Growth and Chronic Poverty in Nicaragua
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Background Paper for the Chronic Poverty Report 2008-09 Growth and Chronic Poverty in Nicaragua Steve Wiggins What is Chronic Poverty? August 2006 The distinguishing feature of chronic poverty is extended duration in absolute poverty. Therefore, chronically poor people always, or usually, live below a poverty line, which is normally defined in terms of a money indicator (e.g. consumption, income, etc.), but could also be defined in terms of wider or subjective aspects of deprivation. This is different from the transitorily poor, who move in and out of poverty, or only occasionally fall below the poverty line. The research for this Background Paper was made possible by www.chronicpoverty.org funding from the United States Agency for International Development (USAID) (via BASIS Collaborative Research Support Program at the University of Wisconsin-Madison). Growth and Chronic Poverty in Nicaragua Table of Contents 1. SUMMARY 7 1.1 Economic growth 7 1.2 Poverty 9 1.3 Markets and poverty 9 1.4 Policies for poverty alleviation 11 1.5 Conclusions: the original questions 12 2. INTRODUCTION 15 2.1 Aims and methods 15 2.2 The background: some history and geography 15 3. ECONOMIC GROWTH: RECENT PERFORMANCE 20 3.1 Gross domestic product 20 3.2 Sector performance and the composition of GDP 21 3.2.1 Explaining growth performance 21 3.2.2 Trade and debt 23 3.2.3 Shocks 25 3.2.4 Policies for growth 26 3.2.5 Discussion 27 4. POVERTY IN NICARAGUA 30 4.1 Rates of poverty 30 4.2 Determinants of poverty and poverty dynamics 32 4.3 The location of poverty 40 4.4 Risk and vulnerability 42 4.5 Inequality 43 4.6 Poverty, dimensions and causes: what has not been mentioned 45 5. MARKETS AND POVERTY 46 5.1 Land markets 46 5.2 Financial markets 51 5.3 Labour markets 57 5.4 Commodities markets 58 5.5 Housing markets 60 5.6 The participation of the chronically poor in markets 62 5.7 Markets and poverty: discussion 65 CPRC Research for BASIS Collaborative Research Support Program 2 Growth and Chronic Poverty in Nicaragua 6. CONCLUSION: POVERTY AND POLICIES IN NICARAGUA 67 6.1 Public policy for poverty alleviation 67 6.1.1 Current policies 67 6.1.2 Potential policies 69 REFERENCES AND PRINCIPAL SOURCES CONSULTED 73 Tables Table 1: Nicaragua, contributions to output growth ............................................................22 Table 2: Nicaragua: Poverty Trends, 1993–1998–2001 (%) ..............................................31 Table 3: Nicaragua: People in Poverty, 1993–1998–2001 (thousands) .............................31 Table 4: Entering and exiting poverty, 1998 and 2001 panel households..........................32 Table 5: Characteristics of the rural and urban population in Nicaragua, 1998..................34 Table 6: Decomposing the influences on poverty reduction ...............................................39 Table 7: Inequality in incomes and assets ..........................................................................44 Table 8: Partial productivity and land market participation among agricultural producers, Nicaragua 1998...................................................................................49 Table 9: Access to agrarian institutions in rural Nicaragua, 1998 and 2001 ......................53 Table 10: Formal sector credit rationing mechanism in rural areas, Nicaragua 1999 ......................................................................................................................55 Table 11: Changing access to agricultural resources and its effects on small farmers, before 1990 and 1997.............................................................................56 Table 12: Farm labour wage rates, late 1990s........................................................................58 Table 13: Commodity price variations and trends, 1961 to 2004............................................58 Table 14: Nicaragua—Basic Housing Indicators, 1998 and 2001 ........................................60 Table 15: Nicaragua, engagement of the poor in markets....................................................63 Table 16: A Matrix of policies to alleviate rural poverty in Nicaragua ...................................86 Maps Map 1: Nicaragua, administrative divisions ...........................................................................................5 Map 2: The agricultural zones of Nicaragua ...................................................................................... 16 CPRC Research for BASIS Collaborative Research Support Program 3 Growth and Chronic Poverty in Nicaragua Map 3: Zones of Economic Dynamism, All of Nicaragua.............................................................. 37 Map 4: Nicaragua. Rates of chronic poverty, 1998–2001 ............................................................. 