Poverty Reduction Strategy Paper (PRSP) countries in Sub-Saharan Africa have shown
strong signs of growth resilience in the aftermath of the recent global crisis. Yet, this
paper finds evidence that growth has more than proportionately benefited the top quintile
during PRSP implementation. It finds that PRSP implementation has neither reduced
poverty headcount nor raised the income share of the poorest quintile in Sub-Saharan
Africa. While countries in other regions have been more successful in reducing poverty
and increasing the income share of the poor, there is no conclusive evidence that PRSP
implementation has played a role in shaping these outcomes.
This paper shows that the behavior of entrepreneurs facing incomplete financial markets and risky investment can explain why growth accelerations in developing countries tend to be associated with current account improvements. The uninsurable risk of losing invested capital forces entrepreneurs to rely on self-financing, so that when business opportunities open up entrepreneurs increase saving to finance the investment that produces growth. The key insight is that saving has to rise more than investment to allow also for the accumulation of precautionary assets. Plausibly calibrated simulations show that this net saving increase can sustain large and persistent net capital outflows.
We find that from 1995 to 2002 in China, the dispersion of wealth decreased, the moneywealth
ratio increased for all wealth levels and the aggregate money-output ratio increased.
We develop a two-asset dynamic general equilibrium model in which households face a
portfolio adjustment cost and a borrowing constraint. We find that financial development
lowers the dispersion of wealth by reducing the precautionary motive of households. In
addition, tight monetary policies increase the value of money and thus increase the moneywealth
ratio for all wealth levels and the aggregate money-output ratio.
Ms. Burcu Hacibedel, Pierre Mandon, Ms. Priscilla S Muthoora, and Nathalie Pouokam
This paper provides evidence of a strong relationship between the short-term dynamics of growth and inequality in developing economies. We find that reductions in inequality during growth upswings are largely reversed during growth slowdowns. Using a new methodology (mediation analysis), we identify unemployment, and youth unemployment especially, as the main channel through which fluctuations in growth affect future dynamics in inequality. These findings suggest that both the quality of jobs created and labor market policies are important to ensure that growth outcomes are conducive to inequality reduction.
Using Chilean data, we document that for resource-rich small open economies the effects of terms of trade shocks on the wage gap (between skilled and unskilled workers) depend on factor intensities in the non-tradable sector, following the model in Galiani, Heymann, and Magud (2010). For a skilled-intensive non-tradable sector we show that improvements in the terms of trade benefit skilled workers. We also show that this relation holds at the industry level: the wage gap widens in skilled-intensive sectors while it shrinks in unskilled-intensive ones, the more so as terms of trade volatility decreases.