Discussion Paper Series: Within-Country Poverty Convergence: Evidence From Mexico

DISCUSSION PAPER SERIES
IZA DP No. 13577
Within-Country Poverty Convergence:

Evidence from Mexico
Luis F. López-Calva
Eduardo Ortiz-Juarez
Carlos Rodríguez-Castelán
AUGUST 2020
DISCUSSION PAPER SERIES
IZA DP No. 13577

Evidence from Mexico
Luis F. López-Calva
United Nations Development Programme
King’s College London
Carlos Rodríguez-Castelán
World Bank and IZA
AUGUST 2020
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IZA DP No. 13577 AUGUST 2020
ABSTRACT
Evidence from Mexico*
Trends in aggregate growth and poverty reduction hide a multiplicity of development
processes at the local level. The analysis reported in this paper exploits a unique panel
dataset of poverty maps covering almost 2,400 municipalities in Mexico and spanning 22
years, first, to test hypothesis that there is within-country income convergence. Second,
through a decomposition of the poverty convergence elasticity, the analysis investigates
whether this convergence, if it exists, has translated into poverty convergence. In a
context of overall stagnant economic growth and poverty reduction since 1990, the
analysis finds evidence of both income and poverty convergence among municipalities.
As a cause of these, the results point to a combination of positive performance among
the poorest municipalities and stagnant or deteriorating performance among more well
off municipalities. Redistributive programs such as cash transfers to poor households have
played an important role in driving these results by bolstering income growth among
the poorest municipalities, while also inducing progressive changes in the distribution of
income.
JEL Classification: I32, O47, O54, R11

Keywords: income, inequality, convergence, poverty convergence
elasticity, small area estimation
Corresponding author:
King’s College London
Bush House,
North East Building
30 Aldwych
London, WC2B 4BG
United Kingdom
E-mail: [email protected]
* Previously circulated under the title “Poverty Convergence in a Time of Stagnation: A Municipal-Level Perspective
from Mexico (1992-2014)”. The authors are grateful to Ted Enamorado for his comments and research assistance.
The authors would also like to thank Maria E. Dávalos and Gerardo Esquivel for significant contributions to this
work, as well as Oscar Calvo- González, Paloma Anos-Casero, Louise Cord, Jozef Draaisma, Norbert Fiess, Thania de
la Garza Navarrete, Rodrigo García-Verdú, Gonzalo Hernández-Licona, Fernando Blanco, Sandra Martínez- Aguilar,
Edgar Medina, Pablo Saavedra, Kinnon Scoot, Miguel Székely, Gaston Yalonetzky, Robert Zimmerman, officials at
CONEVAL and Mexico’s Ministry of Social Development, and participants at the EADI Nordic Conference 2017, held in
Bergen, Norway, for helpful comments and suggestions. The datasets and codes necessary to replicate the exercises
in this paper are available from the authors upon request. The findings, interpretations, and conclusions in this paper
are entirely those of the authors. They do not necessarily represent the views of King’s College London or those of the
UNDP, the World Bank, their Executive Directors, or the countries they represent.
1 Introduction
Despite the implementation of an ambitious agenda of structural reforms and in-
novations in redistributive social policy since the early 1990s, Mexico has exhibited
long-run stagnation in poverty rates and mediocre performance in economic growth.
This is surprising at first sight and leaves the impression that little has changed in
the living standards of the population, especially among the poorest. It may be,
however, that aggregate statistics are masking subnational trends.
To understand how income and poverty are changing, one needs to zoom in to a
higher level of spatial disaggregation and unpack how the patterns vary within the
country. Specifically, this paper zooms in to explore whether some municipalities have
been persistently lagging within pockets of poverty (income convergence), whether
poorer, converging municipalities have been able to translate relative income gains
into poverty reduction (poverty convergence), and whether the initial parameters of
the distribution have a role in shaping the patterns of convergence.
The analysis of convergence relies on the mean per capita incomes of municipalities
and follows the framework proposed by Barro and Sala-i Martin (1991). It aims
at an understanding of whether poorer municipalities have been capturing income
gains resulting from modest growth and social spending and whether there has been
a reduction in regional disparities. The analysis of convergence in poverty headcount
ratios applies the poverty convergence elasticity decomposition of Ravallion (2012)
to assess the effects of initial poverty on both the income growth process and the
sensitivity of poverty reduction to income growth.
The analysis has produced three main findings. First, it confirms that sizable, signif-
icant municipal-level income convergence occurred, although the speed of the conver-
gence was heterogeneous depending on geographical location. Second, it finds that
the growth in mean per capita income among poorer, converging municipalities was
relatively efficient in reducing poverty headcount ratios, suggesting that a process of
poverty convergence unambiguously occurred. Third, it shows that growth in income
among the poorest in a context of disappointing overall economic growth promoted
large reductions in extreme poverty rates, whereas declining inequality and inequal-
ity convergence eventually made growth rates more efficient in reducing subsequent
poverty rates in less advantaged municipalities.
While several subnational studies have looked at growth convergence among states
or provinces (see Barro and Sala-i Martin 1992; Chiquiar 2005; Sala-i Martin 1996;
Weeks and Yao 2003), empirical evidence at a higher level of geographical disaggrega-
2
tion has been scarce (an exception being Higgins et al. 2006). This paper contributes
by leveraging a unique five-wave panel dataset on municipalities to provide a far more
highly disaggregated look at convergence over a long period, spanning 22 years, while
also addressing distributional concerns. This appears to be the first study that imple-
ments a poverty convergence elasticity decomposition using municipal-level data. In
doing so, it provides insights for granular policy intervention by showing the areas and
the components associated with lagging convergence. It also provides a framework
for similar analyses in developing countries.
The rest of the paper is organized as follows. Section 2 reviews the relevant empirical
and theoretical literature on convergence, highlighting the scarcity of work explor-
ing within-country poverty convergence at a high level of geographical disaggrega-
tion. Section 3 presents the small area estimation methodology used to construct the
municipal-level dataset. Sections 4 and 5, respectively, test for convergence in mean
per capita incomes and poverty headcount ratios across municipalities. The analysis
emphasizes comparisons among subgroups of municipalities that exhibit sizable dis-
parities, as well as across subperiods that have witnessed various changes, including
economic crises, ups and downs in overall poverty rates, and the expansion of public
expenditure. Section 6 digs deeper to explore the role of the initial distribution of
poverty and inequality in determining the speed of convergence and decomposes the
estimated magnitude of poverty convergence. Section 7 brings together the main
messages of each section to conclude.
2 Literature review
The theoretical and empirical literature on economic growth offers stylized facts upon
which the analysis of economic development paths among municipalities can be an-
chored. A first widely studied stylized fact stems from the influential works of Barro
and Sala-i Martin (1991, 1992, 1995) and Baumol (1986) on the convergence hypoth-
esis, often labeled the catch-up effect or the advantage of backwardness, whereby
poorer countries tend to experience more rapid economic growth rates than richer
countries, in effect, catching up to the latter.
Two well-known concepts of convergence are used in this paper: sigma convergence
(σ-convergence) and beta convergence (β-convergence) (Quah 1993). σ-convergence
focuses on the reduction of income dispersion across units of analysis (see Sala-i Mar-
tin 1996), usually through a standard measure of statistical dispersion. β-convergence
focuses on the negative relationship between initial levels of income and subsequent
growth rates and is commonly estimated using log-linear and nonlinear paramet-
3
ric approaches (though nonparametric methods, such as discrete Markov chains, are
also common practice). The latter concept distinguishes at least two forms of con-
vergence in the long run: absolute β-convergence, whereby the incomes of poorer
countries converge toward a common steady state, and conditional β-convergence,
whereby income convergence, not necessarily toward a common steady state, is con-
ditional on the structural characteristics of economies.1 A summary of the theoretical
implications of and empirical support (or lack thereof) for each of these concepts is
presented in Galor (1996).
While most of this literature has focused on the convergence of average incomes, an
emerging strand of research has opened the debate on whether income distribution
also converges toward a common invariant state. For example, this paper looks at
issues such as income inequality convergence (Bénabou 1996; Lin and Huang 2011;
Ravallion 2003), and whether income convergence is also accompanied by poverty
convergence (Cuaresma et al. 2017; Ravallion 2012; Sala-i Martin 2006). Ravallion
(2012) demonstrates that, in standard log-linear growth models with parameters in-
dependent of the initial distribution, the existence of income convergence should also
reveal the existence of poverty convergence.
The latter implication, that income growth is a necessary condition for poverty re-
duction, has been widely studied in the literature. Lustig et al. 2016, for instance,
show how income growth is a main driver of poverty reduction in Latin America. In
general, the consensus is that higher growth rates tend to be associated with reduc-
tions in poverty headcounts at a more rapid pace, particularly if measures of absolute
poverty are used (Dollar et al. 2016; Dollar and Kraay 2002; Ferreira and Ravallion
2011; Foster and Székely 2008; Fosu 2017; Grimm 2007; Kraay 2006; Ravallion 1995,
2001). This advantage of economic growth usually depends, however, on both the
initial income distribution and the changes in distribution experienced because of
economic expansion.
This conditionality leads to a second stylized fact: the initial parameters of the in-
come distribution matter for growth and the efficiency with which growth is able
to reduce poverty. According to a well-established theoretical argument, initial con-
ditions dull economic growth and its impact if market failures translate into credit
constraints that trigger diminished investments in physical and human capital or,
worse, leave investment opportunities entirely unexploited. In particular, the com-
bination of credit rationing and investment indivisibilities is especially harmful for
1
A third form, related to conditional β-convergence, is club convergence, whereby conditional
convergence may cluster in countries around different steady-state equilibriums (Durlauf and John-
son 1995; Quah 1996, 1997; Su 2003).
4
the poor (Aghion and Bolton 1997; Banerjee and Duflo 2003; Bénabou 1996; Durlauf
1996; Galor and Zeira 1993; Hoff 1996; Ljungqvist 1993; Piketty 1997).
Built on similar arguments, an array of empirical studies on the constraints and

