Measuring and Understanding Poverty in Colombia

By Valentina Forero Gonzalez

Introduction

November 30 of 2016 was a historical day for Colombia. After more than 50 years, the government of President Juan Manuel Santos and the Revolutionary Armed Forces of Colombia (FARC) signed a peace agreement that culminated the longest-running civil war in the world. The peace deal is an extremely controversial issue. Supporters of the agreement emphasize the urgency of reconciliation to prevent any more deaths and work towards less poverty, especially in the most afflicted rural sector. Meanwhile, opponents contend that the deal is too lenient and will not serve justice. However, the one argument both sides seem to agree on is that violence has to come to an end in order for the country to reduce poverty and inequality (Wyss, 2016).

The last report by the National Administrative Department of Statistics (DANE) on poverty concluded that, overall, poverty and inequality decreased in the country in 2017. According to Maria Alejandra Medina, columnist of one of the main newspapers in the country, in eight years, 4.3 million people overcame poverty based on their income. Yet, she explains, there are some figures of poverty that are still subject of concern. In order to understand why these figures are significant, it is necessary to first understand what they are (Medina, 2018).

Measuring poverty

People defined as poor live below some minimally acceptable level of well-being. Different poverty measures can lead to different conclusions about a population depending on the factors that are believed to influence the measurements. On a first level, poverty will be determined by the choice of well-being indicator. Therefore, whether the indicator is income, consumption, access to education, health, etc. will be key to define policy goals in the future. On a second stance, the choice of poverty line, that is, the choice of the minimally acceptable level of the indicators is essential to analyze the incidence and prevalence of poverty (Schaffner, 2013).

In the case of Colombia, the government measures poverty using two different approaches: the monetary and the multidimensional.

The monetary approach to poverty uses income per capita to calculate the incidence, depth, and severity of poverty. The governments has two different poverty lines: an extreme poverty line that delimits the income necessary to acquire a food basket that guarantees basic caloric needs; and a relative poverty line that defines the minimum income necessary to consume an acceptable level of goods and services. According to the DANE, an individual was considered extremely poor in 2017 if his/her income was below 116,330 COP per month (approximately 39 dollars per month or 1.3 dollars per day). The same report set the relative poverty line of the country at 250,620 COP per month (83 USD per month or 2.8 USD per day) (DANE, 2018). Furthermore, the DANE provides three different measures of poverty which can be calculated using the equation in Figure 1. The headcount ratio, which measures the incidence of poverty, gives the percentage of the population living below the poverty line (α=0 in equation). The poverty gap, which assesses the depth of poverty, calculates how far below the poverty line an individual is and the average shortfall in income (α=1 in equation). Finally, the squared poverty gap, which estimates the severity of poverty, provides an indication of inequality by giving each household or individual a weight depending on their income (α=2 in equation) (Development Initiatives, 2016). The results of the report will be further explained in the following section.Picture1

The second approach used by the DANE is the national Multidimensional Poverty Index (MPI). This indicator measures “the proportion of people who experience multiple deprivations and the intensity of such deprivations” (UNDP, 2015). It provides a more complete and complex indicator that allows for a better understanding of poverty and its possible causes and outcomes. Better measures of poverty at the same time will foster more targeted policies to end it. Compared to the monetary approach, the MPI uses ten indicators related to health, education, and living standards (Figure 2). To calculate the index, the deprivation of each person is weighted by the indicator’s weight and if the sum of the weighted deprivations is 33 per cent or more, then the person is considered to be multidimensionally poor (UNDP, 2015).
Picture2

The Results
Figure 3 displays the headcount ratio over time for extreme monetary poverty, which went from 8.5% to 7.4% at the national level in 2017. The poverty gap registered was 2.7%, indicating that in average the income of the people living below the line is 2.7% lower than 1.3 USD per day. Finally, the severity of extreme poverty was 1.5%. Similarly, Figure 4 presents the graph for relative monetary poverty, which fell by 1.1 points to 26.9%. The poverty gap was 10.3% and the severity of poverty was 5.1% (DANE 2018).

Picture3Picture4

Likewise, Figure 5 illustrates the MPI over time, which went from 17.8% to 17%. According to Mauricio Perfetti, director of DANE, “among the deprivations that presented the most significant improvement for the MPI are low educational attainment, critical overcrowding and illiteracy” (Medina, 2018).

Picture5

All of the measurements of poverty decreased from 2016 to 2017. However, they also demonstrate the unequal reality of the country. Both the monetary and the multidimensional approaches prove that the rural regions present significantly higher poverty rates than urban centers.  Extreme monetary poverty in rural regions more than triplicated that of the capitals and relative monetary poverty in rural areas was about twelve percentage points higher. Likewise, the MPI in rural regions was more than three times that of the urban centers.

How Can We Explain These Differences?

Colombia is one of the most unequal countries in the world. However, in 2017 the Gini coefficient, which “measures the extent to which the distribution of income among individuals within an economy deviates from a perfectly equal distribution,” decreased from 0.517 to 0.508. Although this decrease should be taken as a positive sign, truth is that the country has had approximately the same inequality levels since the 1940s (Figure 6).

