Although several authors have shown evidence that expenditure and income data obtained
from household surveys is typically measured with a large amount of error1, there are not many
studies using data from Latin America that address this issue. As a result, studies that calculate
different economic indicators, such as poverty or inequality indexes or economic mobility for
Latin America countries, are usually contaminated by measurement error in the data (Duval
Hernández et.al., 2006).
This paper uses nationally representative panel data from Peru to estimate the effect of
measurement error on estimated economic mobility and the growth rate of per capita
expenditures for years 2004 to 2006. More specifically, two alternative methods proposed by
Luttmer (2002) and Glewwe and Dang (2005) are implemented to estimate the impact of the
measurement error on the observed variance of the logarithm of per capita expenditures. These
results are then used to assess the relative importance of measurement error in the estimation of
economic mobility in Peru between 2004 and 2006 by simulating the join distribution of the
logarithm of per capita expenditures corrected for the effect of measurement error. Finally, the
magnitude of the bias in the growth of rate of per capita expenditures by quintiles is also
Ravina, Renato. Economic Mobility and Expenditure Growth: The Effects of Measurement Error in Peruvian Data. Apr 2009. Hubert H. Humphrey Institute of Public Affairs.
professional paper for the fulfillment of the Masters of Public Policy degree
Economic Mobility and Expenditure Growth: The Effects of Measurement Error in Peruvian Data.
Hubert H. Humphrey Institute of Public Affairs.
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