determinants of growth have tested the role of the initial parameters of distribution
in growth models and confirmed that either greater initial poverty (Ravallion 2012) or
greater initial inequality (Alesina and Rodrik 1994; Clarke 1995; Deininger and Squire
1998; Knowles 2005; Persson and Tabellini 1994; Ravallion 1998) represent significant
constraints to future growth rates. Some studies have also demonstrated that such
unfavorable initial parameters tend to curb the impact that a given growth rate
can exert on the proportionate rate of poverty reduction, as revealed by diminished
elasticities of poverty to growth (Bourguignon 2003; Lopez and Servén 2006; Ravallion
1997, 2004, 2007, 2012).
Most of the empirical literature on income convergence does not explicitly address
the influence of the initial distribution of income on subsequent poverty reduction
and growth. In Ravallion’s (2012) sample of almost 90 countries that have recorded
noticeable rates of growth and poverty reduction and in which there are unambiguous
signs of income convergence, there is no significant evidence that countries starting
out poorer experienced higher relative rates of poverty reduction thereafter. This
counterintuitive result is attributed to initial poverty, which, as revealed by a decom-
position of the speed of poverty convergence, offsets the advantage of higher growth
rates among poorer countries, that is, income convergence and the growth elasticity
of poverty reduction.
Taking advantage of a unique panel dataset (1992–2014) on income, poverty, and

inequality across municipalities in Mexico, this paper tests most of the above con-
clusions to provide a more highly disaggregated, longer-term perspective on the con-
vergence paths and changes in well-being. Previous studies of convergence in Mexico
have mainly focused on income growth paths among states, and, while some have
found evidence of convergence in the years before the end of the import substitu-
tion model, most have consistently reported evidence of divergence since then. For
instance, Esquivel (1999) shows that, while the pace of convergence across states
was relatively rapid in 1940–60, convergence halted and started to reverse over the
next 35 years. This divergence has been confirmed by subsequent studies focused on
1985–2000 (Chiquiar 2005; Garcı́a-Verdú 2005; Rodrı́guez-Oreggia 2007; Rodrı́guez-
Pose and Sánchez-Reaza 2005). In general, regional divergence during these years
was linked to trade liberalization and the entry into force of the North American
Free Trade Agreement, which bolstered the emergence of club convergence in the
5
states that had benefited the most from these reforms given their initial endowment
of relatively high-skilled labor and better public infrastructure.
Empirical evidence on convergence at a higher level of geographical disaggregation,

namely, municipalities, has been scarce in Mexico. This is primarily because of the
lack of a sample with robust income information and statistical power at that level. A
couple of studies have reported dramatic disparities among municipalities in income
and poverty in 2000 (López-Calva et al. 2008; Székely et al. 2007) by applying small
area estimation techniques to impute the incomes derived from the main household
income survey into population census data. Using this technique and logistic regres-
sions, Mexico’s National Council for the Evaluation of Social Development Policy
has computed rates of and changes in income poverty between 2000 and 2005 and
multidimensional poverty between 2010 and 2015 across municipalities. This paper
provides the first long-run assessment of regional disparities and income, poverty, and
inequality pathways based on comparable data on municipalities.
3 Mapping income, poverty, and inequality

Capturing long-run trends in income, poverty, and inequality among municipalities
requires a dataset of intertemporally comparable welfare measures that are statisti-
cally representative of the population in each municipality. The availability of such
a dataset, however, may entail a trade-off between relatively high precision in the
measurement of, say, household income and significant geographical detail.
One might exploit household surveys designed to capture all sources of income and
thus retrieve household income with a high degree of precision. However, as with any
restricted sample, these surveys are usually representative only nationwide or across
provinces or states. Greater geographical detail, on the other hand, can be achieved
through population censuses, although this comes at the cost of a lack of robustness in
the information on household incomes. Because censuses are not designed to collect
comprehensive data on income, they provide an incomplete picture of household
monetary circumstances, and, at least for the purposes of this paper, this represents
a main weakness.
To address the trade-off between precision and geographical detail, this paper ex-
ploits the small area estimation technique proposed by Elbers et al. (2003) to impute
household per capita income from available rounds of the Household Income and
Expenditure Survey to corresponding households in censuses collected in or around
6
the same years (1990–92, 2000, 2005, 2010, and 2014–15).2 This is accomplished by
predicting, from an income model in the survey, the parameters and distribution of
errors, which are then used to simulate the income distribution in the census dataset
and thereby compute poverty and inequality indicators.
Formally, the model takes a generalized least squares form, as follows:
ln (yhm ) = α + βXhm + γZm + µhm (1)
The equation is used to estimate the joint distribution of per capita income y in
the household h located in municipality m, conditional on two sets of covariates:
Xhm , which includes characteristics of individuals, households, and dwellings, and
Zm , which comprises the fixed characteristics of the relevant municipality, including
the coverage and availability of public services and infrastructure. This latter set
helps raise the precision of the estimates by minimizing the share of the variance of
errors that results from unexplained differences across municipalities.
The parameter α is a household-specific effect; β and γ are the correlation parame-

ters between the corresponding sets of covariates and ln (yhm ); and µhm = ηm + hm
represents an error term, wherein ηm is the component that is common to all house-
holds located in the same municipality (assumed to be homoscedastic, independent,
and identically distributed), and hm is the component that is specific to each house-
hold (assumed to be heteroscedastic because it depends on the characteristics of the
household and the municipality). The estimates of β, γ, and µhm are then applied
to the corresponding sets of covariates Xhm and Zm in the whole census dataset to
simulate, using the bootstrap method and with 200 repetitions, the distribution of
household per capita income.
Two critical sequential requirements must be fulfilled to make this model work prop-
erly. First, at each point in time, the survey should be a random sample of the
corresponding census sample frame.3 Second, the set of covariates Xhm that are
common between the two data sources should satisfy a conceptual and statistical
equality criterion. This means, respectively, that these variables should measure the
2
For years ending in zero, the census data correspond to the general census of the population
and of housing; for 2005, the data are taken from the population and housing count; and, for 2015,
they are taken from the intercensal survey, which is based on a sample of 5.9 million households
that is representative at the municipal level. Unless otherwise stated, from here onward, the term
census refers indistinguishably to these three data sources.
3
In 2014–15, both the Household Income and Expenditure Survey and the intercensal survey
represented random samples of the 2010 general census sample frame.
7
same phenomenon and that their respective distributions are statistically indistin-
guishable.4
Based on the simulated income distributions, poverty and inequality indicators were
computed across municipalities. The measurement of poverty was based on the Fos-
ter et al. (1984) family of indexes by comparing simulated income with the official
extreme (food) poverty line, defined as the inability to acquire a basic food basket.5
Municipality inequality levels were computed using the Gini coefficient. This exercise
yielded a novel municipality-level dataset with income-based indicators that are com-
parable both over time and across 2,361 municipalities and on which it was possible
to compute reliable estimates on each data point over time. These municipalities
represent 96 percent of Mexico’s current municipalities and cover approximately 98
percent of the country’s population.
Summary statistics derived from this dataset suggest that mean per capita income in
Mexico has virtually stagnated during most of the period under study and exhibited
a slight increase only after 2010. Indeed, the annualized growth rate reveals that per
capita income expanded by only 0.8 percent in real terms between 1992 and 2014,
consistent with the overall growth performance of gross domestic product per capita
at slightly less than 1 percent reported elsewhere.6 Accordingly, poverty headcount
ratios did not experience significant improvement between the initial and final years,
though there were important changes during the first five years of the 2000s (see
annex, panel a).
4 Convergence in mean per capita income

This section focuses on the growth trajectories of mean per capita income in munici-
palities —in constant Mexican pesos at August 2014 prices— with the aim of answer-
ing two key questions given the context of relative stagnation in income growth and in
overall poverty rates: (1) Have poorer municipalities persistently lagged within pock-
ets of poverty, or have they captured income gains, thereby catching up with more
4
Even in survey-census pairings where gaps exist, for instance 1990–92 and 2014–15, it is possible
to identify common covariates Xhm that satisfy the equality criterion both because the survey is a
random sample of the census sample frame and because such covariates capture virtually the same
context given that some characteristics of households and individuals change only slowly over time.
5
The income concept used corresponds to household net per capita income, which includes labor
income, income from businesses owned by the household, nonlabor income, such as public and private
transfers, and an estimate of the imputed rent of owner-occupied dwellings, self-consumption, and
in-kind transfers and gifts received.
6
See, for instance, WEO (World Economic Outlook Database), International Monetary Fund;
WDI (World Development Indicators), World Bank.
8
well off municipalities? and (2) What are the trends in income disparities across
municipalities?
According to a well-established hypothesis about income convergence in the economic

growth literature, incomes tend to grow more quickly in poorer areas than in richer
areas. To examine income growth trends across Mexican municipalities, the analysis
applies the framework of Barro and Sala-i Martin (1991) on β-convergence and σ-
convergence over 1992–2014, with a particular focus on the 2000s. In the case of
β-convergence, for each time span of length τ , the annualized growth rate in mean
per capita income (y) in municipality i between the most recent time (t) and the
initial year (t − τ ) is as follows:
gi (yit ) = ln (yit /yit−τ ) /τ (2)
Hence, the empirical specification for the analysis of the growth process in mean per
capita income among municipalities can be written as follows:
gi (yit ) = α + βln yit−τ + µit (3)
where ln yit−τ is the log initial per capita income; the parameter α s a municipality-
specific effect; β is a parameter indicative of the speed of absolute income convergence;
and, µit is a stochastic term.
Estimates of this model, summarized in table 1, panel a, reveal signs of absolute β-

convergence in incomes across municipalities in 1992–2014, as shown by a significant
coefficient of –0.007, indicating that per capita income grew more quickly in poorer
municipalities than in more well off municipalities, at an annual convergence rate of
0.7 percent. A closer look at subperiods shows, however, that the catch-up effect
took place during 2000–14 only, with a coefficient of –0.019, whereas, in the 1990s, no
evidence of income convergence was found (these opposed results are also illustrated
in figure 1). The speed of income convergence was greater during the first five years
of the 2000s, at an annual rate of 4.3 percent, consistent with the marked reduction
in overall poverty headcount ratios from the high levels they had reached after the
tequila crisis. Income convergence was still evident after 2005, though it was occurring
at a slower pace, potentially slowed by the various economic shocks that had led to
recession and nontrivial contractions in the economy.
A breakdown by the population of municipalities also yields remarkable results. In

