Economic Opportunity and Indigenous Peoples in Mexico Vicente Garcia Moreno (World Bank) Trine Lunde (World Bank/Johns Hopkins University) “Economic Opportunity and Indigenous Peoples in Latin America” Conference at Georgetown University, Washington DC February 9, 2007

Indigenous Peoples in Mexico 11 percent of Mexico’s population is indigenous –Largest indigenous population in Latin America, in absolute numbers –One in four indigenous in Latin America are Mexican A heterogeneous indigenous population –62 indigenous language groups each with their own set of cultural characteristics and traditions

Despite progress in human development indicators, indigenous peoples remain marginalized Mexico has made progress in poverty reduction since the 90s, particularly extreme poverty The country has also increased social spending and enforced a more progressive use of resources more targeted toward the poor While progress was also made in expanding access to health and education and other basic services in indigenous communities, these remain highly marginalized –92.4 percent of the population in the 50 municipalities in Mexico with the lowest HDI is indigenous (UNDP 2005) –The lowest ranking municipality is at the same level as Malawi (HDI = 0.38)

Poverty is substantially higher among indigenous peoples…

…and the indigenous are benefiting less from past years’ poverty reduction Change in Poverty Rates,

The percentage of indigenous people surveyed that

Indigenous peoples are concentrated in small, rural communities

Yet, differences in poverty remain stark even when looking at rural and urban areas separately

Rural and Indigenous Disadvantages in terms of Economic Opportunity Rural disadvantages faced by all –Less access to and lower quality of public services and infrastructure –More restricted labor and product markets –Less diversity of economic opportunity In addition, Indigenous face other disadvantages –Lower asset endowments –Lower returns to assets Potential labor market discrimination Lower quality of assets Lacking complementarity of assets –Rural-rural differences Smaller more disperse populations Concentration in poorer Southern States

Economic sectors and activities: Concentration of rural indigenous in low- paying, low-productivity sectors and occupations

In rural areas, indigenous derive almost half of their income from agricultural activity… The main income source for indigenous is waged agricultural labor (40.5%), while for non-indigenous it is waged non-agricultural labor (21.7%)

After controlling for other characteristics and contextual factors, the study finds that: –Being extreme poor and indigenous results in a 73% likelihood of engaging in waged agricultural work –Being extreme poor and non-indigenous results in only a 22% likelihood of engaging in waged agricultural work, and the highest probability of engaging in waged non-agricultural work (75%) Location however matters: –Probability of engaging in waged agricultural work is low for both groups in the Southern states –Being indigenous and located in one of the Southern States results in a 62 percent probability of farming own land, compared to only 17 percent for non-indigenous Determinants of Participation in Economic Activity

Differ Group Differences

Lower endowments of physical and human capital, and more restricted access to basic services among indigenous

Access to Productive Assets

Access to Credit

Land Ownership and Usage Among the Extreme Poor in Rural Areas Among the extreme poor, more indigenous farm communal land (70%) than non-indigenous (51%) Land usage is more intense among the non-indigenous extreme poor

Human Capital Indigenous peoples have significantly lower levels of human capital than non-indigenous Education is an important determinant of poverty, but affects indigenous and non-indigenous differently –No schooling has a stronger positive effect on the probability of being extremely poor for indigenous than for non-indigenous No schooling increases the probability of being poor by 8 percent for the indigenous and by 2 percent for the non-indigenous –Primary school completed has a stronger negative effect on the probability of being extremely poor for the non-indigenous than the indigenous If the head of the households has completed primary school the probability of being extremely poor falls by 12 percent for the non-indigenous and by 7 percent for the indigenous

Low returns to assets among indigenous raises concerns about quality of assets, lacking asset complementarity, and discrimination

Complementarity of Assets Low asset endowments not only hinders income generating activities, Important synergies between different assets are also lost when one or more assets are lacking or in insufficient supply, reducing returns to economic activity –Low levels of education not only prevent people from entering into certain occupations; they also affect the person’s ability to exploit other income-generating assets –Access to financial assets - credit and savings - helps increasing the productivity of land or reducing the volatility of agricultural incomes

Returns to Schooling Returns to schooling are lower for indigenous (5%) than for non- indigenous (12%), and this suggests differences in educational quality of education and potential labor market discrimination Differences in returns to schooling prevail even when looking at indigenous areas only, however, they differ across indigenous areas and indigenous groups 5 percent Source: Patrinos and Garcia (forthcoming)

Social capital/social networks are strong in indigenous communities, however the potential of these networks in the creation of economic opportunity is not fully realized

Social Capital and Social Networks Effects Indigenous have strong social networks and is often seen as being well-endowed with social capital An empirical study of the impact of social networks on economic outcomes found that: –The principal effect of social network on participation in sector and employment choices seem to be to maintain current patterns thus reinforcing indigenous/non-indigenous differences –Network effects are scarce among indigenous females –Networks seem to strengthen participation in cash transfer programs such as Oportunidades and Procampo –There are strong positive network effects on school attendance - in particular among females - and no effect of social networks on child labor

Case studies provide important examples of indigenous social capital transformed into economic opportunity Migrant networks and US-based Home Town Associations Coffee and Handicraft Cooperatives producing for exports Economically and socially successful forestry enterprises Strong communitarian values and organizational capacity among indigenous communities

Questions for Policy Debates Why is the closing of the indigenous/non-indigenous schooling gap not reflected in employment outcomes, and why did the indigenous seemingly benefit less from the expansion of non-agricultural jobs in rural areas in the last decade? –Networks and peer effects, quality of education, or labor market discrimination? How do we increase productivity in agricultural activities and lower dependency on seasonal harvests? –Training and education, access to credit, infrastructure (irrigation, roads etc.), productive machinery, or ‘bundled’ interventions to gain synergies? How can we build on the strengths of indigenous socioeconomic structures in policy formulation and implementation? –These include: reciprocal and mutually supportive work systems, communal land ownership and sharing of natural resources, a strong sense of communal responsibility