Local Governments and Poverty and Spatial Spillovers of Poverty in Ecuador

Abstract Poverty is not distributed randomly across regions in Ecuador, it is rather concentrated across space. Local governments are appointed as main actors to reduce poverty. However, in Ecuador in municipalities where a high incidence of poverty exists, the operational capacity is low. The aim of this study is twofold. First, it seeks to identify whether spatial clusters of poverty exist in Ecuador. Second, it aims to determine the factors that influence poverty in cantons with especial emphasis on the role of local governments. This study contributes to the existing empirical literature of poverty by including a global measure of the operational capacity of municipalities and specific components of such operational capacity such as finance, citizen participation and planning. Using poverty regional-level data and spatial statistics tools, clusters of poverty and clusters of non-poverty are identified. The results of the spatial econometric model show that poverty in one region is influenced by the poverty level in neighboring regions. Based on this, our suggested policy recommendation is an interregional coordination of local governments to reduce poverty. The main finding shows that the financial component of the operational capacity of local governments is a key factor in reducing poverty. The factors that are associated with lower poverty are education, employment, health, urbanization, and access to excrement removal services. Higher poverty is associated with bad quality of education.