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Paul Cashin, Paolo Mauro, and Catherine Pattillo are Economists in the IMF’s Research Department. Ratna Sahay is Advisor to the First Deputy Managing Director of the IMF. Parts of Section II draw upon work conducted with Antonio Spilimbergo and Saji Thomas. The authors thank Stanley Fischer, Sanjeev Gupta, Oded Galor, and Paul Masson for helpful suggestions, and Grace Juhn, Haiyan Shi, and Saji Thomas for excellent research assistance. An earlier draft of this paper was prepared for the Asian Development Bank’s 2001 Asia and Pacific Forum on Poverty.
See Srinivasan (2000) for an assessment of the links between growth, poverty alleviation and income inequality.
There seems to be little systematic work on the differences in the elasticities of the headcount, poverty gap, and squared poverty gap measures with respect to economic growth.
Greater trade openness in a number of developing countries has been associated with relative increases in wages of skilled workers relative to unskilled workers, contrary to what might be expected from the Stolper-Samuelson theory (see for example, Harrison and Hanson, 1999, on Mexico; Beyer et al., 1999, on Chile). On trade liberalization and income inequality, see Wood (1997), Morley (1999), and Spilimbergo et al. (1999).
See Eble and Koeva (2001) for an interesting study of the distributional effects of the Russian crisis.
Work by Conway (1994), for example, finds evidence that Fund programs are associated with real depreciation, smaller fiscal imbalances, lower economic growth and lower public investment. Later work by Dicks-Mireaux et al. (2000) finds that IMF lending to low-income countries has raised output growth and improved debt sustainability, yet with no significant effects on inflation. For a more skeptical view, see Przeworski and Vreeland (2000).
Earlier work by Pastor (1987) found that the initiation of a Fund program reduced the income share of labor relative to both its pre-program level and in comparison with non-program countries. This is indicative of a worsening distribution of income, given that the poor typically possess much labor and little capital.
See also the findings of Sahn et al. (1996), derived using household survey data on ten African countries during the 1980s. They find that real devaluation, fiscal policy reform and agricultural market liberalization commonly part of IMF and World Bank adjustment programs have improved the distribution of income and not adversely affect the poor. However, these policies did not result in rapid economic growth, which might have further aided poverty alleviation, due to the poor implementation of adjustment policies.
Two points should be noted. First, studies examining reforms and poverty in Africa during the 1980s and early 1990s were limited in scope due to the lack of household survey data. Improvements in data availability for the 1990s are starting to allow more comprehensive analyses (Christiansen et al., 2000). Second, looking forward, since many African countries have already eliminated large overvaluations of the real exchange rate, it is not clear whether further real depreciation would have a positive impact on their levels of poverty.
The HDI ranges between zero (low human development) and one (high human development), and its distribution is non-normal: it is skewed with a relatively long left-sided tail, that is, with the cross-country median HDI exceeding the mean HDI.
A potential drawback of the HDI is that it may be positively related to urbanization, as there seems to be an urban bias in the provision of social services. While this is beyond the scope of our study, it may be an interesting avenue for further research.
While the HDI measures the overall progress in a country in achieving human development, the HPI focuses on the distribution of that progress. Introduced in the Human Development Report 1997, the HPI captures deprivation in three key areas: deprivation in a long and healthy life (as measured by the percentage of people alive today not expected to reach age 40); deprivation in knowledge (measured by the adult illiteracy rate); and deprivation in economic provisioning (measured by a combination of the percentage of people lacking access to safe water and health services, and the percentage of children under five years who are underweight). The HPI is the simple average of these three component indices (see UNDP, 2000).
The rank correlation (for the 80 developing countries where both indices exist) between the HDI and the HPI for 1998 was extremely high at 0.94.
The countries that displayed the greatest improvement in HDI from 1975 to 1998 are from Africa and Asia: Nepal (by 63 percent), Mali (53 percent), Pakistan (48 percent), The Gambia (47 percent), and Chad (45 percent). The countries with the least improvement were Guyana (5 percent), Democratic Republic of the Congo (3 percent), Romania (3 percent), and Zambia (-5 percent).
As expected, improvements in HDI are found to be strongly and positively correlated with per capita income growth, though this is largely the result of the inclusion of per capita income as one of the components of the HDI.
Robust evidence is obtained when a variable is significant in a battery of regressions that include several combinations of other potential explanatory variables.
See Agénor (1999) for cross-country regressions linking macroeconomic variables and poverty rates, controlling for GDP growth.
Therefore, our approach was to regress the improvement in the HDI on initial HDI, per capita GDP growth, and average economic policies during the period; and to repeat the exercise using infant mortality and life expectancy instead of the HDI.
While the international institutions have typically encouraged countries to preserve the share of spending on health and education, this has not been a condition for IMF loans. Consistent with this absence of conditionality, the results presented below are similar if the sample is restricted to those instances involving IMF-supported programs.
The data were drawn from the Expenditure Policy Division in the IMF’s Fiscal Affairs Department.