Mixed Messages on Poverty in Latin America

If you are at all like me, you read most articles regarding politics, economics, health and natural resource issues in Latin America that happen to come across your path. I must admit that the majority of Economist/Newsweek/Time/New York Times and other mainstream national/international media have painted a very optimistic picture of poverty in Latin America citing declining poverty rates across the board.

That is why I was interested in a working paper by the Global Development and Environment Institute at Tufts University that I stumbled upon this afternoon. It is titled, "Declining Poverty in Latin America? A Critical Analysis of New Estimates by International Institutions."

I encourage all of you interested in the topic of poverty in Latin America (and in the developing world in general) to read it. It is fairly readable and it also asks some excellent questions with regards to how we measure poverty and poverty reduction in a particular region.

The article analyzes the data for a few different international organizations; the World Bank, CEPAL and CEDLAS. It finds drastically different poverty measures from organization to organization. For example, in 2004 the World Bank cites that 35.2% of Ecuador's population falls under "moderate poverty" while CEPAL finds that 51.2% of Ecuador's population qualifies for the same category. The same trend appears with the numbers for "extreme poverty" with the World Bank citing 14.7% and CEPAL citing 22.3%.

While this refers to "Point In Time" data, the authors also point to many larger problems in measuring trends over time. First of all, many comparison studies use 1990 as their benchmark year to measure improvements. Using 1990, as the authors state, sets the bar quite low as Latin America had just emerged from the Debt Crisis of the 1980s and some of the improvements in economic performance may be part of a natural recovery from the crisis rather than effective macroeconomic and social policies. For example, the category of the Poorest Six Countries (wherein falls Ecuador) shows a slight decrease in aggregate poverty ratios from 1990 to 2004 from 26.8 to 25.7. However, the aggregate poverty ratio in 1980 was actually 24, which means that, after 24 years, there was actually an increase in the aggregate poverty ratio.

The other major issue that the paper raises is the importance of de-aggregating data before analyzing a region. While it may be tempting to lump all of the Latin American countries together to assess the performance of the region, this is intrinsically problematic. For example, improvements in countries like Mexico, Chile and Argentina can mask declines in other countries like Ecuador and Bolivia especially with the discrepancies in populations and size of the respective economies. It is important that we look at individual countries to get a better idea of what is going on in the region especially if we are to make policy proposals.

Again, I recommend that if you are interested in these issues that you read the article. While its intention is not to paint an ever-hopeless picture of the region, it does raise some very valid questions in how we examine poverty. So, when you come across articles in Newsweek and Time about across-the-board improvements in Latin America, you will know to take their information with a grain of salt.