This paper reviews the empirical evidence on the existence of poverty traps, understood as self-reinforcing mechanisms through which poor individuals or countries remain poor. Poverty traps, understood as self-reinforcing mechanisms through which poor individuals or countries remain poor, have captured the interest of many development policy makers, because poverty traps provide a theoretically coherent explanation for persistent poverty. They also suggest that temporary policy interventions may have long-term effects on poverty. However, a review of the reduced-form empirical evidence suggests that truly stagnant incomes of the sort predicted by standard models of poverty traps are in fact quite rare. Read the entire paper here.
Recently three IMF economists published a paper arguing that redistribution is in general pro-growth (Ostry et al. 2014). The paper caused a stir as it dismisses right-wing beliefs that redistribution hurts growth. However, even people sympathetic to the ideas of inclusive growth and equality of opportunity find this finding problematic. One reason is that the authors rely on a measure of redistribution that misrepresents the true cost of redistribution in an economy. Another has to do with the omission of factors that affect positively the income growth of the poor and vulnerable, such as employment. This omission would exaggerate the importance of equality through redistribution as a source of growth and underplay the importance of structural transformation and investments directed towards sectors that use unskilled labor more intensively, and therefore have the potential to generate inclusive growth and productive employment for the poor segments of the population.
World Bank Lead Economist, Eric Le Borgne discusses the focus of new support for Jordan.
The G20 Ministers of Finance and Central Bank Governors met in Sydney over the past weekend. An important outcome of the meeting is a commitment to lift G20’s collective GDP (which accounts for about 85 percent of world GDP) by more than 2 percent above the trajectory implied by current policies over the coming five years. This will amount to over US$2 trillion more in real terms. The higher growth would help generate significant additional jobs.
The targeted increase of more than 2 percent is based on a report prepared by the IMF with inputs from the OECD and the World Bank Group (WBG). The WBG contributions were prepared by a team drawn from various units and led by the Development Economics Vice Presidency. The report finds that with a feasible set of policy reforms, an increase in growth of that order of magnitude is achievable.
The announcement comes at a time when growth is slow, unemployment is high and the economy is still suffering from already ballooning subsidies -amounting to 9 percent of GDP- that have kept Egypt’s fiscal deficit at an exceptionally high 13.7 percent of GDP. At least seven countries in the Middle East and North Africa Region —including all those in transition after the Arab Spring (such as Egypt)--are trapped in a low-growth-poor-policy loop.
Shanta Devarajan, World Bank Chief Economist for the Middle East and North Africa region, discusses the latest issue of the Quarterly Economic Brief.
India has covered a long distance in what seems like a short time. Once proudly reckoned as one of the BRICS countries, it is now making frequent headlines in the international financial press as one of the financially fragile countries (fragile 5, fragile 8, edgy eight etc.). Like many other emerging markets in the world, India is feeling the pinch of the global liquidity retrenchment and rebalancing on its exchange rate and capital flows. Several observers have rationalized the investors’ behavior on account of the hard data on the Indian economy: growth has decelerated (from 8.9 % two years ago to 4.5 percent in fiscal year 2013), current account deficit is reigning high, inflation remains stubbornly high, and savings and investment rates have been falling. And all of this is happening amidst an upcoming national election, when elections anywhere invariably are associated with political and economic uncertainty.
What would it take for India to regain its place in a more revered acronym soon, rather than a less flattering fragile ‘n’ ensemble?
Much confusion has arisen in policy debates in India about whether or not growth has helped the poor; if yes, how much and over which time period; and whether growth is leaving certain social and religious groups behind. There remains deep skepticism on the part of NGOs and journalists that growth has been good for groups that were disadvantaged over long periods of time in the past.
Arvind Panagariya and I decided to investigate these claims – see here and here. We ask simple questions relating to the evolution of poverty in the post-reform era in India. How have poverty levels changed over the last few decades? We scrutinize changes across 6 different dimensions: (1) over time, (2) across states, (3) across rural and urban regions, (4) across social groups, (5) across religious groups, and (6) using different poverty lines. We find no basis whatsoever for claims that growth in India has left disadvantaged communities behind.
The remittances sent home every year by the African Diaspora should create a doorway to still greater opportunities, and the key to this door is financial access. While remittances do impact the living standards of beneficiaries directly, the banks that pay out the remittances month after month should offer recipient families a basic financial package including savings accounts, payment services and small loans for microenterprise. This should facilitate growth from current levels of remittances saved and invested. Leveraging of remittances through financial inclusion is certain to increase their development potential.
Bangladesh was born on December 16 1971, following a devastating war that cost the lives of 3,000,000 people. They were victorious in their fight for independence, yet the prospects of the Bangladeshi people living in the 70’s were disheartening, earning it the now rather infamous connotation of a basket case, as Henry Kissinger called it back in 1971. Emerging from the rubbles left by the war, the resilient Bangladeshis began the rebuilding of their newly established nation. Economic growth was slow to take off, and it rebounded to the pre-war level about twenty years later, in the 90’s. Yet, it was after the 90’s that the country began to attain palpable progress and only over the 2000-2010 decade that the country achieved great poverty reduction. The depth-of-poverty MDG target of 8 percent was attained five years ahead of schedule, and Bangladesh was set in the right path for achieving the first MDG goal of halving the poverty headcount to 28.5 percent by 2015.