controlling for everything else—between 1994 and 1998 returns to personal characteristics in the tradable sector increased particularly those of skilled labourers. By the year 2000 the positive shock upon the tradeable sector vanishes with returns to personal characteristics converging to the levels observed in the non-tradable sector. We use our model’s results to simulate a scenario where the Mexican economy experienced the negative shock of the peso crises in the absence of trade liberalization (NAFTA) and find out that under such a scenario the poverty headcount ratio would have increased more than 2 percentage points above the one observed in 1996. The simulated second order effect of these changes shows that the skill mixed changed in a way that favoured relatively skilled men and relatively unskilled women. These changes in labour participation and occupation had an overall positive income effect though adverse in distributive terms.

Lucero, Jose Antonio. 2004.
Indigenous Political Voice and the Struggle for Recognition in Ecuador and Bolivia.
Indigenous struggles in Ecuador and Bolivia provide instructive and challenging cases of the politics of (in)equity in that conditions of economic and political crisis (the “lost decade”) coincided with the emergence of striking indigenous political voice (a decade in which “Indians won” as Luis Macas put it). Ecuador and Bolivia are often described as among the more economically and politically troubled countries in the Americas. These two Andean states are sometimes called the poorest countries in the hemisphere as a majority of people in each country lives below the poverty line (Ecuador 67%; Bolivia 63%). With the more comprehensive metric of the Human Development Index, these states fare a bit better but still decidedly in the bottom half of Medium Human Development countries; Ecuador occupying the 100th place, Bolivia the 114th in the HDI rankings of 177 countries. Politically, “inchoate party systems” in both countries have done a poor job of representing the interests of the excluded sectors of society and massive social protests have driven democratically-elected presidents from office (2000 in Ecuador, 2003 in Bolivia).
Gacitúa Marió, Estanislao and Michael Woolcock, with Marisa von Bulow. 2005
Assessing Social Exclusion and Mobility in Brazil.
In 2001, the World Bank updated a previous poverty assessment of Brazil that analyzed the relationship between income variables and household characteristics. The report provided an updated poverty profile, analyzed the impact of public social spending on poverty, and reviewed the effectiveness of selected policy interventions in order to provide suggestions for the development of a national poverty reduction strategy. The report identified that further work was needed to assess issues related to inequality, opportunity and social exclusion. Previous research on poverty and inequality in Brazil has focused on the extent to which various factors (labor markets, human capital, prejudice, location, etc.) contribute to poverty and inequality. Little attention, however, has been given to social exclusion processes to explain why certain groups do not have equal access to resources (economic, cultural and political) and/or do not have the same opportunities as other groups to improve their living standards. Similarly, very little is known about the perception Brazilians have of inequality, and which factors or individual characteristics are seen as determinants of income inequalities and social mobility. In response to these concerns, this study was proposed to advance the development community’s understanding of social exclusion processes in Brazil. The initial objective was to analyze how processes of social exclusion created barriers to social mobility among the poor in Brazil, the better to identify some policy levers or interventions that could be used to remove those barriers and contribute to more effective poverty alleviation and social inclusion.

A. Figueroa, Catholic University of Peru - 1999
Social exclusion and rural development

This paper examines factors that explain social inequalities in the Third World. It develops a new theoretical approach, which focuses on social inequality and introduces the concept of social exclusion into the analysis. In so doing, it specially addresses the question: is inequality a result of some peculiar form of social integration, or rather a result of some exclusions taking place in the social process? Social inequality is conceived in this paper in broader terms than income inequality. The social process is, for analytical purposes, divided into the three components: economic, political, and cultural. Social inequality refers to the aggregation of inequality on these components.
Social exclusion is also considered in a particular way. As a fact of life, we know that the same group of people who participate in some social relations may, at the same time, be excluded from others. Hence, to say that a person is excluded from something is a purely descriptive statement, with no analytical value. In analytical terms, the question is whether there are some exclusions that have important effects upon social inequality. Which are these exclusions in a particular society? Who is excluded and from what? Why do these exclusions take place?
Diego Winkelried
Income Distribution and the Size of the Informal Sector.
This paper studies the role of income distribution as a determinant of the size of the informal sector in an economy by relying on a channel whereby inequality affects the behaviour of aggregate demand and thus influences the incentives a firm has to become informal. It is further postulated that income distribution affects the response of the informal sector to different fiscal policies, either demand or supply-orientated. The main findings are that high inequality leads to a large informal sector, and that redistribution towards the middle class decreases the size of the informal sector and increases the capacity of fiscal instruments to reduce informality. Empirical evidence for Mexican cities is provided.
St John’s College, University of Cambridge - 2005

