Two decades of economic and social development in urban Colombia: amixed outcome

This paper examines urban Colombia’s socio-economic development from 1978 to 1999, including analysis of income inequality and welfare, and the evolution of poverty and its determinants. The evidence shows mixed results. First, social progress appears contradictory. Although most of the indicators pertaining to education, health, and infrastructure show substantial long-term improvements during the last two decades, the simultaneous escalation of violence –mostly associated with the illegal drug trade originating in the seventies- has become a substantial social and economic burden deteriorating living conditions in urban Colombia. In addition, extensive economic welfare improvements during the eighties and early nineties were partially reversed in the late nineties when the economy entered into a recession rooted on fiscal imbalances. We find that, from 1978 to 1995, extreme poverty fell by nearly two thirds- and income per capita almost doubled. But the impact of the recent recessive period, with its adverse effects on both the level and distribution of income, pushed economic welfare measures back to late eighties levels. In studying the poverty profile, we find that the typical faces of the poor –e.g., children of all ages, young lower-to-middle-skilled household heads, recent migrants and non-omeowners- have not changed much in the last two decades, but have become more ostensible. Causes and determinants of poverty such as low education endowments and high dependency ratios are becoming more powerful in predicting poverty. We next study how the dynamics of poverty in urban Colombia are linked to economic growth, inequality and the evolution of basic income per-capita generating factors. We conclude that income per capita growth, rather than changes in the income distribution, explains most of urban poverty dynamics. For the representative household, the key sources of income growth have been the rise in education endowments and the reduction in the dependency ratios. Simultaneously, changes in employment ratios or wages made a positive contribution up to 1995, but had a symmetric and detrimental effect during the recession that followed. However, lowskilled-headed households not only reap the most benefits from lower fertility and more education, but some from higher wages as well. During the economic recession, most of the poverty rise was generated by losses of wage-earning jobs, and the remainder by lower earnings for the selfemployed. Some additional downwards adjustment in average wages was obtained via increasing labor market participation of low-skilled women and a reduction in the wage gender gap.