Understanding the evolution of poverty and income distribution in Mexico, 1992-2008

This thesis documents and investigates the evolution of poverty and inequality in Mexico between 1992 and 2008. It applies best practice techniques and in doing so, aims to reconcile the differences that emerge between studies that use the same data. It also investigates and identifies some of the underlying processes and factors driving high levels of poverty and inequality; mapping these on to periods of crisis, reform and recovery and also to changes in the underlying population characteristics (e.g. education). The thesis adopts a microeconomic approach that uses household survey micro-data, available for every other year since 1992 and representative at a national and rural/urban level. This research aims to answer the following questions: 1) How sensitive are poverty and inequality measures in Mexico to the use of different methodologies. 2) How have poverty and income inequality evolved between 1992 and 2008, specifically, is it possible to arrive at robust results regarding the changes observed in poverty and income inequality in the period of study? And 3) what are the underlying processes behind the levels and trends in income inequality? Using sensitivity analysis we show that in the Mexican case, poverty and inequality measures are highly sensitive to some methodological choices (e.g. economies of scale) but less sensitive to others such as the choice of poverty line. We obtain robust results regarding the evolution of poverty and income distribution in Mexico between 1992-2008, which show that periods of crisis have had a very negative impact on the majority of the population. Finally, our results suggest that education is the most important factor driving the levels and changes of inequality in Mexico, accounting for 20 percent of the total inequality observed. Moreover, it seems that changes in the returns, rather than the distribution of education, appear to be behind these changes.