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Macroeconomic Policy and Pro-Poor Growth in Bolivia

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  • Stephan Klasen

    ()
    (Universität Göttingen)

Abstract

In this paper, we analyze the potential and limitations of macroeconomic policy to affect propoor growth in Bolivia. After discussing the possibility to use macro policy to affect pro-poor growth in general, I then turn to the case of Bolivia, a highly dualistic small open economy that undertook significant macroeconomic and structural reforms in the 1990s. We show that the growth these reforms generated was generally pro-poor in the 1990s but was not enough to achieve significant poverty reduction due to high levels of initial inequality. It also made the country more vulnerable to external shocks which forced the economy into an anti-poor contraction after 1998. Using a dynamic CGE model we demonstrate that there are only limited options for pro-poor macro policy which is particularly due to the low domestic savings rate and the high rate of dollarization of the economy. Consequently, in order to increase the options for pro-poor macro policy, the large inequality, the high dualism, the low savings rate, and high dollarization of the economy need to be addressed.

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Bibliographic Info

Paper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 143.

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Length: 23 pages
Date of creation: 08 Jun 2006
Date of revision:
Handle: RePEc:got:iaidps:143

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Keywords: Pro-Poor Growth; Bolivia; CGE model; dollarization;

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  1. Schweickert, Rainer & Thiele, Rainer & Wiebelt, Manfred, 2003. "Makroökonomische Reformen und Armutsbekämpfung in Bolivien: ebnet die HIPC-Initiative den Weg zu sozialverträglicher Anpassung?," Kiel Discussion Papers 398, Kiel Institute for the World Economy (IfW).
  2. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
  3. Eduardo Lora, 2001. "Structural Reforms in Latin America: What Has Been Reformed and How to Measure It," Research Department Publications 4293, Inter-American Development Bank, Research Department.
  4. Rodrik, Dani, 2003. "Growth Strategies," CEPR Discussion Papers 4100, C.E.P.R. Discussion Papers.
  5. Stephan Klasen, 2005. "Economic Growth and Poverty Reduction: Measurement and Policy Issues," OECD Development Centre Working Papers 246, OECD Publishing.
  6. Stephan Klasen & Melanie Grosse & Rainer Thiele & Jann Lay & Julius Spatz & Manfred Wiebelt, 2004. "Operationalizing Pro-Poor Growth - Country Case Study: Bolivia," Ibero America Institute for Econ. Research (IAI) Discussion Papers 101, Ibero-America Institute for Economic Research.
  7. Theo S Eicher & Cecilia Garcia Penalosa, . "Inequality and Growth," Discussion Papers in Economics at the University of Washington 0083, Department of Economics at the University of Washington.
  8. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications 4303, Inter-American Development Bank, Research Department.
  9. World Bank, 2004. "Bolivia : Public Expenditure Management for Fiscal Sustainability and Equitable and Efficient Public Serivces," World Bank Other Operational Studies 14385, The World Bank.
  10. Rainer Schweickert & Rainer Thiele & Manfred Wiebelt, 2005. "Exchange Rate Policy in a Dollarized Economy: A CGE Analysis for Bolivia," Kiel Working Papers 1255, Kiel Institute for the World Economy.
  11. Daniel Kaufmann & Massimo Mastruzzi & Diego Zavaleta, 2003. "Sustained Macroeconomic Reforms, Tepid Growth: A Governance Puzzle in Bolivia?," Development and Comp Systems 0308003, EconWPA.
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