The consequences of poverty and inequality for growth have long preoccupied academics and policy-makers. This paper revisits the inequality-growth and poverty-growth links. Using a panel of 158 ...countries between 1960 and 2010, we find that the correlation of growth with poverty is consistently negative: A 10 p.p. decrease in the headcount poverty rate is associated with a subsequent increase in per capita GDP between 0.5 and 1.2% per year. In contrast, the correlation of growth with inequality is empirically fragile—it can be positive or negative, depending on the empirical specification and econometric approach employed. However, the indirect effect of inequality on growth through its correlation with poverty is robustly negative. Closer inspection shows that these results are driven by the sample observations featuring high poverty rates.
This paper offers an evaluation of the output contribution of infrastructure. Using a panel time series approach and a large cross-country dataset, the paper estimates a long-run aggregate production ...function relating gross domestic product to human capital, physical capital, and a synthetic measure of infrastructure comprising transport, power and telecommunications. Tests of the cointegration rank allowing it to vary across countries reveal a common rank with a single cointegrating vector, which we interpret as the long-run production function. Estimation of its parameters is performed using the pooled mean group (PMG) estimator, which allows for unrestricted short-run parameter heterogeneity across countries while imposing the (testable) restriction of long-run parameter homogeneity. The long-run elasticity of output with respect to the synthetic infrastructure index ranges between 0.07 and 0.10. The estimates are highly significant, both statistically and economically, and robust to alternative dynamic specifications and infrastructure measures. Tests of parameter homogeneity fail to yield evidence that the long-run parameters differ across countries.
This paper examines the extent of risk sharing for a group of 50 industrial and developing countries. The analysis is based on a model of partial consumption insurance whose parameters have the ...natural interpretation of coefficients of partial risk sharing even when the null hypothesis of perfect risk sharing is rejected. Results show that rich countries exhibit higher degrees of risk sharing than developing countries, and that the gap has widened over time. Other things equal, the degree of risk sharing is higher in smaller, more financially-open economies and in those possessing flexible exchange rate regimes.
•The paper examines the extent of risk sharing for a group of 50 countries.•We use a model of partial consumption insurance.•Rich countries exhibit higher degrees of risk sharing than developing countries.•The gap has widened over time.•We relate the degree of risk sharing to macro variables.
Growth fluctuations exhibit substantial synchronization across countries, which has been viewed as reflecting a global business cycle driven by shocks with worldwide reach, or spillovers resulting ...from local real and/or financial linkages between countries. This paper brings these two perspectives together by analyzing international growth fluctuations in a setting that allows for both global shocks and spatial dependence. Using annual data for 117 countries over 1970–2016, the paper finds that the cross-country dependence of aggregate growth is the combined result of global shocks summarized by a latent common factor and spatial effects accruing through the growth of nearby countries – with proximity measured by bilateral trade linkages or geographic distance. The latent global factor shows a strong positive correlation with worldwide TFP growth. Countries’ exposure to global shocks is positively related to their openness to trade and the degree of commodity specialization of their economies, and negatively to their financial depth. Despite its simplicity, the empirical model fits the data well. Ignoring the cross-country dependence of growth, by omitting spatial effects or common shocks (or both) from the analysis, leads to a marked deterioration of the empirical model’s in-sample explanatory power and out-of-sample forecasting performance.
Abstract
We construct a new quarterly data set of international capital flows broken down by sector—banks, corporates, and sovereigns—and demonstrate the importance of distinguishing capital flows by ...the sector of domestic borrowers and lenders. We document four new sets of facts. First, banks account for the largest part of the external debt (stocks and flows) in advanced economies, whereas in emerging markets, banks, corporates, and sovereigns have roughly equal shares. Second, the high correlation between total capital inflows and outflows documented in the literature is driven by banking sector flows; that is, domestic banks’ borrowing from foreigners is highly correlated with domestic banks’ lending to foreigners. Third, sovereign flows behave very differently from and often act as a countervailing force to private sector (banking and corporate) flows, especially in emerging markets. Fourth, different shocks (global financial cycles versus domestic business cycles; banking versus currency versus sovereign crises) generate very distinct patterns of capital inflows and outflows by sector. The stylized facts we document deepen our understanding of the dynamics and behavior of capital flows and have important implications for open economy models.
