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Bolivia: Impact of shocks and poverty policy on household welfare

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  • Barja, Gover
  • Monterrey, Javier
  • Villarroel, Sergio

Abstract

This paper evaluates the short term impacts on poverty of pro-poor expenditure and total social expenditure during the 1999-2002 period of Bolivian economic recession. Observed characteristics of recession are simulated by the combined effects of negative terms of trade shock, reduction in foreign saving flows and low output growth. Evaluation is performed by simulating the impacts of shocks and social expenditures in an environment of low growth: i) on macro aggregates of consumption, income, saving and prices (based on a simple static 1-2-3 model built with 1998 data as the base year), ii) on household income and consumption levels by quintiles and areas, and iii) on consumption based poverty indicators by areas. The following were main results from experiments: The terms of trade shock had greater negative impact on household income then reduction in foreign saving flows. In contrast, reduction in foreign saving flows had greater negative impact on household consumption then the terms of trade shock. Poverty measured by the head count ratio has been greater from reduction in foreign saving flows then from the terms of trade shock. Poverty measured by the poverty gap and poverty intensity has concentrated in rural areas, being greater from reduction in foreign saving flows then from the terms of trade shock. Under macroeconomic stability (no shocks and 1998 macro conditions) social expenditure policy for poverty reduction would have had an important positive impact on household income and consumption levels (more so in income then consumption), in reducing the number of poor (more in urban then rural areas), and in reducing poverty gap and poverty intensity (more so in rural areas). However, social expenditure policy does not promote the production of tradables. The combined positive effects from observed social expenditure policy and effort in an environment of low output growth, did not compensate the combined negative impacts from the experienced terms of trade shock and reduction in foreign saving flows. These conclusions show that under macroeconomic disequilibrium poverty reduction efforts become policies of poverty containment or safety net programs. Poverty reduction is a long term objective that requires long term commitment for an environment on macroeconomic stability.

Suggested Citation

  • Barja, Gover & Monterrey, Javier & Villarroel, Sergio, 2004. "Bolivia: Impact of shocks and poverty policy on household welfare," MPRA Paper 22937, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:22937
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    References listed on IDEAS

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    6. Barja, Gover & Urquiola, Miguel, 2003. "Capitalization and Privatization in Bolivia: An Aproximation to an Evaluation," MPRA Paper 23049, University Library of Munich, Germany.
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    9. Gover Barja Daza & Javier Monterrey Arce & Sergio Villarroel Bohrt, 2005. "The Elasticity of Substitution in Demand for Non-Tradable Goods in Bolivia," Research Department Publications 3181, Inter-American Development Bank, Research Department.
    10. Andersen, Lykke E., 2003. "Baja movilidad social en Bolivia:causas y consecuencias para el desarrollo," Revista Latinoamericana de Desarrollo Economico, Carrera de Economía de la Universidad Católica Boliviana (UCB) "San Pablo", issue 1, pages 11-36, Septiembr.
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    Cited by:

    1. Aline Coudouel & Stefano Paternostro, 2006. "Analyzing the Distributional Impact of Reforms : A Practitioner’s Guide to Pension, Health, Labor Markets, Public Sector Downsizing, Taxation, Decentralization, and Macroeconomic Modeling, Volume 2," World Bank Publications - Books, The World Bank Group, number 7041, December.
    2. Essama-Nssah, B., 2005. "The poverty and distributional impact of macroeconomic shocks and policies : a review of modeling approaches," Policy Research Working Paper Series 3682, The World Bank.
    3. Yanez-Pagans, Monica, 2008. "Culture and Human Capital Investments: Evidence of an Unconditional Cash Transfer Program in Bolivia," IZA Discussion Papers 3678, Institute of Labor Economics (IZA).
    4. Behrman, Jere R., 2009. "Analyzing the Distributional Impact of Reforms, Volume Two: A Practitioner's Guide to Pension, Health, Labor Market, Public Sector Downsizing, Taxation, Decentralization, and Macroeconomic Modeling. A," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(3), pages 396-397, July.
    5. Tellería, Roberto & Ludeña, Carlos & Fernández, Soraya, 2011. "Policy alternatives and strategies for the Plurinational State of Bolivia following the end of trade preferences," Documentos de Proyectos 3922, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    6. Unknown, 2009. "Journal of International Agricultural Trade and Development, Volume 5, Issue 1," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 5(1), pages 180-180, June.
    7. Marta Moratti, 2010. "Consumption Poverty and Pro-Poor Growth in Bolivia," Working Paper Series 1310, Department of Economics, University of Sussex Business School.

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    More about this item

    Keywords

    External Shocks; Poverty; CGEM 1-2-3; HEGY;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D10 - Microeconomics - - Household Behavior - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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