Why We Don’t See Poverty Convergence: The Role of Macroeconomic Volatility
AbstractMartin Ravallion ("Why Don't We See Poverty Convergence?" American Economic Review, 102(1): 504-23; 2012) presents evidence against the existence of poverty convergence in aggregate data despite the conditional convergence of per capita income levels and the close linkage between growth and poverty reduction in standard neoclassic growth theory and associated empirics. In this contribution we address this puzzle. After showing some evidence of regional convergence, we demonstrate that macroeconomic volatility prevents countries with a higher incidence of poverty from converging in poverty levels to those with less poverty on a global scale. Once volatility is controlled for, the relevant convergence parameter shows the expected negative sign and is robust to various estimation techniques and model specifications. Only if a country’s volatility exceeds a relatively high threshold level, it no longer converges. Similarly, initial poverty only exercises a negative impact on mean (income) convergence in countries where macroeconomic volatility is high.
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Bibliographic InfoPaper provided by Courant Research Centre PEG in its series Courant Research Centre: Poverty, Equity and Growth - Discussion Papers with number 153.
Date of creation: 05 Nov 2013
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poverty convergence; macroeconomic volatility;
Find related papers by JEL classification:
- I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-09 (All new papers)
- NEP-LTV-2013-11-09 (Unemployment, Inequality & Poverty)
- NEP-MAC-2013-11-09 (Macroeconomics)
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