The World Bank Group - 2005
The urban poor in Latin America, Marianne Fay (ed.)

From the publishers
Overview , by Marianne Fay

Chapter1: Urban Poverty in Latin America and the Caribbean: Setting the Stage
By Marianne Fay and Caterina Ruggeri Laderchi
1.1 Five Views of the Connection between Social Relations and Urban Poverty in Latin America
1.2 Measuring Urban Poverty
1.1 Growth in the urban population implies further increases in the number of urban poor, even if urban poverty rates remain constant
1.2 The incidence of poverty decreases as city size increases
1.3 Poverty rates in Mexico decline as settlement size increases
1.4 Whether urban or rural areas are more unequal depends on the country as well as the segment of the income distribution
1.5 Inequality generally increases with city size
1.1 Poverty is urbanizing in Latin America and the Caribbean
1.2 Latin America and the Caribbean will continue to urbanize, but at varying speeds across subregions
1.3 Urban poverty is more responsive to growth than rural poverty
1.4 The consumption patterns of the urban and rural poor are similar: An illustration from Guatemala, 2002
1.5 The urban poor generally have much greater access to basic services than the rural poor
1A.1 Distribution of Household per Capita Income: Inequality Indices
1A.2 Population, Urbanization, and Poverty Estimates, by Country, 1998
1A.3 Urban Population Distribution across Latin America

Chapter 2:  Working One’s Way Up: The Urban Poor and the Labor Market
By Caterina Ruggeri Laderchi
2.1 Voices of the Poor: How the Urban Poor in Mexico View the Connection between Work and Poverty
2.1 Labor income accounts for more than 85 percent of the income of the urban poor in Latin America and the Caribbean
2.2 Very poor men and women are more likely than others to have only low-level skills
2.3 Returns to education are lower for Rio de Janeiro’s favela residents
2.4 In Mexico the percentage of the urban poor employed in good jobs fell between 1991 and 2000
2.1 Unemployment is higher among the heads of poor households in selected Latin American countries
2.2 Argentine households used a variety of labor-market-related strategies to cope with the 2001–2 Crisis
2A.1 Sources of Household Income in Urban Areas, by per Capita Household Income Quintile
2A.2 Sources of Household Income in Rural Areas, by per Capita Household Income Quintile
2A.3 Percentage of Employed and Unemployed Adults in Urban Areas, by Gender and per Capita Income Quintile
2A.4 Percentage of Employed and Unemployed Adults in Rural Areas, by Gender and per Capita Income Quintile
2A.5 Percentage of Female Adults by Education Level and per Capita Income Quintile
2A.6 Percentage of Male Adults by Education Level and per Capita Income Quintile
2A.7 Percentage of Employed Adults and Youth by Education Level
2A.8 Percentage of Urban Adults Employed in the Informal Sector or Self-Employed, by per Capita Income Quintile
2A.9 Percentage of Rural Adults Employed in the Informal Sector or Self-Employed, by per Capita Income Quintile

