The office of “Opportunities for the Majority” of the Inter-American Development Bank worked in partnership with a team of Columbia SIPA students to analyze the current ‘bottom of the pyramid market’ and create a tool, strategy and methodology, to assess the poverty penalty in Latin America. Poverty penalty refers to the relatively higher cost shouldered by the poor, when compared to the non-poor, in their participation in certain markets. Poverty penalty takes at least five possible forms, depending on specific context: poorer quality, higher price, non-access, non-usage, and catastrophic spending burden.
In construction of the strategy and methodology, we completed an in depth theoretical background review of research sources, selected two countries for testing (Mexico and Peru), analyzed country-wide household surveys, selected indicators (i.e. access to water), and assigned normative weights. Furthermore, the Capstone team developed a two-pronged approach comparing the poverty penalty across countries and presented a comprehensive picture of how the poor interact with markets at the local level. Ultimately, this tool will be used by the Inter-American Bank and their stakeholder partnerships to review potential investment in the Latin American region to benefit the ‘bottom of the pyramid’ income segment communities. In addition, this tool will review existing investment programs, provide evidence of its added value to the community, and its narrowing impact to the poverty penalty.