Economic Mobility and Fairness in a Developing Country: Evidence from Peru

Abstract

Periods of rapid economic growth in developing countries have been well studied in terms of poverty and income inequality reduction, but much less is known about the performance of these countries in terms of economic mobility. We study intragenerational mobility in Peru using an asset-based measure of wealth and longitudinal data from the Young Lives project (2002 - 2016). We find that Peruvian households enjoyed a moderately large degree of mobility in this period. Averages, however, mask significant differences between Spanish-speaking households and those that speak an indigenous language. We estimate a positive mobility gap in favor of Spanish-speaking households of 12.7 percentiles, and find that half of this gap persists after controlling for a comprehensive set of household characteristics that impact their ability to accumulate wealth. We propose a new measure of individual mobility and use it to assess the degree of inequality of opportunity for mobility, that is, to what extent is mobility caused by circumstances outside of households' control. We find that this fraction is at least 17.4% for the most disadvantaged half of the population, but only 1.9% for the more advantaged half.

Keywords: economic mobility, inequality of opportunity, development, wealth

JEL Classification: D63, D31, J60