Efficiency in Poverty Reduction: A State-Level Analysis for Bolivia

A decline in poverty generally masks regional disparities that are due to varying efficiency among states. Using a generalized true random-effects model, we distinguish between persistent and transient inefficiencies on subnational efficiency to reduce poverty and its determinants in Bolivia. Our findings reveal that states differ in terms of efficiency, with some excelling and others facing challenges. Persistent inefficiency emerges as pivotal, emphasizing the need for long-term policy recalibration. We find that when the macroeconomic conditions in Bolivia allow for a 10 percent reduction in the poverty rate, states can achieve at most an 8.2 percent reduction, and on average, they reduce it by 7.3 percent. Efficiency correlates positively with the tertiary sector's size; relationships with the primary and secondary sectors depend on their size, showing positive associations only if these sectors are fairly large. Additionally, states with lower unemployment and informality tend to be more efficient, highlighting the labor market's crucial role.