Linking aid and poverty in Latin America

A Multidimensional Poverty Index for Latin America

This paper proposes a new Multidimensional Poverty Index for Latin America (MPI-LA). The index builds upon the rich tradition in poverty measurement in the region in terms of both the Unsatisfied Basic Needs (UBN) approach and the Poverty Line approach and the recent conceptual and methodological developments in the area of multidimensional poverty measurement. The index combines monetary and non-monetary indicators, includes some new indicators not typically used in the region, and updates deprivation cutoffs for certain traditional UBN indicators, aiming to maximize regional comparability within the data constraints. The index is estimated for 17 countries of the region in two points in time – one around 2005 and the other around 2012. Overall, we estimate about 28% of people are multidimensionally poor in 2012 in the region, although with great variability across countries. An encouraging result is that we find statistically significant reductions of poverty in most countries, both in terms of incidence and intensity over the period under analysis. However, important disparities between rural and urban areas remain. Statistical scrutiny of the index suggests that it captures the state of poverty relatively well while maintaining a certain parsimony and being highly robust to changes in weights, indicators, and poverty cutoff.