According to the most recent official figures, extreme income poverty in Mexico decreased between 2018 and 2022, going from 14% to 12.1% of the population. This reduction was surprising for at least two reasons. First, because it occurred in the midst of the crisis associated with the COVID-19 pandemic, which implied a severe economic contraction in 2020 from which we were barely emerging in 2022. Second, because it occurred in a context of significant increases in prices. of food worldwide. As is known, extreme income poverty refers to insufficient income to purchase at least one food basket for each member of a household. To get an idea of the difficulty of this context, it is enough to mention that the cost of the food basket used to measure extreme poverty grew by 37.4% in rural areas and 35.1% in urban areas in the period between August 2018 and August 2022. This increase was significantly higher than that observed in the total National Consumer Price Index (INPC) in Mexico, which was 23.2%.
Fortunately, a recent analysis published by the Bank of Mexico took on the task of identifying the contribution of three different factors in the behavior of extreme poverty in Mexico: first, the growth of average household income; second, the distributional component of variations in income (that is, the way in which income grew throughout the different segments of the distribution); and, third, the effect attributable to the change in relative food prices (that is, in comparison with changes in INPC prices). The analysis was carried out both at the national level and for four regions of the country.
At the national level, the reduction in the extreme poverty rate between 2018 and 2022 was 1.9 percentage points, going from 14% to 12.1%. According to the results of the exercise described, the contributions of the different factors were the following: the pure growth of the average income of Mexican households would have contributed to a reduction in extreme poverty of 2.1 percentage points; For its part, the distribution effect (the fact that income growth was pro-poor, that is, it was higher for people at the bottom of the distribution) would have contributed to an additional reduction in the poverty rate extreme of 2.5 percentage points; Finally, the accelerated rise in food prices contributed to increasing the extreme poverty rate by 2.8 percentage points. As you can see, in the absence of this drastic change in food prices, the reduction in national extreme poverty would have been even greater. Specifically, it would have been 4.6 percentage points and not just 1.9.
At the regional level, the results are also very interesting. First of all, it is worth highlighting that the reduction in extreme poverty was quite heterogeneous between regions. The most important reduction occurred where extreme poverty was highest: in the southern region of the country. There, the extreme poverty rate went from 29.2% to 22.4%, a reduction of almost 7 percentage points. On the other hand, in the northern and north-central areas of the country, where extreme poverty rates were already relatively low (6.6% and 9.3% in 2018, respectively), the reduction in these rates was only 1.5 and 0.7 percentage points between 2018 and 2022, respectively. In the central area, on the other hand, the extreme poverty rate did not reduce, as it remained at 11.1% between 2018 and 2022.
In terms of the decomposition exercise described above, we can identify a pattern in all regions of the country: both the income growth effect and the distribution effect contributed to reducing extreme poverty, while food inflation contributed to increasing it. The two most interesting cases are perhaps those where extreme poverty was reduced the most (the southern region) and where extreme poverty was not reduced (the central region).
In the case of the south, the income growth effect would have generated a reduction of 5.9 percentage points in the extreme poverty rate, while the distribution effect would have contributed another additional 4.8 percentage points. Thus, in the absence of excessive food inflation, extreme poverty would have been reduced in southern Mexico by more than 10 percentage points. However, food inflation led to a 3.6 percentage point increase in extreme poverty in that region. This effect, together with the other two already mentioned, explains the aforementioned decrease of almost 7 percentage points in extreme poverty in the southern region.
In the central zone, on the other hand, the increase in food prices caused an increase in extreme poverty rates of 3.3 percentage points. This increase completely offset the contributions of income growth (a reduction in the extreme poverty rate of 0.5 percentage points) and the redistributive effect (an additional reduction of 2.6 percentage points), so the extreme poverty rate in the central region of the country remained unchanged.
In summary, a regional development policy focused on the south of the country, in combination with redistributive social and wage policies (that is, that proportionally benefit more people in the lower part of the distribution), contributed significantly to the reduction of extreme poverty in Mexico between 2018 and 2022. We must not forget this lesson: the use of territorial development policies and redistributive policies can work to benefit the most needy people in the country.
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