Executive summary

Trends in Poverty, Growth, and Inequality

Poverty Trends

1.10Figure 1.1 shows headcount poverty rates for 1997 and 2003, using both the moderate and the extreme poverty lines for 1997 and 2003.⁸ For the nation as whole, the fraction of the population living below the moderate poverty line was nearly unchanged, dropping from 37.3 percent to 36.8. The extreme poverty rate had a slightly larger fall, dropping from 18.8 to 16.6 percent.⁹

1.11Regionally, the country shows markedly different patterns of poverty change. Urban areas, which traditionally have had the lowest poverty rates, saw a marked increase in both poverty and extreme poverty between 1997 and 2003, with poverty rates jumping from 15.3 to 20.0 percent. At the same time, rural Panama experienced a substantial drop in both poverty and extreme poverty. The percentage of rural residents living in extreme poverty plunged from 27.4 to 22.0 percent. The already abysmally high poverty rate for Panamanians living in indigenous areas increased further. Essentially all (98.4 percent) of those living in indigenous areas now live in poverty, and 90.0 percent live in extreme poverty.

Figure 1.1: Poverty Measures by Area –Headcount Ratio
(i) Poverty	(ii) Extreme poverty
Note: Extreme poor refers to the population with per capita consumption below the extreme poverty line value. Moderate poor refers to the population with per capita consumption below the poverty line value. Source: Own estimate based on ENV 1997 and 2003 data.

Who are the neediest in Panama?

1.12Because of the very high rate of extreme poverty in indigenous areas, a large fraction of the country’s extreme poor are located there even though they account for just 8 percent of the overall population. As Table 1.2 shows, 42 percent of the nation’s extreme poor live in indigenous zones. Rural areas, while home to a much larger share of the population, are where another 42 percent of the extreme poor reside.

1.13More importantly, however, is to note that the vast majority of indigenous area residents consume much less than the urban and rural non-indigenous extreme poor. As a consequence, poverty measures which are sensitive to the level of consumption—namely the poverty gap index and the poverty severity index—show an even greater contrast between indigenous areas and the rest of the country. In a decomposition of national poverty by area, indigenous areas account for 58 percent of the national poverty gap and 68 percent of the poverty severity index.

1.14To help one visualize the depth and severity of poverty among the indigenous, Figure 1.2 plots the distribution of monthly per capita consumption for all extreme poor population. That is, the distribution of all the population exhibiting monthly consumption below B.\ 44 per capita, the monthly extreme poverty line in 2003 (i.e., B.\534 divided by 12). As it can be seen, while the consumption per capita of the median urban extreme poor is B.\8 below the extreme poverty line, the distance of the median rural extreme poor is 50% larger (i.e., they consume B.\12 below the poverty line). More strikingly, however, for the median indigenous the distance is 200% larger when compared to the urban extreme poor, and 100% larger when compared to the rural non-indigenous (i.e., they consume B.\24 below the poverty line).

Table 1.2 Who Are the Extreme Poor in 2003? Extreme Poverty Rates and Contributions to National Extreme Poverty by Geographic Area

Source: Own estimate based on ENV 1997 and 2003 data. Note: Extreme poor refers to the population with per capita consumption below the extreme poverty line value.

1.15As Figure 1.2 helps us visualize, future consumption growth without redistribution among the extreme poor is likely to result in an increasing contribution of the indigenous to extreme poverty. To see this, note that consumption growth without redistribution can be seen as a movement to the right of the whole distribution in Figure 1.2. As this happens, it is straightforward to see that extreme poverty will become more and more of an indigenous problem. This implies that, to be effective, future poverty reduction policies will have to increasingly target the indigenous.

Figure 1.2: Distribution of monthly per capita consumption of the extreme poor

Source: Own estimate based on ENV 2003 data.

Inequality Trends

1.16

Figure 1.3: Gini Coefficient for Consumption

Source: Own estimate based on ENV 1997 and 2003 data. Note: Figures are calculated for individuals, based on per capita household consumption levels.

Changes in poverty presented above were accompanied by parallel changes in inequality. Figure 1.3 shows changes in the Gini coefficient, while Table 1.3 displays estimates for a variety of inequality measurements. Patterns are similar for all inequality indicators.

1.17Nationally, inequality declined between 1997 and 2003. The Gini coefficient dropped from 48.5 to 46.9. Regionally, inequality increased slightly within urban areas, fell in rural areas, and fell substantially in indigenous areas. As discussed in more detail below, it seems that a drop in agriculture labor income for the rural non-indigenous and the indigenous, and a concurrent increase in rural-urban migration, have together led to compression in welfare in indigenous areas (with the poorest staying behind), and the alleviation of poverty in rural non-indigenous areas (with the poorest leaving the non-indigenous rural areas to urban centers).