Chapter 3: Keeping a Roof over One’s Head: Improving Access to Safe and Decent Shelter
By Marianne Fay and Anna Wellenstein
3.1 How the Poor Typically Acquire Housing: Progressive Housing
3.2 The Central City Slum of Santo Domingo
3.3 Risk-Adjusted Housing Strategies in the Slums of Santo Domingo
3.4 A Brief History of Housing Policies Since the 1950s
3.5 Reforming the Rental Market in Colombia
3.6 Using Housing Microfinance: The Micasa Program in Peru
3.7 Costa Rica’s Direct Demand Housing Subsidy Program
3.8 Minimizing Deaths from Natural Disasters through Good Planning: The Case of Cuba
3.9 Providing Catastrophic Insurance to the Poor: The Experience of Manizales, Colombia
3.1 Services with lower coverage are the most unequally distributed
3.2 Utilities represent a substantial share of household income or expenditures, especially for the poorest: The case of Argentina, 2002
3.3 Poor people are at greatest risk of suffering physical damage from a natural disaster
3.1 Latin America has very high rates of homeownership
3.2 Homeownership has been stagnant or fell in the 1990s for the poorest
3.3 Only about half of poor homeowners have formal title to their homes or their property
3.4 High average access to water obfuscates the situation of the poor

Chapter 4: Violence, Fear, and Insecurity among the Urban Poor in Latin America
By Caroline Moser, Ailsa Winton, and Annalise Moser
4.1 The Difficulty of Measuring Crime and Violence
4.2 The Inter-American Development Bank’s Approaches to Measuring the Costs of Violence
4.3 The Health Costs of Violence in Latin American Cities
4.4 Community Policing in Hatillo, Costa Rica
4.5 Reducing Crime and Violence in Bogotá
4.6 Preventing Gang Violence in El Salvador: The Homies Unidos Program
4.1 The cost of violence varies significantly across countries but is high throughout Latin America
4.1 Urban violence in Latin America and the Caribbean takes many forms.
4.2 Violence imposes significant costs on Latin America
4.3 A variety of approaches and interventions are used to reduce urban violence
4.4 The Khayelitsha Violence Prevention through Urban Upgrading Project includes many components
4.5 Budget allocations in violence reduction projects funded by the Inter-American Development Bank vary
4.6 Colombia and Guatemala have tried to reduce violence by increasing capital
4A.1 Categories of Violence
4A.2 Types and Sources of Violence Data
4A.3 Incidence of Sexual Abuse of Women in Selected Latin American Cities
4A.4 Preventing Crime: What Works, What Doesn’t, What’s Promising
4A.5 Features of Inter-American Development Bank Projects to Reduce Violence in Four Latin American Countries

Chapter 5: Keeping Healthy in an Urban Environment: Public Health Challenges for the Urban Poor
By Ricardo Bitrán, Ursula Giedion, Rubi Valenzuela, and Paavo Monkkonen
5.1 Improving Hygiene Practices as part of a Water Supply and Sanitation Project in Peru
5.2 Providing Preventive Health Services in Low-Resource Communities in Brazil
5.1 Noncommunicable diseases represent an increasing share of the disease burden in Latin America and the Caribbean
5.2 The urban poor fare as badly as or worse than the rural poor in many countries
5.3 Health indicators in urban areas vary widely across income groups
5.4 Access to basic services rises with income in Rio de Janeiro, Brazil
5.1 Health indicators in rural and urban areas of Peru, 1997
5.2 Correlation between illness and poverty-related factors in Cali, Colombia, 1999

Chapter 6: Relying on Oneself: Assets of the Poor
By Marianne Fay and Caterina Ruggeri Laderchi
6.1 How the Poor Save and Draw on Their Assets:Illustrations from The Children of Sánchez
6.2 Drawing on Assets Following the 2002 Economic Crisis in Argentina and Uruguay
6.3 Low-Income Homeownership: Examining the Unexamined Goal
6.4 How Profitable Is Small-Scale Landlordism?
6.5 Informal Savings Institutions in Mexico: Tandas, Clubes, and Cajas de Ahorros

Chapter 7: Calling on Friends and Relatives: Social Capital
By Michael Woolcock
7.1 Participatory Budgeting in Bolivia: Getting Top-Down and Bottom-Up Right
7.2 The Astonishing Success of Villa El Salvador in Lima, Peru

