Poor Areas or Poor People: Decomposing differences in living standards and poverty

Several studies report large and persistent differences in standards of living and poverty within a country. In this paper, we study whether the observed differences in poverty incidence in urban areas are due to differences in the attributes of the population that lives in these zones or comes from differences in the value of these attributes in the different areas. To this purpose, we apply decomposition analysis. We illustrate the methodology comparing urban areas in 13 Chilean regions in the year 2003. We found that even after controlling for an ample set of household characteristics, differences in the parameters are an important determinant of household income and poverty within a country.