1992–2014, the catch-up effect in rural municipalities (those with fewer than 15,000
inhabitants) was at least twice as large as the effect observed across urban munic-
9
Table 1: Absolute income β-convergence across municipalities, 1992-2014
(1) (2) (3) (4) (5) (6)

1992-2014 1992-2000 2000-2014 2000-2005 2005-2010 2010-2014
a. All municipalities
−0.007*** 0.001 −0.019*** −0.043*** −0.020*** −0.013***
ln yit−τ
(0.001) (0.003) (0.001) (0.003) (0.003) (0.003)
Obs. 2,361 2,361 2,361 2,361 2,361 2,361
R2 0.102 0.000 0.342 0.313 0.076 0.022
b. Urban municipalities
−0.008*** −0.003 −0.019*** −0.045*** −0.020*** −0.009***
ln yit−τ
(0.001) (0.004) (0.001) (0.003) (0.004) (0.004)
Obs. 944 944 1,017 1,017 1,022 1,022
R2 0.138 0.002 0.334 0.323 0.076 0.012
c. Rural municipalities
−0.018*** −0.027*** −0.031*** −0.077*** −0.035*** −0.068***
ln yit−τ
(0.001) (0.004) (0.002) (0.003) (0.004) (0.008)
Obs. 1,417 1,417 1,344 1,344 1,339 1,339
R2 0.235 0.050 0.415 0.395 0.062 0.188
Source: Authors’ calculations.
Note: The table presents estimates of the parameter β in equation (3), weighted by the municipal
population at the initial year of each period under study. The dependent variable is the annualized
growth rate in the mean per capita income of municipalities. ln yit−τ are the initial per capita
incomes of municipalities. All variables are in log-scale and in real per capita terms at August 2014
prices. Urban (rural) municipalities are defined as those with more (fewer) than 15,000 inhabitants.
The intercepts are shown in table 1 in the ancillary file. Robust standard errors are in parentheses.
*** p < .01, ** p < .05, * p < .1
Figure 1: The mean per capita income of municipalities converged after 2000

Note: The area of symbols is proportional to the populations of the municipalities. The regression
line has a slope of 0.001 in panel a, and −0.019 in panel b (significant at the 1 percent level). Mean
per capita incomes are in real terms at August 2014 prices.
10
ipalities. Indeed, income convergence across rural municipalities was consistently
more rapid and statistically significant in each subperiod (see table 1, panels b and
c). While no evidence of convergence across urban municipalities was found in the
1990s, convergence occurred in rural municipalities at an annual rate of 2.7 percent.
Moreover, although the speed of convergence declined by half in both groups during
2005–10 relative to the previous five years, the pace had recovered across rural mu-
nicipalities by 2010–14, whereas it slowed even further in urban municipalities (see
table 1, panels b and c, columns 4–6).
To examine the conditional income β-convergence hypothesis whereby paths of mean

per capita income growth are conditional on factors such as the initial conditions
and the structural characteristics of municipalities, the specification in equation (3)
is rewritten as follows:
gi (yit ) = α + βln yit−τ + γXit−τ + µit (4)
to allow for the inclusion of a set of municipality-level characteristics Xit−τ that

are presumed to exert an influence on mean per capita income growth. This Xit−τ
set includes components of public spending and revenue across municipalities at the
initial year of each period under study, which is relevant in light of the reforms in
the federal transfer system undertaken in the 1990s. In particular, the 1998 reform
that introduced Ramo 33, which aimed at redistributing additional fiscal revenues
to subnational governments for social development, has allowed municipalities to
benefit from larger volumes of federal transfers. For example, average per capita
unconditional (participaciones federales) and conditional (Ramo 33) federal transfers,
respectively, increased twofold and threefold in real terms in 2000–14 (see annex, panel
b).
Making equation (4) conditional on, for instance, total per capita public expenditure
in the initial year reveals that the speed of convergence over 1992–2014 jumped from
the 0.7 percent found in the absolute setting to 1.2 percent and that the pace of
conditional income convergence was particularly rapid in the first five years of the
2000s. Although there was no evidence of absolute income convergence in the 1990s,
conditional convergence did record a rate of 1.6 percent in these years and was sig-
nificant at the 1 percent level (table 2, panel a).7 Table 2, panels b and c, show,
7
The focus is on total public spending only because no sizable differences in the rates of con-
vergence appear if particular components of public spending or revenues are used instead, and this
reduces the sample significantly because no disaggregated public finance data are available for all
municipalities (see tables 2–11 and 17–26 in the ancillary file). Moreover, to exploit the panel
dataset of municipalities and control for time-invariant factors, conditional convergence is estimated
11
respectively, the estimates in urban and rural municipalities, with two particular re-
sults. First, income convergence occurred at a more rapid pace in rural municipalities
than in urban municipalities in all periods under study. Second, and consistent with
the whole sample, there are signs of conditional convergence in urban municipalities
in the 1990s, at an annual rate of 2 percent.
Table 2: β-convergence tests conditional on public spending, 1992-2014
(1) (2) (3) (4) (5) (6)

1992-2014 1992-2000
2000-2014 2000-2005 2005-2010 2010-2014
−0.012*** −0.016*** −0.020*** −0.047*** −0.020*** −0.015***
ln yit−τ
(0.001) (0.005) (0.001) (0.003) (0.004) (0.003)
0.003*** 0.012*** 0.004*** 0.008** −0.008* 0.024***
Public spending
(0.001) (0.004) (0.001) (0.003) (0.004) (0.005)
Obs. 2,234 2,234 2,193 2,193 2,116 2,045
R2 0.166 0.056 0.342 0.318 0.089 0.061
−0.013*** −0.020*** −0.021*** −0.049*** −0.020*** −0.014***
ln yit−τ
(0.002) (0.006) (0.002) (0.003) (0.004) (0.004)
0.003** 0.012*** 0.006*** 0.011*** −0.006 0.028***
Public spending
(0.001) (0.005) (0.002) (0.004) (0.005) (0.006)
Obs. 923 923 971 971 985 937
R2 0.216 0.067 0.345 0.333 0.086 0.066
−0.020*** −0.044*** −0.031*** −0.083*** −0.035*** −0.077***
ln yit−τ
(0.001) (0.005) (0.002) (0.003) (0.005) (0.009)
0.002*** 0.016*** 0.001 0.009*** −0.013*** 0.012**
Public spending
(0.001) (0.002) (0.001) (0.003) (0.004) (0.005)
Obs. 1,311 1,311 1,222 1,222 1,131 1,108
R2 0.253 0.112 0.417 0.405 0.095 0.220
Note: The table presents estimates of parameters β and γ in equation (4), weighted by the municipal
growth rate in the mean per capita income of municipalities over the period. ln yit−τ and public
spending are for the initial year and are in log-scale and in real per capita terms at August 2014
The intercepts are shown in tables 2–11 in the ancillary file. Robust standard errors are in paren-
theses.
*** p < .01, ** p < .05, * p < .1
using fixed effects models, which consistently confirm convergence, as in the standard ordinary least
squares model. Random effects specifications also produce coefficients with the same signs. As
extra robustness checks, 5-year and 10-year averages are used for the public spending variables and
generalized method of moments techniques. The results are consistent, that is, poor municipalities
converge at a more rapid rate relative to rich municipalities.
12
The conditional model shifts the convergence rates upward relative to the absolute
model in most cases. The only exception is 2005–10, when the magnitude of income
convergence remained virtually unchanged. A plausible explanation is that the co-
efficient of initial per capita public spending was negative during these years, when
the economy was prey to various adverse shocks. The expectation, confirmed in the
remaining cases, is that the point estimate of the variable is positive and significant,
meaning that the initial level of public spending exerts a positive influence on in-
come growth through, for instance, the allocation of resources to public investment
or transfers and subsidies. If the model in equation (4) controls for the latter compo-
nents instead of total public spending, it can be verified that both public investment
and transfers and subsidies exhibit a negative and significant sign during 2005–10
(see tables 2–11 in the ancillary file). Hence, it seems that the initial level of per
capita public spending in 2005 was not sufficient to promote income growth through
these channels in an environment of economic and fiscal contraction toward the end
of the 2000s and therefore did not accelerate the pace of convergence.
In a variation of the model illustrated in equation (4), the annualized growth rate
in the number of beneficiary households in Prospera, Mexico’s flagship conditional
cash transfer (CCT) program, was included to capture the influence of the program’s
expansion on the speed of convergence since the launch of Progresa, the antecedent
of Prospera, in 1997. By 2000, the program was benefiting around 2.4 million house-
holds living in extreme poverty; five years later, the number had reached 4.9 million,
equivalent to an annual growth rate of 20 percent. While the expansion continued
after 2005, this was at a much lower rate, 2.4 percent annually, reaching 5.7 million
and 6.0 million households in 2010 and 2014, respectively.
Table 3 summarizes the estimates of this conditional model. It suggests that, in

general, the speed of income convergence rose relative to the corresponding coefficients
shown in table 2. The point estimate for the CCT variable exhibits a positive and
significant effect in both 2000–14 and 2000–05, but it is particularly high in the latter
period, coinciding with the dramatic expansion in CCT coverage. This expansion
seems to have boosted the rate of convergence in the first years of the decade through
the rise in per capita income in municipalities with the poorest populations (column
2). After 2005, the sign of the variable became negative, and the variable had no
apparent influence on the pace of income convergence, suggesting that the subsequent
growth in CCT coverage was too small to exert a substantial effect on the mean per
capita income of municipalities.
13
Table 3: β-convergence tests conditional on public spending and CCT data, 2000–14
(1) (2) (3) (4)

