Poverty and Economic Growth in Mexico

Jorge Garza-Rodriguez

doi:10.3390/socsci7100183

Abstract

The relationship between poverty and economic growth has been widely discussed in the economic development literature during the past few decades. However, most of this research has been based on cross-sectional studies and very few studies have used time-series techniques to analyze this important issue. At the same time, there are also only a few studies analyzing this issue for the case of Mexico. Therefore, the objective of this paper was to analyze the relationship between poverty and economic growth in Mexico, using a cointegration analysis with structural change for the period 1960–2016. The Gregory-Hansen cointegration test confirmed the existence of a long-term equilibrium relationship between poverty reduction and economic growth, both in the short run and in the long run. Using a Vector Error Correction Model (VECM), we find that, in the long run, a 1% increase in economic growth leads to a 2.4% increase in per capita consumption (and therefore poverty reduction). This estimate is similar to those obtained in other studies for the case of Mexico and for other developing countries. Also, using the Granger causality test, it was found that there is a bidirectional causality relationship between poverty reduction and economic growth in Mexico.

Highlights

For several decades one of the most important issues of the field of economic development has been whether economic growth necessarily leads to the reduction of poverty
The Granger causality tests undertaken in the analysis showed that there is a bidirectional relationship of causality between economic growth and the reduction of poverty
The relationship between poverty and economic growth has been widely discussed in the economic development literature during the past few decades

Summary

Introduction

For several decades one of the most important issues of the field of economic development has been whether economic growth necessarily leads to the reduction of poverty. After much research carried out in the last two decades, the generally accepted view among economists is that economic growth bears an inverse relationship with poverty There is much discussion in research on this subject about the effect that the pattern and structure of growth have on poverty (Thorbecke 2013). On the other hand, Adams (2004) points out that the effect of economic growth on poverty depends very much on how it is measured, finding that if it is measured by household income surveys, the effect is much greater than if measured through national accounts

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Conclusion