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© 2022 International Monetary Fund
WP/22/121
IMF Working Paper
Research Department
Income Convergence or Divergence in the Aftermath of the COVID-19 Shock? Prepared by Mariya Brussevich, Shihui Liu, Chris Papageorgiou
Authorized for distribution by Chris Papageorgiou
June 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: The paper extends the work of Deaton (2021) by exploring the period of post-crisis recovery in 2021–2024. The paper documents per-capita income divergence during the period of post-shock recovery, with countries at the bottom of the income distribution falling significantly behind. Findings suggest that higher COVID-19 vaccination rates and targeted virus containment measures are associated with faster recovery in per-capita incomes in the medium term. Evidence on the effectiveness of economic support policies for reducing cross-country income inequality, including fiscal and monetary policies, is mixed especially in the case of developing countries.
RECOMMENDED CITATION: M. Brussevich, S. Liu, and C. Papageorgiou. 2022. “Income convergence or divergence in the aftermath of the COVID-19 shock?” IMF Working Papers, WP/22/121.
| JEL Classification Numbers: | D63; I14; O11; O47 |
| Keywords: | COVID-19, convergence, divergence, support policies |
| Author’s E-Mail Address: | mbrussevich@imf.org; sliu3@imf.org; cpapageorgiou@imf.org |
| JEL Classification Numbers: | D63; I14; O11; O47 |
| Keywords: | COVID-19, convergence, divergence, support policies |
| Author’s E-Mail Address: | mbrussevich@imf.org; sliu3@imf.org; cpapageorgiou@imf.org |
Title Page
WORKING PAPERS
Income convergence or divergence in the aftermath of the COVID-19 shock?
Prepared by Mariya Brussevich, Shihui Liu, and Chris Papageorgiou1
Contents
1 Introduction
2 Brief literature review
3 Measures of cross-country income inequality and convergence
3.1 σ-convergence
3.1.1 Which countries drive an increase in cross-country income inequality?
3.2 β-convergence
4 Estimation framework
4.1 COVID-19 health impact and containment policies
4.2 Economic support policies
4.3 Pre-pandemic economic fundamentals
5 σ-convergence results
5.1 Baseline results
5.2 Heterogeneity by income group and exporter status
5.3 Robustness checks
6 Conditional β-convergence
6.1 Decomposing the gap between absolute and conditional β-convergence coefficients
7 Conclusion
A Additional figures and tables
List of Figures
1 σ-convergence
2 GDP per capita growth rates by country income decile
3 Within- and between-group variance decomposition of GDP per capita
4 Absolute β-convergence coefficients
5 Growth correlates
6 Magnitude of key channels for countries in the 30th and 70th percentiles of GDP per capita distribution
7 Conditional β-convergence coefficients
8 Decomposition of difference between absolute and conditional β-convergence
A.1 Gini coefficients of GDP per capita
A.2 Gross correlates robustness
A.3 Decomposition of difference between absolute and conditional β-convergence – unweighted
List of Tables
1 Baseline regressions – weighted, base year 2020
2 BMA regressions by income group – weighted, base year 2020
3 BMA regressions by exporter status – weighted, base year 2020
4 BMA Regressions – unweighted 2020 and weighted 2019
5 BMA regressions – weighted, base year 2020, excl. China and India
6 BMA regressions – weighted, base year 2020, with additional variables
A.1 Summary statistics table for variables