The performance of Latin American countries in reducing poverty and expanding the middle class has been remarkable. By taking a close look at the Peruvian experience, we examine how this aggregate behavior relates to business cycle conditions and whether different population groups share this behavior. We find that social mobility is cyclical; it decreases in recessions but increases with strong economic growth. The reduction in poverty in Peru appears to be the result of a sustained increase in the poverty exit rate together with a prolonged decrease in the poverty entry rate. These results hold among heterogeneous groups and are particularly marked for households regarded as initially disadvantaged.
We are indebted to an anonymous referee, Roger Asencios, Nelson Ramírez-Rondán and participants at the XXXIV Economists Meeting of the Central Reserve Bank of Peru for their useful comments. We also want to thank Bruno Escobar for his outstanding research assistance. The financial support of the Research Center of Universidad del Pacífico (CIUP) is gratefully acknowledged. We alone are responsible for the views expressed in this paper and for any remaining errors.
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- Latin America
- Poverty dynamics
- pro-poor growth
- pseudo-panel data