Chapter 8: Public Social Safety Nets and the Urban Poor
By Marianne Fay, Lorena Cohan, and Karla McEvoy
8.1 Does Social Protection Address the Needs of the Urban Poor in Latin America and Caribbean?
8.2 How Do the New Poor and the Chronic Poor Cope with Macroeconomic Crisis?
8.3 How Effective Was Argentina’s Jefes Program During the 2002 Crisis?
8.4 Who Are “At-Risk Youth”?
8.5 Argentina’s Experience with Workfare: The Trajabar Program
8.6 Types of Targeting Methods
8.7 Expanding a Model Cash Transfer Program from Rural to Urban Areas: Mexico’s Oportunidades
8.8 Latin America’s Costly—and Regressive—Social Insurance Systems
8.1 The pension system in urban Peru is highly regressive—and has become more so over time
8.2 Noncontributory assistance pensions in Latin America cover a significant proportion of pension recipients
8A.1 Targeting Instruments for Safety Net Program in Urban Areas

From The World Bank Group:
Poverty and Income Distribution in Latin America and the Caribbean

This page links to summaries of World Bank poverty analyses, including poverty assessments, poverty notes, poverty updates, country economic memorandums and development reports. The full text documents are also provided when available. Poverty assessments have been key instruments of the World Bank's poverty reduction strategy since 1992 (see Guidance on Poverty Assessments).






Argentina's Poor: A Profile



Poor People in a Rich Country


Crisis and Poverty 2003: A Poverty Assessment



Poverty, Equity and Income: Selected Policies for Expanding Earning Opportunities for the Poor


Poverty Diagnostic 2000


Poverty Assessment: Establishing the Basis for More Pro-Poor Growth



A Poverty Assessment


Strategies for Poverty Reduction in Ceara - The Challenge of Inclusive Modernization


Inequality and Economic Development in Brazil


Measuring Poverty Using Household Consumption



Poverty and Income Distribution in a High-Growth Economy: 1987-1995


Poverty and Income Distribution in a High Growth Economy -- The Case of Chile 1987-98



Poverty Assessment Report


Poverty Report

Costa Rica


Identifying the Social Needs of the Poor: An Update

Dominican Republic


Growth with Equity: An Agenda for Reform



Poverty Assessment: Poverty in a High-Growth Economy 1986-2000


Poverty Assessment: Achieving More Pro-Poor Growth



Poverty Report


Ecuador - Crisis, poverty and social services, Vol I
Ecuador - Crisis, poverty and social services, Vol II



Poverty Assessment

El Salvador


The Challenge of Poverty Alleviation


Poverty Assessment: Strengthening Social Policy



An Assessment of Poverty


Poverty in Guatemala



Strategies for Reducing Poverty



The Challenges of Poverty Reduction



Country Economic Memorandum/Poverty Assessment


Poverty Diagnostic 2000


Poverty Assessment: Attaining Poverty Reduction



A Strategy for Growth and Poverty Reduction: Country Economic Memorandum



Poverty in Mexico: An Assessment of Conditions, Trends, and Government Strategy


Income Generation and Social Protection for the Poor



Poverty Assessment


Poverty Assessment: Challenges and Opportunities for Poverty Reduction


Poverty Assessment: Raising Welfare and Reducing Vulnerability



Poverty Assessment: Priorities and Strategies for Poverty Reduction



Poverty and the Social Sectors in Paraguay: A Poverty Assessment



Poverty Assessment and Social Policies and Programs for the Poor


Poverty and Social Developments in Peru, 1994-1997


Opportunities for All: Poverty Assessment

Trinidad & Tobago


Poverty and Unemployment in an Oil-Based Economy



Poverty Assessment: Public Social Expenditures and their Impact on the Income Distribution


Maintaining Social Equity in a Changing Economy



Investing in Human Capital for Growth, Prosperity, and Poverty Reduction

Related Sections:
For country-specific documents on related topics, see:
- Country Documents under Poverty Monitoring
- Country Documents under Impact Evaluation
Back to Poverty Analysis Home

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