2000-2014 2000-2005 2005-2010 2010-2014
−0.025*** −0.059*** −0.026*** −0.015***
ln yit−τ
(0.002) (0.004) (0.003) (0.004)
0.003** 0.006** −0.010*** 0.025***
Public spending
(0.001) (0.003) (0.003) (0.005)
0.035*** 0.067*** −0.023 −0.055**
Annual growth in CCT coverage
(0.010) (0.014) (0.026) (0.024)
Obs. 1,957 1,957 2,106 2,035
R2 0.367 0.348 0.182 0.065
−0.025*** −0.060*** −0.027*** −0.014***
ln yit−τ
(0.002) (0.005) (0.003) (0.004)
0.004*** 0.008** −0.009** 0.029***
Public spending
(0.001) (0.003) (0.004) (0.006)
0.033*** 0.066*** −0.023 −0.055**
(0.010) (0.015) (0.027) (0.025)
Obs. 878 878 975 927
R2 0.369 0.364 0.197 0.072
−0.033*** −0.095*** −0.035*** −0.076***
ln yit−τ
(0.002) (0.004) (0.005) (0.009)
0.000 0.010*** −0.013*** 0.008
Public spending
(0.001) (0.003) (0.004) (0.006)
0.011 0.058*** −0.072 −0.110*
(0.013) (0.011) (0.044) (0.057)
Obs. 1,079 1,079 1,131 1,108
R2 0.434 0.426 0.098 0.230
Note: The table presents estimates of parameters β and γ in equation (4), weighted by the municipal
spending are for the initial year and are in log-scale and in real per capita terms in August 2014
prices. The growth rate in CCT coverage is the annualized growth rate in the number of beneficiary
households in each municipality over the period. Urban (rural) municipalities are defined as those
with more (fewer) than 15,000 inhabitants. The intercepts are shown in tables 3–6 and 8–11 in the
ancillary file. Robust standard errors are in parentheses.
*** p < .01, ** p < .05, * p < .1
A noticeable finding throughout all previous specifications is that the income conver-
gence process continued after 2010. Though it occurred at a slower pace than in the
previous two five-year periods in terms of the whole sample, the pace was particu-
larly high across poorer rural municipalities in 2010–14. What explains this result,
given that the expansion in CCT coverage should not have had much effect in the
14
last part of the period under study? More and better federal transfers allocated to
municipalities may hold the answer. A recent redistributive assessment of the Social
Infrastructure Contributions Fund, which is a crucial component of Ramo 33, sug-
gests that the identification of priority attention zones within the country improved
the targeting and implementation of federal transfers for municipal social infrastruc-
ture and that this had a positive, though modest effect on both the level and growth
of household incomes across all municipalities in 2000–14 (Rodrı́guez-Castelán et al.,
2017). The study highlights that such transfers were crucial to improving a number of
socioeconomic indicators within municipalities, in particular in 2010–14, which may
reflect better targeting on less advantaged groups.
A critical aspect of all previous results is that the income convergence process took
place in a context of overall low growth in mean per capita income, which averaged
0.8 percent over 1992–2014.8 A closer look at the data reveals a relatively higher
growth rate among the poorest municipalities during this period (for instance, 2.5
percent annually among the poorest 10 percent), whereas it was negative among the
richest municipalities (for example, –0.6 percent annually among the top 10 percent).
Indeed, nonanonymous growth incidence curves on some revealing periods (figure
2) show that, over 1992–2000, the bottom 10 percent of municipalities experienced
positive income growth, averaging 2 percent annually, while the rest observed negative
rates: –1.1 percent among the remaining 90 percent and –1.9 percent among the top
10 percent.
The story in 2000–14 was, in general, more optimistic. During these years, the vast
majority of municipalities experienced positive growth, though there were some at
the bottom that exhibited relatively higher rates. This performance was mainly
driven by the high rates achieved during the first five years of the decade, which
benefited a larger share of municipalities at the bottom. Mean per capita income
among the poorest half expanded by 6.8 percent annually, while, among the upper
half, it increased only by an annual rate of 0.4 percent and fell by 1.3 percent among
the top 10 percent. In 2005–10, the economic slowdown took a toll on the income
8
The documented process of income convergence across municipalities over 1992–2014 can coexist
with patterns of regional divergence after the entry into force of the North American Free Trade
Agreement, as reported by the literature focusing on growth at the level of states (Chiquiar 2005;
Esquivel 1999; Garcı́a-Verdú 2005; Rodrı́guez-Oreggia 2007; Rodrı́guez-Pose and Sánchez-Reaza
2005; World-Bank 2018). There are at least two explanations for this coexistence. The first source
of the discrepancy is that state-level analyses typically use the state gross domestic product, a
metric that, while measuring the value of production, often fails to reflect average living standards
as measured by microdata, as in this paper. A second source is the unit of analysis. While the
results of state-level studies tend to be biased by the weight exerted by large urban agglomerations
concentrating a number of municipalities, this issue can be naturally avoided in municipality-level
analyses.
15
Figure 2: Poorer municipalities experienced higher income growth than richer ones
performance of municipalities; growth rates averaged 0.6 percent annually and, with
the exception of the poorest 10 percent, municipalities experienced an average rate
of –0.8 percent.
Thus, the observed process of income convergence stems from a combination of pos-
itive and relatively high growth in mean per capita incomes among the first decile of
municipalities and stagnant growth and negative growth among municipalities in the
middle and top of the distribution, respectively. To explore this process, the analysis
focused on two additional groups of municipalities characterized by dissimilar levels
of development and exposure to economic shocks: municipalities located in Mexican
states along the U.S. border, which are more economically well integrated with the
United States and exhibit higher levels of mean per capita income, and the rest,
hereafter referred to as non–U.S. border municipalities.
The estimates of model (4) across both groups, conditional on per capita public
spending, show that the speed of income convergence was evident throughout all
periods and consistently higher in municipalities in the first group (table 4, panels
b and c). A careful look at the income growth performance of each group reveals
some clues to aid in understanding the results. For instance, over 1992–2000, income
convergence in non–U.S. border municipalities derived from relatively high growth
rates among the poorest municipalities and negative rates among the rest. By con-
trast, the speed of convergence across municipalities in border states stems from an
16
inverted-U-shaped growth pattern, that is, while mean per capita income among both
the poorest and richest 20 percent contracted, the contraction occurred at a lower
annual rate in the former, –0.2 percent and –0.7 percent, respectively. The bulk of
municipalities in the middle of the distribution experienced positive growth rates.
It seems, then, that, while the tequila crisis had adverse nationwide effects, some
relatively poorer municipalities in states along the U.S. border may have benefited
slightly from the devaluation of the currency and the entry into force of the North
American Free Trade Agreement, thus catching-up with their richer counterparts and
relatively more quickly than in the rest of the country.9
Table 4: β-convergence tests conditional on public spending, 1992–2014
(1) (2) (3) (4) (5) (6)

1992-2014 1992-2000
2000-2014 2000-2005 2005-2010 2010-2014
−0.012*** −0.016*** −0.020*** −0.047*** −0.020*** −0.015***
ln yit−τ
(0.001) (0.005) (0.001) (0.003) (0.004) (0.003)
Obs. 2,234 2,234 2,193 2,193 2,116 2,045
R2 0.166 0.056 0.342 0.318 0.089 0.061
b. Municipalities in states along the U.S. border
−0.017*** −0.028*** −0.022*** −0.051*** −0.060*** −0.044**
ln yit−τ
(0.004) (0.010) (0.004) (0.012) (0.009) (0.017)
Obs. 267 267 262 262 267 266
R2 0.250 0.113 0.226 0.256 0.198 0.055
c. Municipalities in non-U.S. border states
−0.011*** −0.020*** −0.019*** −0.044*** −0.014*** −0.017***
ln yit−τ
(0.001) (0.006) (0.001) (0.003) (0.004) (0.003)
Obs. 1,967 1,967 1,931 1,931 1,849 1,779
R2 0.154 0.052 0.307 0.274 0.056 0.089
spending are for the initial year and are in log-scale and in real per capita terms at August 2014
prices. The coefficients for per capita public spending and the intercept are shown in tables 2–6 and
12–16 in the ancillary file. Robust standard errors are in parentheses.
*** p < .01, ** p < .05, * p < .1
The difference in the speed of convergence between non–U.S. border municipalities

(1.4 percent) and municipalities in border states (6.0 percent) over 2005–10 may
also be explained by the following growth patterns. Income growth averaged almost
8 percent annually among the poorest 10 percent of municipalities in both groups,
9
As a reference, growth in mean per capita income over 1992–2000 was positive in municipalities
located in border states, with an annual rate of 0.3 percent, whereas it was negative among non–U.S.
border municipalities: –0.9 percent.
17
while it decreased among the top 10 percent. The difference lies in the magnitude of
this loss: it averaged –1.6 percent annually in non–U.S. border municipalities, whereas
it was –5.4 percent annually in border states. In this case, then, it seems that the
United States–originated housing bubble, which unleashed the global financial crisis,
had a strong regional bias, with disproportionate effects on those municipalities most
highly integrated with the United States.10 Similar growth patterns may also explain
the difference in the speed of income convergence between the groups over 2010–14.
A salient outcome of the documented process of income β-convergence within the

country is that it was quite effective in reducing regional disparities, in particular
after 2000, which is consistent with empirical evidence of an overall decline in income
inequality in the following years (Esquivel et al. 2010). This is also confirmed by
the analysis with study data hereafter. Figure 3 shows the trends in the standard
deviation of logged mean per capita income across municipalities, or σ-convergence.
Starting with the whole sample, after regional disparities increased sharply in the
1990s, they experienced a steep decline during the first five years of the 2000s and
continued declining moderately up to 2010. Regional disparities remained relatively
unchanged after that; yet, it is significant that, relative to 1992, income dispersion
was almost 8 percent lower by 2014.
Figure 3: Regional disparities narrowed sharply over the 2000s
10
Indeed, growth rates in mean per capita income in municipalities located in states along the
U.S. border averaged –0.1 percent annually, whereas the non–U.S. border counterparts recorded an
annual average rate of 0.8 percent.
18
Similar results in terms of trends and orders of magnitude are evident across both
urban and non–U.S. border municipalities, with declines in income dispersion of 8.6
percent and 6.1 percent, respectively, in 1992–2014. Two additional results are worth
noticing. First, income disparities in rural municipalities deteriorated slightly after
the sharp decline in the first half of the 2000s, and, although the differences narrowed
again after 2010, the level recorded in 2014 was virtually the same as the level recorded
in 1992. Second, the relatively high β-convergence coefficients across municipalities
in border states seem to signal a reduction in income dispersion along the U.S. border
at a rate of 22 percent in 1992–2014.
5 Testing for poverty convergence

