Does Natural Resource Extraction Mitigate Poverty and Inequality? Evidence from Rural Mexico

The potential importance of natural resources in poor rural household livelihoods has long been recognized but seldom quantified and analyzed. In this paper we examine distributional and poverty effects of natural resource extraction. To do so we use new data from a national rural household survey and a community survey implemented in Lacandona Rainforest of México. By using Gini and poverty decomposition techniques, as well as bootstrapping methods, we analyze how poverty and inequality change if income from natural resources is not considered when calculating total household income. The marginal impact that a change in price (or in availability) of resources has on inequality is also described. Finally, with information from Frontera Corozal, the community in the Selva Lacandona , the short-run poverty effects of changes in the price of a non-timber forest product (NTFP) are evaluated. Our findings highlight the importance of income from natural resource extraction in alleviating poverty and income inequality in rural México. The loss of income from resource extraction would significantly affect both poverty and inequality nationally as well as in the resource-rich South-Southeast region and in the Lacandona Rainforest community. This research takes a first step towards assessing non-timber forest products extraction as a poverty alleviating tool. Results from the simulation of NTFP price increases in Frontera Corozal show that poverty can be reduced, at least in the short-run, via this price mechanism.