Poverty convergence clubs Marrero, Ángel S.; Marrero, Gustavo A.; Servén, Luis
The Review of income and wealth,
03/2024
Journal Article
Peer reviewed
Open access
Abstract Global eradication of extreme poverty requires absolute convergence of poverty rates worldwide towards zero. Empirical analysis of poverty data for 100 emerging and developing countries over ...four decades reveals that such a goal is likely to remain elusive. Rather than absolute convergence, we find club convergence: countries' long‐run poverty rates cluster into several distinct clubs, whose number depends on the specific poverty dimension considered. Only the lowest‐poverty club exhibits poverty rates approaching zero by the end of the sample. In contrast, the highest‐poverty club, which accounts for nearly half the world's poor, evokes a poverty trap: its average poverty barely budged over the entire period examined. Overall, income—its initial level and, especially, its growth rate—matters more than inequality for shaping countries' club membership, particularly for the highest‐poverty club. Nevertheless, inequality plays a substantive role for membership in the intermediate‐poverty clubs, which achieved the greatest poverty reduction.
An adequate supply of infrastructure services has long been viewed by both academics and policy-makers as a key ingredient for economic development. Sub-Saharan Africa ranks consistently at the ...bottom of all developing regions in terms of infrastructure performance, and an increasing number of observers point to deficient infrastructure as a major obstacle for growth and poverty reduction across the region. This paper offers an empirical assessment of the impact of infrastructure development on growth and inequality, with a focus on Sub-Saharan Africa. The paper uses a comparative cross-regional perspective to place Africa's experience in the international context. Drawing from an updated data set of infrastructure quantity and quality indicators covering more than 100 countries and spanning the years 1960–2005, the paper estimates empirical growth and inequality equations including a standard set of control variables augmented by infrastructure quantity and quality measures, and controlling for the potential endogeneity of the latter. The estimates illustrate the potential contribution of infrastructure development to growth and equity across Africa.
For reasons of empirical tractability, analysis of cointegrated economic time series is often developed in a partial setting, in which a subset of variables is explicitly modelled conditional on the ...rest. This approach yields valid inference only if the conditioning variables are weakly exogenous for the parameters of interest. This article proposes a new test of weak exogeneity in panel cointegration models. The test has a limiting Gumbel distribution that is obtained by first letting
and then letting
. We evaluate the accuracy of the asymptotic approximation in finite samples via simulation experiments. Finally, as an empirical illustration, we test weak exogeneity of disposable income and wealth in aggregate consumption.
•Reserve accumulation sacrifices current domestic spending – a static welfare loss.•But it depreciates the real exchange rate, i.e. raises the price of tradable goods.•This raises returns in the ...capital-intensive tradable sector.•Higher returns foster learning-by-investing externalities – a dynamic welfare gain.
This paper analyzes foreign reserve accumulation as a second-best policy in economies with learning-by-investing externalities that arise disproportionately from the tradable sector. Under closed capital accounts, reserve accumulation requires an increase in net exports, which reduces the domestic supply of tradable goods, raises their relative price in terms of non-tradable goods – i.e. undervalues the real exchange rate – and stimulates the production of tradable goods. The cost of such a policy is to reduce domestic tradable absorption. However, since the tradable sector generates learning-by-investing externalities, it leads to dynamic gains. Reserve accumulation always increases growth in our framework, but the net welfare effects depend on the balance between the static losses from lower tradable absorption and the dynamic gains from higher growth. We capture this trade-off in a simple analytic formula and depict it in an intuitive graph. We also discuss alternative policy options to reserve accumulation that serve to internalize learning-by-investing externalities.
We study the transmission of business cycle fluctuations for developed (N) to developing economies (S) with a two-country, asymmetric, DSGE model with endogenous development of new technologies in N, ...and sunk costs of exporting and transferring the production of the intermediate goods to 5. Consistent with the data, the flow of technologies from N to S co-moves positively with output in N and S; shocks to N have a large effect on S; business cycles in N lead over medium term fluctuations in S; the cross-correlation of outputs is larger than consumption; and interest rates in S are countercyclical.
PDF
