CONSUMPTION POVERTY & PRO-POOR GROWTH IN BOLIVIA ( ) MARTA MORATTI Brighton, November 2010

BOLIVIA, the poorest country in the region HDI=0.73 GINI= EVO MORALES Commitment to eradicate poverty and redistribute resources Nationalization of oil and gas sectors Land reform Social protection: cash transfers to pregnant women, children in return for regular attendance at school, universal pension scheme …in a very favourable environment of high oil/gas price GDP GROWTH RATE =3.7% in 2005, 4.6% in 2007, 6.1% in 2008, 3.3% in 2009 Consumption Poverty & Pro-Poor Growth

Outline HOW TO MEASURE CONSUMPTION DESCRIPTIVE STATISTICS ON CONSUMPTION AND POVERTY ROBUSTNESS CHECKS CORRELATES OF POVERTY TESTING FOR DIFFERENCES BETWEEN INDIGENOUS AND NON INDIGENOUS POPULATION GROWTH INCIDENCE CURVES CONCLUSION

WHAT DO WE KNOW ABOUT POVERTY IN BOLIVIA? Little…& only income poverty Consumption Poverty & Pro-Poor Growth Source: UDAPE, INE

Consumption Poverty & Pro-Poor Growth WHY IS CONSUMPTION A BETTER INDICATOR OF WELFARE IN DEVELOPING COUNTRIES? Individuals derive material well-being from the actual consumption of goods and services rather than from the receipt of income per se (Johnson 2004) Consumption better reflects long term welfare as it is not closely tied to short term fluctuations in income and is smoother and less variable than income (Deaton and Zaidi 2002) Data on income are less accurate as difficult to collect (different sources of income, difficulties in separating business transaction from consumption ones) Downward bias in reported income as well-off people are less likely to participate in the survey or to respond (Deaton 2005) Seasonality

HOW DO WE MEASURE POVERTY? 1.Indicator of welfare: CONSUMPTION 1.Regionally disaggregated poverty lines constructed by INE using the cost of basic needs method 1.Foster, Greer and Thorbecke (1984 ) POVERTY MEASURES DATA Encuesta de Hogares : Seven Nationally representative annual household surveys, conducted by INE and sponsored by the World Bank. Consumption Poverty & Pro-Poor Growth

However, the consumption definition used by INE was unclear and not consistent over time: The items included are not clear and consistent over time. Between , consumption includes a not clearly defined imputation of durables. Information on the method used to impute such values (which items are included, how the service flows are computed, etc.) are not available. From 2005 onwards, only current expenditure of durables is included. Not clear how they treat missing values. SO, I compute new and consistent consumption aggregates by myself… Consumption Poverty & Pro-Poor Growth

DEFINITION OF EXPENDITURE Food expenditure inside and outside the household (aggregate of 64 food items purchased, self-produced, other sources-such as gifts, transfer in kind-, breakfast, drinks, lunch/dinner, snacks,..) Non-food expenditure (aggregate of about 40 categories related to current housing costs, domestic fuel and power, tobacco products, clothing and footwear, medical care and health expenses, transport, recreation, personal care, miscellaneous goods and services) Education expenditure (tuition fees, transport, books and copies, uniform,..) Housing expenditure (actual rent or rental equivalence value, expenses- gas, water, electricity, telephone- house repair-decoration) ANALYSIS DONE AT PER CAPITA HOUSEHOLD LEVEL, ALL THE VALUES ARE CONVERTED IN MONTHLY REAL BOLIVIANOS. Consumption Poverty & Pro-Poor Growth

EXPENDITURE MORE THAN DOUBLED IN 8 YEARS TIME AVARAGE ANNUAL GROWTH RATE OF 10%

Consumption Poverty & Pro-Poor Growth Trends in durables expenditure and total consumption (real Bolivianos)

Consumption Poverty & Pro-Poor Growth Poverty increases significantly in and starts decreasing thereafter. Poverty reduction is small during but it accelerates thereafter. Poverty headcount halves in 5 years time, passing from 24.09% in 2002 to 11.99% in The measures of depth and severity of poverty follow similar trends. Consumption-based poverty measures

Consumption Poverty & Pro-Poor Growth Consumption-based poverty measures

Consumption Poverty & Pro-Poor Growth Income versus consumption poverty headcount

HOW CONFIDENT CAN WE BE ON THE CONSUMPTION DATA FROM THE SURVEYS? CHECK: Comparison with other source of consumption data – National Account Consumption Poverty & Pro-Poor Growth TEST PASSED! Consumption data from National Account show similar trends!

HOW CONFIDENT CAN WE BE ON THE POVERTY LINES USED? CHECK: Poverty dominance analysis Cumulative distribution function are created by plotting log expenditure per capita on the horizontal axis and the cumulative probabilities on the vertical axis. Consumption Poverty & Pro-Poor Growth

TEST PASSED! Our results are not driven by the poverty lines used!

Where is the SCOL index, is per capita consumption and are the explanatory variables. The first specification pools data from 1999 to 2007 to provide a general picture on the significant variables associated with welfare and their magnitude. Other specifications are used to check for welfare change over time and for differences between indigenous and non-indigenous population. Consumption Poverty & Pro-Poor Growth CORRELATES OF POVERTY

CORRELATES OF POVERTY

CHANGES IN CORRELATES OF POVERTY BETWEEN INDIGENOUS AND NON INDIGENOUS POPULATION

Consumption Poverty & Pro-Poor Growth GROWTH INCIDENCE CURVE BOLIVIA VERY PRO POOR- GROWTH!

Consumption Poverty & Pro-Poor Growth GIC GIC

CONCLUSION This paper provides a recent and previously unexplored story on Bolivian poverty. With respect to the official poverty measures based on income, we find that Bolivia experiences an incredibly large poverty reduction from 2002 onwards, halving poverty headcount during the period. Robustness checks confirm the results. Furthermore, the welfare improvement has a strong pro-poor component which contributes to reduce the high level of inequality of the country and, particularly, to narrow down the large welfare gap between indigenous and non indigenous groups. Consumption Poverty & Pro-Poor Growth

If you have comments or questions THANKS FOR YOUR ATTENTION