Picture6

The severe variation of poverty within Colombia has been studied by various economists. Nowadays, one of the main theses to explain inequality is the persistence of institutions. James A. Robinson in his essay “The Misery in Colombia” argues that “the extent and persistence of poverty and violence in Colombia” is a consequence of extractive political institutions in which a small group of elites exploit the rest of the population (2015). These political institutions, which include corruption, clientelism, and weak judicial systems, lead to inefficient economic institutions (such as lack of property rights) that only benefit those with power. This is consistent with the distribution of poverty in Colombia (Figure 7). The urban centers referred by Robinson as the core have significantly lower poverty rates today because elites have historically lived there. Therefore, they have implemented policies that make them more prosperous. The rural regions or the periphery, on the other side, have been exposed to extractive systems that uphold poverty and violence.

Picture7

In her article “What data on poverty figures are still worrying?” Medina states that the main areas of concern are the cities of Quibdó, Riohacha, Florencia, and Popayán, where the highest incidence of monetary poverty occurs. Consistent with Robinson’s theory, these cities where poverty persists are located in the periphery (Figure 7. Look at arrows).

Conclusion

The end of the Colombian conflict marks a historical moment in the country. The end of violence is an essential component to foster stability in the country and will surely improve the lives of millions of Colombians. However, contemporary theories of development have proven that in order to decrease poverty and inequality, the underlying causes them must be targeted. This means that, even in the absence of violence, as long as the government keeps in place an extractive system of corruption, lack of accountability, and economic insecurity, we cannot guarantee the effects of the deal.

*The link to the translated article can be found in  https://translate.google.com/translate?sl=auto&tl=en&js=y&prev=_t&hl=en&ie=UTF-8&u=https%3A%2F%2Fwww.elespectador.com%2Feconomia%2Fpese-buenos-resultados-que-datos-de-las-cifras-de-pobreza-aun-preocupan-articulo-745897&edit-text=&act=url

References

Departamento Administrativo Nacional de Estadística –DANE Marzo 22 de 2018 Boletín técnico Pobreza Monetaria y Multidimensional en Colombia Año 2017. Retrieved from https://www.dane.gov.co/files/investigaciones/condiciones_vida/pobreza/bol_pobreza_17.pdf

Development Initiatives (Jul. 2016). Definitions and Measures of Poverty. Devinit.org. Retrieved from http://devinit.org/wp-content/uploads/2016/07/Definitions-and-measures-of-poverty.pdf

Medina, M. A. (Mar. 22, 2018) ¿Qué datos de las cifras de pobreza aún preocupan? El Espectador. Retrieved from https://www.elespectador.com/economia/pese-buenos-resultados-que-datos-de-las-cifras-de-pobreza-aun-preocupan-articulo-745897

Robinson, J. (2015). The Misery in Colombia. Desarrollo y sociedad. 9-90. 10.13043/DYS.76.1. Retrieved from https://scholar.harvard.edu/files/jrobinson/files/the_misery_in_colombia.pdf

Schaffner, J. (2013). Development Economics: Theory, Empirical Research, and Policy Analysis. Chapter 5, page 85.

United Nations Development Programme UNDP (Mar. 2015). Training Material for Producing National Human Development Reports. United Nations Development Programme: Human Development Reports. Retrieved from http://hdr.undp.org/sites/default/files/mpi_trainingmaterial_mcc_mk_clean_june_2015.pd

Wyss, J. (Dec. 01, 2016). Colombia’s congress passes historic peace deal with guerrillas, but battles remain. The Miami Herald. Retrieved from http://www.miamiherald.com/news/nation-world/world/americas/colombia/article118192178.html

 

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Author: Econ 416 Student

Entries are contributed by undergraduate students enrolled in Economics 416: Theory of Economic Development at the University of Maryland.

3 thoughts on “Measuring and Understanding Poverty in Colombia”

  1. The post wrote about poverty in Colombia. From the data and graphs, we can see that poverty decreased over time while inequality still existing about the same rate in the country since the 1940s. Rural area poverty rate especially higher than urban regions. The author did a good job explaining different indicators of poverty and inequality, also why do we have to take these indicators into account when analyzing poverty in the country. The post also brought up an interesting argument that less institutional turmoil is good for the economies in developing countries. However, growth can’t be guaranteed unless there is an efficient and effective government leadership to create a healthy environment for economic growth.

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  2. Now that there is an end of violence within Colombia, I am interested in seeing what steps the country can make to become economically prosperous. Hopefully the peace agreement will end all conflict because, as you stated, it is a major factor in the economy and overall well-being. This post really captures how difficult it can be for a Country to be prosperous if it is not stable. It appears that the Multidimensional Poverty Index is a good indicator of how the country is doing. If the policies are effective, I believe that MPI may not be affected much in the short run but over a few years we could see a large change in this index. I am very interested in seeing what policies Columbia will put in place and how this will lift people put of poverty over time, as well as, see how the MPI changes in the future.

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  3. It will be interesting moving forward to see how the end of violence will impact the economy. Violence leads to high levels of economic instability due to lack of security in markets and lack of companies wanting to start or keep businesses there. The corruption is also a huge problem for the inequality of the country. It will be interesting to see if the inequality actually changes with the end of violence because the corruption it created may be to embedded in the government. The MPI rating is promising if its from education. This is because education has a great impact on an economy specially in the long run as it allows more productive people to enter into the labor market. It would be interesting to research more and see if it is just the violence that is causing the decrease in the poverty or if something else is occurring. Overall, Colombia will be a place to watch moving forward to see how they adapt to their new violence free environment.

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