Have poorer converging municipalities been able to translate their relative income
gains into poverty reduction? If per capita income follows a log-normal distribution,
then any change in the poverty headcount ratio is determined, in a magnitude η,
by two components: one that is attributable to changes in income and one that
is attributable to changes in the distribution of income. The relationship between
each component and changes in poverty is illustrated in figure 4 over 1992–2014.
As expected, those municipalities that experienced relatively higher rates of extreme
poverty reduction were those that experienced higher growth rates in mean per capita
income (panel a), but also experienced progressive changes in the distribution of
income (panel b), because such changes imply resource transfers from richer to poorer
populations, thus stimulating poverty reduction.
Focusing on the first component for now, let
gi (Pit ) = δ + ηgi (yit ) + νit (5)
be the partial elasticity of poverty to growth in the mean per capita income of munic-
ipalities, representing the percent change in the poverty headcount ratio as a result
of a 1 percent increase in income, holding the income distribution constant. gi (Pit )
is the annualized change in poverty rates, calculated as in equation (2); η is the elas-
ticity parameter, with the expectation that η < 0; δ is a municipality-specific effect;
and, νit is a stochastic term.11
11
Similarly, gi (Pit ) = δ + ηgi (Git ) + νit can represent the partial inequality elasticity of poverty
or the percent change in the poverty headcount ratio as a result of a 1 percent increase in inequality,
holding per capita income constant, with the expectation that η > 0, and with gi (Git ) as the
annualized rate of change in inequality. The growth and inequality elasticity parameters can be
denoted as η y and η G , respectively, and hence, under log normality, changes in poverty rates can be
expressed as gi (Pit ) ≈ η y gi (yit ) + η G gi (Git ).
19
Figure 4: Changes in extreme poverty rates, inequality, and per capita income,
1992–2014

Note: The area of the symbols is proportional to the total population of the municipalities. The
regression line has a slope of −1.42 in panel a and 0.63 in panel b (both significant at the 1 percent
level).
Estimates of equation (5) confirm that higher growth rates in income tend to be
associated with reductions in poverty. In 1992–2014, for instance, a 1 percent growth
rate in the mean per capita income of municipalities led to a 1.4 percent decline
in the extreme poverty headcount ratio (table 5, panel a). The results also suggest
that extreme poverty is more responsive to growth among both urban municipalities
and municipalities in states along the U.S. border relative to their corresponding
counterparts (panels b–e). According to the data, such counterparts consistently
exhibit higher extreme poverty rates over time: around 30 percent higher in rural
municipalities than in urban municipalities, and twice the size in non–U.S. border
municipalities than in municipalities in border states. Thus, extreme poverty tends
to be more responsive to growth in municipalities where poverty rates are relatively
lower, which fits well-known evidence that, under log normality, holding the income
distribution constant, the growth elasticity will decrease in absolute value as the
poverty rate rises (Bourguignon, 2003). In other words, poverty itself seems to act
as a barrier to poverty reduction.12
Regardless of the context-specific magnitude of the growth elasticity parameter, the

fact that growth in the mean per capita income of municipalities tends to reduce
12
These elasticities, in general, are more responsive to growth the lower the value of the poverty
line. For instance, relative to the extreme (food) poverty line, the elasticity almost invariably
contracts by half in absolute value in the case of a higher (assets) poverty line (see table 33 in the
ancillary file).
20
Table 5: Growth elasticities of extreme poverty reduction, 1992–2014
(1) (2) (3) (4) (5) (6)

1992-2014 1992-2000
2000-2014 2000-2005 2005-2010 2010-2014
−1.425*** −1.291*** −1.671*** −1.504*** −1.472*** −1.736***
gi (yit )
(0.089) (0.072) (0.083) (0.114) (0.082) (0.077)
Obs. 2,361 2,361 2,361 2,361 2,361 2,361
R2 0.535 0.411 0.517 0.432 0.427 0.549
−1.513*** −1.348*** −1.736*** −1.620*** −1.457*** −1.751***
gi (yit )
(0.109) (0.091) (0.092) (0.133) (0.102) (0.094)
Obs. 944 944 1,017 1,017 1,022 1,022
R2 0.540 0.391 0.511 0.456 0.400 0.521
−1.142*** −1.018*** −1.210*** −0.942*** −1.482*** −1.680***
gi (yit )
(0.041) (0.052) (0.150) (0.060) (0.067) (0.111)
Obs. 1,417 1,417 1,344 1,344 1,339 1,339
R2 0.599 0.488 0.580 0.312 0.540 0.686
d. Municipalities in states along the U.S. border
−1.878*** −1.112** −1.837*** −1.276*** −1.551*** −1.904***
gi (yit )
(0.308) (0.531) (0.166) (0.371) (0.255) (0.175)
Obs. 267 267 267 267 267 267
R2 0.501 0.127 0.600 0.201 0.339 0.660
e. Municipalities in non-U.S. border states
−1.298*** −1.263*** −1.434*** −1.436*** −1.324*** −1.698***
gi (yit )
(0.065) (0.077) (0.095) (0.143) (0.074) (0.092)
Obs. 2,094 2,094 2,094 2,094 2,094 2,094
R2 0.587 0.464 0.453 0.435 0.450 0.516
Note: The table presents estimates of the parameter η in equation (5), weighted by the municipal
growth in the extreme poverty headcount ratios of municipalities over the period. gi (yit ) are the
annualized changes in mean per capita income at the municipal level over the period at August 2014
The intercepts are shown in table 32 in the ancillary file. Robust standard errors are in parentheses.
*** p < .01, ** p < .05, * p < .1
extreme poverty rates, plus the evidence on income convergence, imply that those
municipalities with relatively high initial poverty headcount rates (lnPit−τ ) should
have experienced higher subsequent rates of poverty reduction over the period under
study. To test this, let
gi (Pit ) = α + βln Pit−τ + µit (6)
be the empirical specification for the annualized proportionate change in poverty

rates, or poverty convergence, where β is the speed of poverty convergence parameter.
21
Indeed, estimates of equation (6) suggest that poorer municipalities reduced their
headcount ratios at a more rapid pace than richer and poverty increasing counterparts
over 1992–2014. In fact, extreme poverty rates among the 20 percent of municipalities
with the lowest incidence in 1992 had recorded nontrivial increases by 2014 (figure
5). A closer look at subperiods reveals the positive sign of the poverty convergence
parameter in the 1990s, indicating that poorer municipalities became poorer after
the tequila crisis or, at least, that their poverty rates stagnated. Conversely, sizable
signs of poverty convergence are found after 2000, in particular during 2000–05 (table
6, panel a). The breakdown by population size in panels b and c reveals that both
urban and rural municipalities experienced poverty convergence, though poverty con-
vergence in the latter occurred even in the 1990s and, in general, at a more rapid
pace than in the former.
Figure 5: Convergence in extreme poverty rates, 1992–2014

Note: The area of the symbols in panel a is proportional to the total population of the municipalities.
The regression line has a slope of –0.012 in panel a (significant at the 1 percent level).
Sizable poverty convergence in the 1990s also occurred across municipalities located
in states along the U.S. border, whereas the opposite sign was found across non–U.S.
border municipalities. After 2000, though convergence unambiguously occurred in
both groups, municipalities in border states exhibited a considerably higher coeffi-
cient during 2005–10 (table 6, panels d and e). The evidence presented in section 4
helps explain these results: poorer municipalities in border states were able to con-
verge relatively more quickly in the 1990s and late-2000s because mean per capita
incomes in their richer counterparts were disproportionately affected by the economic
contractions that characterized these years.
22
Table 6: Tests of extreme poverty convergence, 1992–2014
(1) (2) (3) (4) (5) (6)

1992-2014 1992-2000 2000-2014 2000-2005 2005-2010 2010-2014
−0.012*** 0.014** −0.031*** −0.055*** −0.038*** −0.048***
lnPit−τ
(0.002) (0.006) (0.002) (0.006) (0.005) (0.006)
Obs. 2,361 2,361 2,361 2,361 2,361 2,361
R2 0.206 0.025 0.565 0.333 0.175 0.164
−0.013*** 0.014** −0.031*** −0.057*** −0.038*** −0.044***
lnPit−τ
(0.002) (0.007) (0.002) (0.007) (0.006) (0.006)
Obs. 944 944 1,017 1,017 1,022 1,022
R2 0.229 0.024 0.575 0.353 0.193 0.142
−0.017*** −0.032*** −0.033*** −0.077*** −0.031*** −0.114***
lnPit−τ
(0.001) (0.007) (0.006) (0.015) (0.007) (0.009)
Obs. 1,417 1,417 1,344 1,344 1,339 1,339
R2 0.192 0.064 0.375 0.276 0.031 0.426
d. Municipalities in states along the U.S. border
−0.023*** −0.044*** −0.027*** −0.058*** −0.097*** −0.038*
lnPit−τ
(0.004) (0.008) (0.004) (0.011) (0.013) (0.023)
Obs. 267 267 267 267 267 267
R2 0.375 0.185 0.281 0.194 0.392 0.031
e. Municipalities in non-U.S. border states
−0.009*** 0.019** −0.028*** −0.053*** −0.020*** −0.055***
lnPit−τ
(0.002) (0.008) (0.003) (0.010) (0.003) (0.006)
Obs. 2,094 2,094 2,094 2,094 2,094 2,094
R2 0.114 0.041 0.507 0.282 0.067 0.243
growth in the extreme poverty headcount ratios of municipalities over the period. lnPit−τ are the
initial poverty headcount ratios of municipalities. All variables are in log-scale. Urban (rural)
municipalities are defined as those with more (fewer) than 15,000 inhabitants. The intercepts are
shown in table 34 in the ancillary file. Robust standard errors are in parentheses.
*** p < .01, ** p < .05, * p < .1
6 Initial distribution and the speed of poverty con-