42 Boxes Box 1: Shocks to the Nicaraguan economy ................................................................... 25 Box 2: Measuring poverty............................................................................................... 30 Box 3: Social capital and resistance to crises ................................................................ 38 Box 4: The main hazards faced by the poor .................................................................. 43 Box 5: Programming MCA monies ⎯ a guide to current priorities? .............................. 69 Figures Figure 1: Nicaragua, Fiscal and Trade Deficits, 1994 to 2004.............................................25 Figure 2: Nicaragua, poverty status 1998 and 2001 ............................................................33 Figure 3: Education levels in Nicaragua, 1998 and 2001, by poverty group .......................36 Figure 4: Nicaragua. Rates of chronic poverty in 1998-2001...............................................41 Figure 5: Formal loans and area owned in rural Nicaragua, 1995 and 1999.......................54 Figure 6: Nicaragua, food prices relative to other prices, 1980 to 2003 ..............................60 Figure 7: Nicaragua: GDP, 1960 to 2003.............................................................................76 Figure 8: Nicaragua: GDP growth rates 1961 to 2003 Source: World Development Indicators 2005, World Bank...........................................................77 Figure 9: Nicaragua, Composition of GDP, 1965 to 2003 Source: World Development Indicators 2005, World Bank...........................................................78 Figure 10: Nicaragua, agricultural production, 1961 to 2003 .................................................79 Figure 11: Nicaragua, savings and investment, 1960 to 2003 .................................................80 Figure 12: Nicaragua, Value of Exports and Imports, 1960 to 2003 ........................................81 Figure 13: Nicaragua, Net Barter Terms of Trade, 1980 to 2002 Source: World Development Indicators 2005, World Bank...........................................................82 Figure 14: Nicaragua, Unit Values of Agricultural Exports, 1961 to 2003..............................83 Figure 15: Nicaragua, External Debt, 1970 to 2003...............................................................84 Figure 16: Factors leading to poverty in Nicaragua ...............................................................85 CPRC Research for BASIS Collaborative Research Support Program 4 Growth and Chronic Poverty in Nicaragua Acknowledgements Thanks go to Rene Mendoza for comments on an earlier draft of this report, and to Ben Davis for allowing me to use the combined data sets for the LSMS of 1998 and 2001. The interpretations, including any errors and omissions, are however my responsibility and do not reflect their ideas and help. The research for this Background Paper was made possible by funding from the United States Agency for International Development (USAID) (via BASIS Collaborative Research Support Program at the University of Wisconsin-Madison). Author Steve Wiggins is a Research Fellow in the Rural Policy and Governance Group at the Overseas Development Institute (ODI) Email: [email protected] Map 1: Nicaragua, administrative divisions CPRC Research for BASIS Collaborative Research Support Program 5 Growth and Chronic Poverty in Nicaragua Abbreviations BANADES Nacional Development Bank Banco Nacional de Desarrollo BCN Central Bank of Nicaragua Banco Central de Nicaragua BID Inter-American Development Bank Banco Interamericano de Desarrollo C$ Córdoba, nacional currency Córdoba CAC Savings and Loans Co-operative Cooperativa de Ahorros y Crédito CAFTA Central American Free Trade Tratado de Libre Comercio Association Centroamérica-EEUU CENIT Tradable Certificate of Investment Certificado Negociable de Inversión ERCERP Poverty Reduction Strategy Estrategia Reforzada de Crecimiento Económico y Reducción de Pobreza FCR Rural Credit Fund Fondo de Crédito Rural FISE Emergency Fund for Social Fondo de Inversión Social de Investment Emergencia FSLN Sandinista Front for Nacional Frente Sandinista de Liberación Liberation Nacional FSLN Sandinista Front for Nacional Frente Sandinista de Liberación Liberation Nacional GTZ Cooperación Técnica Alemana HIPC Highly Indebted Poor Countries Iniciativa Reforzada para Países Pobres Muy Endeudados k thousand mil LSMS Living Standards Measurement Encuesta de Medición del Nivel de EMNV Survey Vida M million millón MAGFOR Ministry of Agricultura and Ministerio Agropecuario y Forestal Forestry mz Manzana = 0.7 hectare PND Nacional Development Plan Plan Nacional de Desarrollo PNUD Programa de las Naciones Unidas para el Desarrollo RPS