Economic opportunities and the role of network effects among people with indigenous family background Peru Javier Escobal Carmen Ponce

OVERVIEW 1. Defining Indigenous Origin: Its complexities and its implications 2. Looking at ethnicity contextual effects and social network effects 3. Exclusion mechanisms: contemporaneous and non- contemporaneous processes 4. Main Results 5. Conclusions and Some Policy Implications

Defining Indigenous Origin: Its complexities and its implications 1.Conceptual remarks: Indigenous Peoples (Pueblos Indígenas) or People with Indigenous Background? According to the Indigenous and Tribal Peoples Convention, 1989: ( a ) Tribal peoples whose social, cultural and economic conditions distinguish them from other sections of the national community, and whose status is regulated wholly or partially by their own customs or traditions or by special laws or regulations; ( b ) Peoples who are regarded as indigenous on account of their descent from the populations which inhabited the country […] at the time of conquest or colonization […] and who, irrespective of their legal status, retain some or all of their own social, economic, cultural and political institutions. There is a need for broadening this definition in order to account for population with indigenous background exposed to several exclusion mechanisms when interacting in rural or urban multiethnic spaces.

Defining Indigenous Origin: Its complexities and its implications Even though there are indigenous communities as defined by the ILO definition (among which there are communities voluntarily isolated), most Peruvians with indigenous family background live in multiethnic contexts, where exclusion mechanisms take place. Temporary conditions –Seasonal migration (job-related) –Economic activities that involve interaction with broader markets –School attendance –Access to health services More permanent conditions: –Permanent migration (either to run away from an unsafe environment derived from terrorism, illegal drug trafficking, to improve living conditions, or to pursue personal goals) –Colonization of Andean indigenous people in the Amazon region. Usually, although they are a majority, they are NOT the dominant ethnic group.

Defining Indigenous Origin: Its complexities and its implications 2.Measurement Problem: One-dimensional & threshold versus Multidimensional An individual ethnic identity is multidimensional in nature The problem: -Quantitative analysis requires an operational definition -Information sources are limited. For PERU (2001), the head of household and spouse provided information on mother tongue, most frequently spoken language, parents´ mother tongue and ethnicity self report. -Using different indicators yield different calculations: proportion of households with indigenous background ranges from 25.4% to 47.7% Our choice: both head of household and spouse reported having indigenous mother tongue

Definition Matters (even when we look just at language)

Defining Indigenous Origin: Its complexities and its implications 3. Problems with the definition of indigenous people affect the effectiveness of programs and policies: Under-coverage versus Leakage  Is it enough to look at communities? Clearly no, exclusion operates across urban and rural areas where people with different ethnicity background live: indigenous (according to dialect: aimara-interandino del sur, quechua-chachapoyas, quechua-cotahuasi, ashaninka del perené, matsiguenga, among others) and non indigenous (descendants of spanish, african, chinese, japanese)  What about leakage problems? Should second generation migrants be considered indigenous? This calls for a better understanding of the nature of the exclusion (it is not just about language proficiency!)

Looking at ethnicity contextual effects and social network effects Exclusion processes take place in social contexts. Thus, beyond my individual ethnic background, it does matter: -who my peers are, -whether my ethnic group is a minority or a majority -whether my ethnic group is dominant/successful in particular social and economic environments Contextual ethnicity and social networks can affect economic opportunities of individuals through two channels: -Information (directly transmitted by their peers, externalities) -Norms (either by affecting tastes or via social pressure)

Looking at ethnicity contextual effects and social network effects Exclusion processes take place in social contexts. An example: - Aymaras ethnic group is the second largest indigenous group in Peru. It accounts for 7% of the Peruvian indigenous population and it is highly concentrated in the southern part of Peru. - Several studies point out the importance of commercial activities among Aymaras. -Aymaras´ social networks foster successful linkages between rural and urban areas for commercial purposes. Thus, an individual having Aymara family background is likely to be benefited by this network through information directly transmitted by her/his peers and in general through a set of connections for collection, transportation and trade in factor and product markets.

Looking at contextual ethnicity effects and social network effects How can we explore contextual ethnicity and social network effects? 1.We have separated urban and rural areas, since we expect different exclusion mechanisms to take place (we understand this is a simplifying assumption, since many people in Peru interact in both rural and urban areas) 2.We have explored the contextual ethnicity effects according to the share of indigenous population in the district. For several descriptive analysis we classified the districts as having low, medium and large proportion of indigenous population: LOW 0% - 33% MEDIUM 34% - 66% HIGH 67% - 100% 3.We introduced the social network indicator by using the interaction of: the contextual ethnicity and the rural (or urban) average value of the outcome variable for the ethnicity group the individual belongs to.

Distribution of population with Indigenous Background

Exclusion mechanisms: Contemporaneous and Non Contemporaneous Processes Before discussing the results, it is important to highlight the nature of the exclusion process that can be captured by our estimates. We may find significant contextual ethnicity effects and social network effects, signaling for direct and contemporaneous exclusion mechanisms explaining differences in socioeconomic outcomes. However in case we do not find “contemporaneous” exclusion mechanisms we need to be cautious in the interpretation of such results, as exclusion may be operating though historical (long term) mechanisms: through the setting of rules and the long term allocation of assets. Finding historical exclusion mechanisms is complex as asset allocation is endogenous in the long run. Asset endowments and Asset returns are affected.