vergence
While poorer municipalities experienced poverty convergence for most of the period
1992–2014, little is known about the influence of the parameters of the initial distri-
bution of income in shaping the speed of poverty convergence. Focusing on initial
poverty, the analysis builds on the decomposition of poverty convergence elasticity
23
of Ravallion (2012) to explore how the initial poverty headcount ratios of municipal-
ities might affect the advantage of municipalities, given their poorer start, through
two channels: the growth rates in mean per capita income and the impact of that
growth on poverty reduction as revealed by the partial elasticity of poverty to mean
per capita income.
On the first channel, the analysis estimates three augmented versions of the income β-
convergence model in equation (4). In the first version, the annualized growth rates in
mean per capita income depend on the initial per capita income of the municipalities,
plus their initial extreme poverty headcount ratios, as follows:
gi (yit ) = α + βln yit−τ + γlnPit−τ + µit (7)
Estimates of the parameter γ reveal some adverse effects of initial poverty on income
growth at any given initial mean, although the coefficient is sizable (–0.022) and sig-
nificant at the 1 percent level only in the 1990s (table 7, panel a). An opposing result
is shown in column 4, where the extreme poverty headcount ratio in 2000 exerted
a positive effect (0.007) on growth in the subsequent five years. While this effect is
small and significant only at the 10 percent level, it coincided with the more rapid
expansion of CCTs across the poorest households located in the most marginalized
municipalities.13 Because initial poverty rates are not independent of other parame-
ters of the distribution, a third regressor —the initial inequality in municipalities as
measured by the Gini coefficient (lnGit−τ )— was added to the analysis in the sec-
ond version of the model. The results now reveal a positive and significant, though
moderate effect of initial poverty rates on income growth during both 1992–2014 and
1992–2000 and a more sizable effect during 2000–05 (see table 7, panel b), which sup-
ports the plausible argument that initially poorer municipalities experienced higher
subsequent growth in mean per capita income as a result of the expansion in CCTs
among the poorest. In the rest of the subperiods, the coefficients are statistically
indistinguishable from zero.
To investigate these results, the analysis tested the previous augmented model by
adding extra controls for concepts of either public spending or revenue and with
and without CCT data. Invariably, the story holds under different specifications:
the positive and significant effects of the initial extreme poverty headcount ratios on
income growth are found over 2000–14, in particular during the expansion of CCT
13
The coefficient over 2000–05 even increased at higher values of the poverty line: 0.014 and 0.041
in the case of, respectively, the capabilities and assets poverty lines. In both cases, the effects are
statistically significant at the 1 percent level (see table 37 in the ancillary file).
24
Table 7: Mean per capita income growth conditional on initial parameters, 1992–2014
(1) (2) (3) (4) (5) (6)

1992-2014 1992-2000 2000-2014 2000-2005 2005-2010 2010-2014
a. Conditional on initial poverty
−0.009*** −0.033*** −0.022*** −0.032*** −0.036*** −0.003
ln yit−τ
(0.003) (0.008) (0.003) (0.007) (0.008) (0.010)
−0.001 −0.022*** −0.002 0.007* −0.010* 0.006
lnPit−τ
(0.002) (0.005) (0.002) (0.004) (0.005) (0.006)
Obs. 2,361 2,361 2,361 2,361 2,361 2,361
R2 0.103 0.039 0.344 0.318 0.084 0.024
b. Conditional on initial poverty and inequality
0.005 0.014* −0.014*** −0.000 −0.022** 0.003
ln yit−τ
(0.003) (0.008) (0.004) (0.008) (0.010) (0.013)
0.008*** 0.009** 0.002 0.021*** −0.002 0.009
lnPit−τ
(0.002) (0.005) (0.002) (0.004) (0.007) (0.008)
−0.045*** −0.155*** −0.031*** −0.130*** −0.058*** −0.016
lnGit−τ
(0.005) (0.015) (0.011) (0.026) (0.017) (0.024)
Obs. 2,361 2,361 2,361 2,361 2,361 2,361
R2 0.222 0.170 0.363 0.379 0.098 0.025
c. Conditional on initial poverty and inequality and extra controls
− − −0.003 −0.004 −0.021** 0.003
ln yit−τ
− − (0.004) (0.010) (0.009) (0.014)
− − 0.016*** 0.035*** 0.007 0.015
lnPit−τ
− − (0.003) (0.007) (0.006) (0.010)
− − −0.038*** −0.112*** −0.054*** −0.031
lnGit−τ
− − (0.006) (0.016) (0.014) (0.025)
− − 0.007*** 0.011*** 0.007*** 0.012***
Public sector payroll
− − (0.001) (0.003) (0.003) (0.004)
− − −0.000 0.000 −0.003* −0.000
Public investment
− − (0.000) (0.001) (0.002) (0.003)
− − −0.001 0.000 −0.008*** 0.007**
Public transfers/subsidies
− − (0.001) (0.002) (0.001) (0.003)
− − 0.033*** 0.059*** −0.019 −0.062**
Growth in CCT coverage
− − (0.011) (0.015) (0.025) (0.025)
Obs. − − 1,793 1,793 1,910 2000
R2 − − 0.440 0.403 0.234 0.075
Note: The table presents the estimates of equation (7) and extensions, weighted by the municipal
growth rate in the mean per capita income of municipalities over the period. ln yit−τ , lnPit−τ ,
lnGit−τ , and all public expenditure variables are for the initial year and are in log-scale. All
monetary variables are in real per capita terms at August 2014 prices. The growth rate in CCT
coverage is the annualized growth rate in the number of beneficiary households in each municipality
over the period. The empty cells in panel c indicate that models conditional on CCT data were not
estimated because the data are available only from 2000 onward. The intercepts are shown in tables
37–40 in the ancillary file. Robust standard errors are in parentheses.
*** p < .01, ** p < .05, * p < .1
25
coverage in 2000–05.14 One such specification is shown in table 7, panel c, in which the
point estimates for the annualized growth rate in the number of beneficiary households
exhibit positive and significant effects in the first years of the program’s expansion,
consistent with the findings in the conditional income β-convergence model above.
The second channel, that is, the growth elasticity of poverty reduction, can be an-
alyzed through a variation of equation (5) by regressing gi (Pit ) on the growth rate
in mean per capita income interacted with the initial poverty headcount ratios. This
adjusted rate is given by the growth rate in the mean per capita incomes of mu-
nicipalities, multiplied by 1 minus the municipality’s initial poverty headcount ratio
(Pit−τ ), which tends to penalize more substantially the sensitivity of extreme poverty
to subsequent growth rates in municipalities starting out relatively poorer. The
poverty-adjusted growth elasticity of poverty reduction is then defined as follows:
gi (Pit ) = η (1 − Pit−τ ) gi (yit ) + νit (8)
The estimates for the whole sample of municipalities are shown in table 8 (panel a).
Notice that they increased in absolute value in all periods relative to the ordinary
elasticities in table 5. To illustrate the implications of the poverty-adjusted elasticity,
consider, for instance, the value of –1.983 in 1992–2014. If the initial extreme poverty
rate of a municipality is 10 percent and the municipality experiences a 4 percent
annual growth rate in mean per capita income, then the municipality would expect
an annual poverty reduction of 7.1 percent. If, instead, initial poverty stands at 70.0
percent and the annual income growth rate is 4.0 percent, then the municipality would
expect a poverty reduction of only 2.4 percent annually. Then, as in the previous
section, poverty tends to be less responsive to growth, or the elasticity declines in
absolute value, the higher the initial poverty rate.
However, the estimates reveal that poverty-adjusted elasticities are consistently higher
in absolute value in poorer municipalities than in richer municipalities. For instance,
at an initial extreme poverty rate of 63 percent or more, at or above one standard
deviation above the mean, a 1 percent increase in growth during 1992–2014 would
lead to an annual decline in the poverty rate of almost 3.4 percent, whereas, in
municipalities with initial extreme poverty at 20.0 percent or less, at or below one
standard deviation below the mean, the elasticity is roughly −2 (table 8, panels b
and c, column 1).
14
The various specifications of this augmented model are shown in tables 37–44 in the ancillary
file.
26
Table 8: Poverty-adjusted growth elasticities, 1992–2014
(1) (2) (3) (4) (5) (6)

1992-2014 1992-2000
2000-2014 2000-2005 2005-2010 2010-2014
−1.983*** −1.885*** −2.288*** −2.280*** −1.874*** −1.990***
(1 − Pit−τ ) gi (yit )
(0.151) (0.135) (0.163) (0.195) (0.118) (0.116)
Obs. 2,361 2,361 2,361 2,361 2,361 2,361
R2 0.499 0.421 0.453 0.489 0.432 0.451
b. Municipalities with relatively low initial extreme poverty rates
−1.984*** −1.756*** −1.870*** −2.247*** −1.337*** −2.182***
(0.233) (0.233) (0.167) (0.249) (0.170) (0.155)
Obs. 426 426 436 436 383 440
R2 0.486 0.293 0.365 0.423 0.277 0.601
c. Municipalities with relatively high initial extreme poverty rates
−3.387*** −2.863*** −2.872*** −3.911*** −2.444*** −3.082***
(0.124) (0.242) (0.142) (0.264) (0.106) (0.095)
Obs. 433 433 458 458 425 457
R2 0.882 0.785 0.596 0.621 0.828 0.881
Note: The table presents estimates of the parameter η in equation (8), weighted by the municipal
growth in the extreme poverty headcount ratios of municipalities over the period. (1 − Pit−τ ) gi (yit )
are the annualized changes in mean per capita income at the municipal level over the period at
August 2014 prices and adjusted by the initial extreme poverty headcount ratios of municipalities.
Municipalities with low (high) initial extreme poverty rates are those with headcount ratios one
standard deviation below (above) the mean headcount ratios for the whole sample. The intercepts
are shown in table 45 in the ancillary file. Robust standard errors are in parentheses.
*** p < .01, ** p < .05, * p < .1
Hence, contrary to the linear relationship by which the ordinary growth elasticity
of poverty reduction falls in absolute value as poverty rates rise, it can be readily
verified that poverty-adjusted growth elasticity follows a concave relationship with
poverty (figure 6). In other words, those municipalities with high levels of extreme
poverty in 1992 experienced sufficiently higher subsequent growth in mean per capita
income to achieve substantial rates of poverty reduction by 2014, which unambigu-
ously occurred (see figure 5, panel b), at least as substantial as in contexts of low
poverty and relatively high income growth. A salient result is observed during the
first five years of the 2000s. Coinciding with the expansion of the CCT program, a 1
percent increase in the poverty-adjusted growth rate would lead to a 3.9 percent re-
duction in extreme poverty headcount ratios among the poorest municipalities, while
the corresponding poverty reduction among less poor counterparts would be only 2.2
percent (see table 8, panels b and c, column 4).
27
Figure 6: Efficiency of growth in reducing extreme (food) poverty, by initial poverty
rates, 1992–2014

