The Microeconomics of Poverty Traps in Mexico
Macroeconomists, development scholars, and policy makers have long recognized the importance of poverty traps as a mayor cause of persistent inequality and a serious limitation to growth. A poverty trap may be defined as a threshold level below which individuals or households will not increase their well-being despite the conditions of the economy. While the importance of poverty traps is widely accepted, their microfoundations (the rationality) behind them are not very well understood. Under the Mexican setting, this paper contributes in two ways. First, we assume that income depends on the capital (both physical and human) that a household posses. Hence, if a household is poor and it is not able to accumulate capital it will remain poor (unless there is a sudden increase to the returns of its existing capital). Thus a poverty trap will be generated. Following Chavas (2004, 2005) we explicitly model the preferences, consumption, and the physical and human capital accumulation of Mexican households. We argue that the typical dynamic model with additive utilities and constant discount rates will not be able to capture poverty traps. The reason is that survival motives are involved (endogenous discounting is needed). Second, employing the same model, we test the impact of the Mexican government most important social policy program (Progresa-Oportunidades), in alleviating poverty traps. In the case of households with youngsters, this program can provide funds conditioned on kids attending school. This will somehow, force the participants to increase their human capital. A comparison between households in the programs versus non participants should shed some light in the effectiveness of the program and the sensitivity of persistent poverty to cash transfers.
|Date of creation:||Jun 2005|
|Contact details of provider:|| Postal: Niels Bohrs Vej 9, 6700 Esbjerg|
Phone: +45 6550 2233
Fax: +45 6550 1090
Web page: http://degit.sam.sdu.dk/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sadoulet, Elisabeth & Janvry, Alain de & Davis, Benjamin, 2001. "Cash Transfer Programs with Income Multipliers: PROCAMPO in Mexico," World Development, Elsevier, vol. 29(6), pages 1043-1056, June.
- Tirtha Pratim Dhar & Jean-Paul Chavas & Brian W. Gould, 2002.
"An Empirical Assessment of Endogeneity Issues In Demand Analysis for Differentiated Products,"
Food Marketing Policy Center Research Reports
066, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
- Dhar, Tirtha & Chavas, Jean-Paul & Gould, Brian W., 2002. "An Empirical Assessment of Endogeneity Issues in Demand Analysis for Differentiated Products," Working Papers 201561, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
- Dhar, Tirtha Pratim & Chavas, Jean-Paul & Gould, Brian W., 2002. "An Empirical Assessment of Endogeneity Issues In Demand Analysis for Differentiated Products," Research Reports 25227, University of Connecticut, Food Marketing Policy Center.
- J. Scott Shonkwiler & Steven T. Yen, 1999. "Two-Step Estimation of a Censored System of Equations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 972-982.
- Emmanuel Skoufias & Susan Wendy Parker, 2001. "Conditional Cash Transfers and Their Impact on Child Work and Schooling: Evidence from the PROGRESA Program in Mexico," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Fall 2001), pages 45-96, August.
- Peter A. Streufert, 1990. "Stationary Recursive Utility and Dynamic Programming under the Assumption of Biconvergence," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 79-97.
- Paul Schultz, T., 2004.
"School subsidies for the poor: evaluating the Mexican Progresa poverty program,"
Journal of Development Economics,
Elsevier, vol. 74(1), pages 199-250, June.
- T. Paul Schultz, 2001. "School Subsidies for the Poor: Evaluating the Mexican Progresa Poverty Program," Working Papers 834, Economic Growth Center, Yale University.
- Streufert, Peter A., 1992. "An abstract topological approach to dynamic programming," Journal of Mathematical Economics, Elsevier, vol. 21(1), pages 59-88.
- Brian W. Gould, 2003. "An Empirical Assessment of Endogeneity Issues in Demand Analysis for Differentiated Products," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 605-617.
When requesting a correction, please mention this item's handle: RePEc:deg:conpap:c010_050. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jan Pedersen)
If references are entirely missing, you can add them using this form.