Main Results: differences in assets and returns  Formal education achieved by the most qualified household member (and by the head of household)  Access to public services such as safe sewerage systems (no access)  Earnings Differentials: -Per capita income of non-indigenous population is 40% (60%) higher than that of indigenous population in rural (urban) areas -In rural areas: 40% of the differential can be attributed to differences in endowment, and 51% can be attributed to differences in returns (returns to schooling, additional work hours, work experience). -In urban areas, 40% of the differential can be attributed to differences in endowment, and only 10% can be attributed to differences and returns. The decomposition could not disentangle both effects for the remaining 50%. Descriptive statistics: we found sizable differences between indigenous and non-indigenous populations across districts with different ethnic composition regarding several socioeconomic outcomes:

 Occupational decisions and labor returns: Rural indigenous people (as compared to non-indigenous) : -Are more likely to work full-time in self-employed agriculture. -They diversify less -Are less likely to be engaged in non-agricultural activities (waged and self-employed). -Labor returns are lower for medium and low-skilled jobs -No significant differences in labor returns for high-skilled jobs (suggesting that education may reduce differences in returns to education between ethnic groups) Urban indigenous people (as compared to non-indigenous): -Are more likely to be engaged in low-skill jobs -Labor returns to their labor are lower for low-, med- and high-skilled jobs (different from rural areas: in highly skilled urban jobs the earning premium against indigenous people is more than 50%) Descriptive statistics: we found sizable differences between indigenous and non-indigenous populations across districts with different ethnic composition regarding several socioeconomic outcomes: Main Results: differences in assets and returns

 We explored several socioeconomic outcomes: -household poverty, -access to welfare programs (health, education, food), -school attendance among children and adolescents, -use of modern health services, -running an informal business, and -hourly income for urban micro entrepreneurs  We capture direct and contemporaneous mechanisms through individual ethnicity, contextual ethnicity and social network variables Econometric Analysis: Is there any evidence of exclusion mechanisms that can explain the differences in economic opportunities available to individuals with indigenous background (as opposed to those available to non-indigenous)? Main Results: Indigenous Context Matters

 Contextual ethnicity (CE) effects and social network (SN) effects were found (after controlling for individual characteristics, including individual indigenous ethnicity) for the following outcomes:  RURAL (in both cases SN effect counteracts the CE effects for indigenous people): -Poverty status: Non-indigenous households are less likely to be poor than indigenous households. This effect is stronger in areas with larger share of indigenous population. -School attendance: non-indigenous children are more likely to attend school in areas with larger share of indigenous population  URBAN: -Poverty status: the social network effect was significant, increasing the probability of being poor for the indigenous group -Beneficiary of welfare programs: non-indigenous households are more likely to benefit from welfare programs in areas with larger share of indigenous population

In other cases (access to health, hourly income for micro entrepreneurs and running an informal business) we did not find significant contextual ethnicity and social network effects. However, we did found evidence of significant differences in contextual and household characteristics, such as differential access to public services and accumulation of formal education. This may be understood as resulting from systematic/ historical exclusion processes (what we referred to as non-contemporaneous exclusion). Main Results: Indigenous Context Matters

Education Probability of Attending School in Rural Peru for Children between 6 and 17 Years of Age after Controlling for Demographic Characteristics, Access to Public Services, and Region No differences in access.. what about quality?

Education Probability of Attending School in Rural Peru for Children between 12 and 17 Years of Age after Controlling for Demographic Characteristics, Access to Public Services, and Region In areas where they are a majority, non- indigenous adolescents are less likely to continue with secondary school than in places where they are a minority (probably because job opportunities are greater.. Social network effects?)

Social Network Effects: Bonding Capital Prevails

Conclusions and Policy Implications Defining Ethnicity matters a lot in the way we approach the best ways how to improve opportunities for indigenous people in Latin America. It will affect targeting (leakage/under-coverage) –People with indigenous background live not only in homogeneously ethnic communities, most of them live in multiethnic environments where several exclusion mechanisms are in place. –We need to be careful with potential under-coverage problems. Definition of indigenous population affects inclusive policies effectiveness. –Exclusion processes take place in social contexts. In order to identify social exclusion mechanisms that operate in particular dimensions of social life (education, health, labor markets, etc), we need: (i) to know the ethnic composition of a geographic area, (ii) to characterize the social networks of the ethnic groups (and identify bonding and bridging social capital available), and (iii) to identify the relative predominance of one ethnic group over the others Ethnicity effects are not only evident through differences in short term returns (conditional on assets) but also appear through the setting of rules and the long term allocation of assets. Better allocation of public services has a mayor impact in increasing the returns of private assets in the hands of indigenous people.

Conclusions and Policy Implications Contextual ethnicity plays an important role in determining the type of interventions and the beneficiary groups to be assisted when aiming at cutting out exclusionary mechanisms. In this context, a deeper understanding of social networking offer an opportunity to improve interventions. Short run Social Network effects seem to operate through bonding capital and may be effective to cope with negative shocks and reduce vulnerability. The use of this network effects to transform bonding mechanisms to bridging capital is an open question. Can this network effects help the diffusion of innovations? Strengthening bridging social capital may be more effective than focusing on individuals. The role of empowerment mechanisms in policies and programs need to be further analyzed : seeking more inclusive (and less paternalistic) interventions to assure sustainability Additional topics for a research agenda: –study indigenous people that interact in both rural and urban settings –migration strategies of indigenous people (permanent/temporary domestic/international) –exclusion operating through providing lower quality assets to indigenous households (Seeking true equalization of opportunities)