Note: The area of the symbols is proportional to the total population of municipalities. For visibility
purposes, the elasticities in both panels are capped at −10.
To understand how the extent of poverty convergence was shaped by the initial ex-
treme poverty rates of municipalities, the analysis exploited all previous evidence
computed for each channel to apply the decomposition of poverty convergence elas-
ticity of Ravallion (2012). This decomposition results from the derivative of equations
(7) and (8) as follows:
−1
∂gi (Pit ) ∂lnPit−τ
= ηβ (1 − Pit−τ ) + ηγ (1 − Pit−τ ) − ηgi (yit ) Pit−τ (9)
∂lnPit−τ ∂lnyit−τ
∂gi (Pit )
where ∂lnPit−τ
is the speed of extreme poverty convergence, equivalent to the param-
eter β in equation (6); the first element at the right-hand side of the equation is the
mean convergence effect; the second element, ηγ (1 − Pit−τ ), is the effect of initial
poverty; and the third element, ηgi (yit ) Pit−τ , represents the poverty elasticity effect.
Based on the estimates of η in table 8; the parameters β and γ in table 7; the ordi-
nary elasticities of municipalities’ initial extreme poverty with respect to their initial
mean per capita income ( ∂lnPit−τ 15
∂lnyit−τ
) ; and, the sample means of Pit−τ and gi (yit ), the
computation of equation (9) yields virtually the same extreme poverty convergence
rates calculated above (see table 6, panel a).
For instance, the poverty convergence rate calculated based on equation (9) is −0.011
during 1992–2014, which is close to the coefficient of −0.012 computed based on
15
The computation of these elasticities through ordinary least squares yields −1.505 in 1992,
−1.662 in 2000, −1.664 in 2005, and −1.553 in 2010.
28
equation (6) for the same period. The decomposition of the rate reveals that the
convergence effect accounted for −0.007 and that poverty was actually responsive to
growth, with a poverty elasticity effect of −0.005. By contrast, the initial poverty
rates of municipalities exerted an adverse, yet moderate effect, at 0.001. In the 1990s
only, a convergence effect of −0.024 was more than offset by both the initial poverty
effect (0.024) and the poverty elasticity effect (0.015), thus confirming the signifi-
cant poverty divergence of 0.014 found in those years. Meanwhile, in 2000–14, both
convergence and poverty elasticity effects explain in similar magnitudes (−0.016 and
−0.020, respectively) the totality of the speed of poverty convergence (−0.034), with
only a slightly adverse effect of initial poverty, at 0.002. These results confirm that
the process of income convergence and the efficiency of growth in reducing poverty
effectively translated into poverty convergence during 1992–2014 in general, but par-
ticularly after 2000.
Focusing on the first five years of the 2000s, probably the most revealing period under
study, the decomposition offers a remarkable result: the three effects moved in the
same favorable direction. The convergence rate of −0.055 was mostly explained, in
similar magnitudes, by the convergence effect (−0.024) and the poverty elasticity
effect (−0.022). But the initial poverty rates of municipalities also contributed an
effect of −0.009, equivalent to 16 percent of the speed of poverty convergence. This
result supports the evidence in tables 7 and 8 for this period, which suggest plausibly
that starting out (very) poor in 2000 was associated with high growth rates in mean
per capita income in the next five years. In a context of disappointing economic
growth, such high rates could have been the result of the explosive expansion of
cash transfers among the extreme poor and of social spending in general, potentially
having the double effect of bolstering per capita incomes sufficiently to have reduced
extreme poverty, while fostering progressive changes in the distribution, which, in
turn, may promote poverty reduction (see figure 4, panel b).
To shed light on the latter issue, the analysis also explored the role of inequality.
Initial inequality in municipalities tends to exert sizable and significant adverse effects
on subsequent growth rates in mean per capita income (see table 7). This is consistent
with a large body of empirical literature on growth. Moreover, the data also reveal
that initial inequality tends to curb the impact that growth in mean per capita
income has on extreme poverty reduction, thus aligning with cross-country empirical
evidence that wide inequality causes the poor to accrue a smaller share of the gains
from growth in income. For instance, in those municipalities with a Gini coefficient at
or below one standard deviation below the mean in 1992 (equivalent to 0.37 or less),
29
a 1 percent growth in mean per capita income over 1992–2014 would lead to a decline
in extreme poverty of roughly 2 percent annually. In contrast, in those municipalities
with an initial Gini of 0.48 or more, at or above one standard deviation above the
mean, the poverty reduction would occur at 1.07 percent a year (table 9, panel a,
column 1).
This tendency of extreme poverty to be less responsive to growth in more unequal

municipalities is confirmed in all subperiods, and it generally holds if growth rates in
mean per capita income are adjusted by initial poverty (table 9, panel b) or even by
initial inequality (table 9, panel c) as follows:
gi (Pit ) = η (1 − Git−τ ) gi (yit ) + νit (10)
which yields a distribution-corrected growth elasticity of poverty, as proposed by

Ravallion (1997), where Git−τ is the initial Gini coefficient.
A closer examination of the data suggests, however, that the relationship between
initial inequality and the efficiency of growth in reducing poverty in a country with
dramatic regional disparities is far from linear. The nonlinearity is confirmed in figure
7. Even if growth elasticities are computed using the ordinary growth rate, there is an
indication that extreme poverty rates over 1992–2014 were more responsive to growth
in some highly unequal municipalities than in low-inequality counterparts (figure 7,
panel a). This indication becomes clearer after penalizing more the income growth
rates in municipalities with relatively higher Gini coefficients in 1992 (figure 7, panel
b). Sizable changes in mean per capita income and (hence) in extreme poverty rates
thus occurred not only among the poorest municipalities, as documented above, but
also among municipalities with relatively high initial inequality.
Indeed, the distribution of municipalities according to their Gini coefficient in 1992

reveals that poverty reduction tended to be slightly greater among the top 40 percent
more unequal municipalities (figure 8, panel a). Inequality among the latter also
declined markedly over 1992–2014, which suggests that the magnitude of extreme
poverty reduction observed among poorer municipalities was not the result of income
gains only, but also of progressive changes. It also suggests a plausible process of
inequality convergence across municipalities, which is confirmed by a coefficient of
−0.04 during 1992–2014 (significant at the 1 percent level) that results from the
standard model for the annualized proportionate change in inequality, as in equation
30
Table 9: Growth elasticities of poverty, low and high inequality contexts, 1992–2014
(1) (2) (3) (4) (5) (6)

1992-2014 1992-2000 2000-2014 2000-2005 2005-2010 2010-2014
a. Ordinary growth elasticities
Municipalities with relatively low initial inequality
−2.015*** −1.569*** −1.779*** −1.738*** −1.673*** −2.261***
gi (yit )
(0.143) (0.158) (0.273) (0.417) (0.096) (0.292)
Obs. 370 370 313 313 371 336
R2 0.734 0.414 0.693 0.400 0.541 0.659
Municipalities with relatively high initial inequality
−1.069*** −0.924*** −1.241*** −1.184*** −1.662*** −1.613***
gi (yit )
(0.050) (0.073) (0.239) (0.273) (0.214) (0.141)
Obs. 364 364 344 344 342 364
R2 0.769 0.508 0.359 0.329 0.496 0.584
b. Poverty-adjusted growth elasticities
−2.588*** −2.357*** −1.561*** −3.904*** −3.019*** −2.561***
(0.191) (0.335) (0.879) (1.265) (0.190) (0.397)
Obs. 370 370 313 313 371 336
R2 0.636 0.434 0.305 0.264 0.584 0.533
−1.676*** −1.468*** −1.829*** −1.875*** −2.611*** −2.045***
(0.062) (0.104) (0.420) (0.352) (0.339) (0.253)
Obs. 364 364 344 344 342 364
R2 0.785 0.497 0.400 0.396 0.525 0.519
c. Distribution-corrected growth elasticities
−3.042*** −2.336*** −2.383*** −2.418*** −2.403*** −3.149***
(1 − Git−τ ) gi (yit )
(0.221) (0.249) (0.375) (0.590) (0.137) (0.415)
Obs. 370 370 313 313 371 336
R2 0.717 0.401 0.678 0.395 0.542 0.656
−2.191*** −1.905*** −2.362*** −2.301*** −3.051*** −2.709***
(1 − Git−τ ) gi (yit )
(0.106) (0.154) (0.452) (0.518) (0.385) (0.236)
Obs. 364 364 344 344 342 364
R2 0.769 0.515 0.367 0.339 0.479 0.579
Note: The table presents estimates of the parameter η in equations (5), (8) and (10), weighted by
the municipal population at the initial year of each period under study. The dependent variable is
the annualized growth in the extreme poverty headcount ratios of municipalities over the period.
The growth rates in mean per capita income are the annualized changes at the municipal level over
the period at August 2014 prices. Municipalities with low (high) initial inequality are those with
Gini coefficients at or below (at or above) one standard deviation below (above) the mean Gini
coefficient for the whole sample. The intercepts are shown in table 48 in the ancillary file. Robust
standard errors are in parentheses.
*** p < .01, ** p < .05, * p < .1
31
Figure 7: Efficiency of growth in reducing extreme (food) poverty, by initial inequality
levels, 1992–2014

Note: The areas of the symbols are proportional to the total population of the municipalities. For
visibility purposes, the elasticities in both panels are capped at −10.
(3) or (6).16 In addition, it can be confirmed that, in the majority of the initially
poorest municipalities where extreme poverty reduction subsequently took place, the
latter was accompanied by a decline in the Gini coefficient (figure 8, panel b).
Figure 8: Annualized rates of change in extreme (food) poverty and inequality,

