Does natural resource extraction mitigate poverty and inequality? Evidence from rural Mexico and a Lacandona Rainforest Community

Abstract

SummaryThe potential importance of natural resources for the livelihood of poor rural households has long been recognized but seldom quantified and analyzed. In this paper we examine distributional and poverty effects of natural resource extraction at the national, regional and community levels. To do this, we use new data from a national rural household survey and a community survey implemented in the Lacandona Rainforest (Selva Lacandona) of Mexico. First, we explore whether income from natural resource extraction affects poverty and inequality. Then we calculate the marginal impact of a change in the price of natural resources on inequality. Finally, using information from Frontera Corozal, a community in the Selva Lacandona, we evaluate the short-run poverty effects of changes in the price of a non-timber forest product (the xate palm), which is extracted from this and other threatened forest areas in Mexico and Guatemala.Our findings highlight the importance of income from natural resource extraction in alleviating poverty and income inequality in rural Mexico. Results show that the number of poor individuals increases 4.2% and inequality increases 2.4% when natural resource income is not taken into consideration. Inequality in the distribution of natural resource income is relatively high.Nevertheless, an unequally distributed income source may favor the poor. For example, welfare transfers are usually unequally distributed (most households do not receive them), but they are directed disproportionately at poor households. This is the case for natural resource income in all of our samples. A 10% increase in income from natural resources, other things being equal, reduces the Gini coefficient of total income inequality by 0.2% in Mexico. In the South-Southeast region and in Frontera Corozal, a 10% increase in natural resource income reduces the Gini coefficient by 0.36% and 0.11%, respectively.A doubling of the price of xate fronds in Frontera Corozal is associated with a 6% decrease in the number of poor individuals in Frontera Corozal in the short run. Nevertheless, in the long 3 run, sustained price increases could lead to overexploitation of the resource, leaving everyone worse off. The interrelationship between extraction decisions and the resource base as well as the institutional setting surrounding price increases will determine whether or not this perverse outcome prevails. 4 Does Natural Resource Extraction Mitigate Poverty and Inequality? Evidence from Rural Mexico and a Lacandona Rainforest CommunityAbstract The potential importance of natural resources for the livelihood of poor rural households has long been recognized but seldom quantified and analyzed. In this paper we apply poverty and inequality measures to national and community level data sets to explore the impacts of resource extraction on rural welfare. Our findings suggest that natural resource extraction reduces both income inequality and poverty.Results from a simulation analysis at the community level indicate that poverty may be r...

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