Macroeconomic Fundamentals of Poverty and Deprivation: an empirical study for developed countries

This study aims at providing a positive contribution to the literature on the macroeconomic determinants of poverty which is particularly relevant since this type of analysis is rather scarce (e.g., Agénor, 2005). After a brief review on the macroeconomic mechanisms of poverty and deprivation, we propose a composite poverty index that captures seven deprivation dimensions which, relying on the literature and data availability, are important to a comparative assessment of deprivation across developed countries. The sample includes 24 countries of the European Union, from 2005 to 2010. Moreover, relying on the macroeconomic transmission mechanisms that influence poverty, a panel data econometric approach is implemented in order to study the relation between the proposed composite index and macroeconomic variables. The analysis is also extended for the AROPE, the European headline indicator for poverty targeting. Results show that a multidimensional poverty concept is relevant for assessing deprivation in developed countries and that, in line with the relevant literature, the dynamics of some macroeconomic variables is crucial to deprivation performances. The latter result is robust as it holds for different measures of poverty.