1992–2014
16
The magnitude and significance of the inequality convergence parameter are robust to the
specification that regress the annualized absolute difference in inequality levels on the initial Gini
coefficient, as in Bénabou (1996).
32
These results seem to suggest that, in general, inequality in the country declined
over the period under study, which is confirmed by a population-weighted average
reduction of −0.8 Gini points during 1992–2014. This reduction, however, was far
from generalized across municipalities. About 71 percent of all municipalities, which
account for almost half of the country’s population, experienced a decline in inequal-
ity above the national average, reaching −5.3 Gini points, and slightly more than 4
percent of municipalities also improved their inequality level, though at a lower rate
than the national figure, reaching only −0.4 Gini points. The remaining 25 percent of
municipalities, which are home to the other half of the country’s population, experi-
enced a deterioration in inequality of around 3.4 Gini points, on average. Despite the
latter result, which is basically a reflection of the rebound of inequality in the coun-
try after 2010, this highlights that the vast majority of municipalities experienced,
in general, progressive changes in income distribution and that this occurred over
most of the last quarter century: the population-weighted national average shows a
decline of −1.2 and −4.1 Gini points in the 1990s and in the first decade of the 2000s,
respectively.
7 Summing up
Between 1992 and 2014, Mexico experienced relative stagnation in both economic
growth and poverty reduction. The aggregate numbers leave the impression that lit-
tle has changed in the living standards of the population. This paper explores how
taking a more disaggregated approach to measuring changes in living standards can
help unpack this picture. By analyzing income per capita convergence and poverty
convergence at the municipality level over different subperiods, this paper finds that
key changes in living standards have indeed taken place. In particular, the analy-
sis reveals the following three main findings related to income convergence, poverty
convergence, and the role of the initial distribution of income.
First, in terms of income convergence, the analysis finds that mean per capita income
grew consistently more quickly in the poorest municipalities than in richer munici-
palities. This confirms that, in general, convergence occurred at a sizable, significant
magnitude; however, the speed of income convergence was more rapid after 2000 and
heterogeneous between urban and rural municipalities and between municipalities
located in the north of the country and the rest. Second, in terms of poverty con-
vergence, the analysis finds that growth in mean per capita income among poorer
converging municipalities was relatively efficient in reducing poverty headcount ra-
tios. This suggests that the process of income convergence effectively translated into
33
an unambiguous process of poverty convergence. Third, in terms of the role of the
initial distribution of income in determining convergence processes, the analysis finds
that the growth of income among the poorest in a context of stagnant or disappoint-
ing overall economic growth promoted sizable reductions in extreme poverty rates,
whereas declining inequality —and inequality convergence— eventually made growth
rates more efficient in reducing subsequent poverty rates in the less advantaged mu-
nicipalities.
From a policy perspective, redistributive programs such as the accelerated expansion

of cash transfers and improved federal allocations to municipalities, in particular, had
a positive impact on both income convergence and poverty convergence. Apparently,
increasing transfers had the double effect of bolstering sufficiently high growth rates
in income among the poorest, while fostering progressive changes in the distribution
of income. While these results are good news from an egalitarian perspective, it is
noticeable that the convergence processes partially took place because richer munic-
ipalities were losing ground or standing still at best. While this gives less cause for
celebration, all subnational changes analyzed in this paper highlight, in general, that
the poorest regions in Mexico have been able to achieve development gains even in
the face of nontrivial economic crises that could have seriously undermined equity
within the country.
34
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Annex: Summary statistics of the income, poverty and inequality dataset
1992 2000 2005 2010 2014

Mean S.D. Mean S.D. Mean S.D. Mean S.D. Mean S.D.
a. Descriptive statistics of the income, poverty, and inequality dataset
Simple averages across municipalities
Real per capita income (MXN$ August 2014) 1,738.0 842.7 1,578.3 932.2 1,699.3 902.4 1,663.5 881.0 1,966.9 967.4
Gini coefficient 0.426 0.055 0.385 0.062 0.379 0.053 0.341 0.045 0.384 0.039
Poverty headcount (% of population)
Food poverty 41.6 21.4 44.5 25.4 37.7 22.0 38.7 23.7 35.6 19.5
Capabilities poverty 49.6 21.4 52.3 24.9 46.0 22.4 47.5 24.0 44.0 20.1
Assets poverty 68.6 17.9 70.7 20.2 67.0 19.3 69.7 20.1 65.4 18.1
Population-weighted averages of municipality figures
Real per capita income (MXN$ August 2014) 2,765.2 1,424.6 2,870.8 1,492.9 2,966.1 1,295.8 2,755.6 1,215.5 3,245.6 1,452.1
Poverty headcount (% of population)
Food poverty 25.9 19.3 24.1 21.7 19.7 17.4 20.8 17.7 20.9 15.6
Capabilities poverty 33.6 20.4 31.5 23.0 26.7 18.8 28.9 18.9 28.3 17.0
Assets poverty 55.7 19.4 53.3 21.7 49.1 18.6 54.1 18.3 50.6 17.7
Average population by municipality 34,016 100,736 40,525 120,304 42,839 127,807 45,817 131,249 49,742 141,243
b. Summary statistics on municipalities’ public spending and revenues
40
Simple averages across municipalities
Public spending (per capita, MXN$ August 2014) 80.3 103.2 158.3 124.3 254.1 160.0 343.6 199.7 418.8 308.6
Public sector payroll 25.0 50.3 41.6 41.4 76.4 69.0 91.4 80.4 105.1 92.0
Transfers and subsidies 7.2 14.1 21.9 23.8 25.2 22.5 34.5 45.1 25.5 32.9
Public investment 21.4 30.6 40.2 48.2 76.0 52.4 123.8 93.3 162.8 185.0
Public debt 5.8 10.6 7.0 18.3 11.5 15.3 15.5 18.6 14.0 19.0
Public revenues (per capita, MXN$ August 2014) 80.3 103.2 157.9 124.5 254.0 160.4 344.1 200.3 419.3 309.7
Taxes 8.1 16.9 5.4 11.5 9.4 17.8 10.8 19.4 12.8 24.1
Unconditional federal transfers (participaciones) 53.8 76.4 95.8 86.5 126.1 122.1 145.5 131.2 163.5 164.1
Conditional federal transfers (Ramo 33) − 17.5 59.2 50.0 88.4 44.5 140.7 85.2 202.1 175.2
Average CCT beneficiary families by municipality − − 1,156 1,607 2,077 2,815 2,413 3,439 2,527 3,915
Number of municipalities covered in the dataset 2,361 2,361 2,361 2,361 2,361
Total population covered in the analysis 80,310,818 95,678,853 101,144,021 108,174,343 117,439,680
Total population in the country 81,249,645 97,483,412 103,263,388 112,336,538 119,530,753
Total CCT beneficiary families in the country − 2,437,297 4,892,284 5,682,617 5,965,275
Source: Authors’ calculations calculations based on ENIGH and census datasets, on the public finance dataset of the National Institute of Statistics and
Geography (INEGI) and on administrative records of the flagship CCT program —introduced as Progresa in 1997 and rebranded as Oportunidades in 2002
and more recently as Prospera. Notes: Capabilities poverty is defined as the inability to cover the value of the food basket, plus expenditures on health
and education, while assets poverty is defined as the inability to acquire the latter plus expenditures on clothing, housing, and transportation.

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DISCUSSION PAPER SERIES

IZA DP No. 13577

Within-Country Poverty Convergence:

IZA DP No. 13577

Within-Country Poverty Convergence:

IZA – Institute of Labor Economics

JEL Classification: I32, O47, O54, R11

Built on similar arguments, an array of empirical studies on the constraints and

Taking advantage of a unique panel dataset (1992–2014) on income, poverty, and

Empirical evidence on convergence at a higher level of geographical disaggregation,

3 Mapping income, poverty, and inequality

Formally, the model takes a generalized least squares form, as follows:

ln (yhm ) = α + βXhm + γZm + µhm (1)

The parameter α is a household-specific effect; β and γ are the correlation parame-

4 Convergence in mean per capita income

According to a well-established hypothesis about income convergence in the economic

gi (yit ) = ln (yit /yit−τ ) /τ (2)

gi (yit ) = α + βln yit−τ + µit (3)

Estimates of this model, summarized in table 1, panel a, reveal signs of absolute β-

A breakdown by the population of municipalities also yields remarkable results. In

(1) (2) (3) (4) (5) (6)

Source: Authors’ calculations.

To examine the conditional income β-convergence hypothesis whereby paths of mean

gi (yit ) = α + βln yit−τ + γXit−τ + µit (4)

to allow for the inclusion of a set of municipality-level characteristics Xit−τ that

Table 2: β-convergence tests conditional on public spending, 1992-2014

(1) (2) (3) (4) (5) (6)

Table 3 summarizes the estimates of this conditional model. It suggests that, in

(1) (2) (3) (4)

Source: Authors’ calculations.

Table 4: β-convergence tests conditional on public spending, 1992–2014

(1) (2) (3) (4) (5) (6)

The difference in the speed of convergence between non–U.S. border municipalities

A salient outcome of the documented process of income β-convergence within the

Figure 3: Regional disparities narrowed sharply over the 2000s

Source: Authors’ calculations.

5 Testing for poverty convergence

Focusing on the first component for now, let

gi (Pit ) = δ + ηgi (yit ) + νit (5)

Source: Authors’ calculations.

Regardless of the context-specific magnitude of the growth elasticity parameter, the

(1) (2) (3) (4) (5) (6)

be the empirical specification for the annualized proportionate change in poverty

Figure 5: Convergence in extreme poverty rates, 1992–2014

Source: Authors’ calculations.

(1) (2) (3) (4) (5) (6)

6 Initial distribution and the speed of poverty con-

gi (yit ) = α + βln yit−τ + γlnPit−τ + µit (7)

(1) (2) (3) (4) (5) (6)

gi (Pit ) = η (1 − Pit−τ ) gi (yit ) + νit (8)

(1) (2) (3) (4) (5) (6)

Source: Authors’ calculations.

This tendency of extreme poverty to be less responsive to growth in more unequal

gi (Pit ) = η (1 − Git−τ ) gi (yit ) + νit (10)

which yields a distribution-corrected growth elasticity of poverty, as proposed by

Indeed, the distribution of municipalities according to their Gini coefficient in 1992

(1) (2) (3) (4) (5) (6)

Source: Authors’ calculations.

Figure 8: Annualized rates of change in extreme (food) poverty and inequality,