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The effect of International Monetary Fund and World Bank programs on poverty

  • Easterly, William

Structural adjustment - as measured by the number of adjustment loans from the IMF, and the World Bank - reduces the growth elasticity of poverty reduction. The author finds no evidence for structural adjustment having a direct effect on growth. The poor benefit less from output expansion in countries with many adjustment loans, than they do in countries with few such loans. By the same token, the poor suffer less from an output contraction in countries with many adjustment loans, than in countries with few. Why would this be? One hypothesis is that adjustment lending is counter-cyclical, in ways that smooth consumption for the poor. There is evidence that some policy variables under adjustment lending are counter-cyclical, but no evidence that the cyclical component of those policy variables affects poverty. The author speculates that the poor may be ill placed to take advantage of new opportunities, created by structural adjustment reforms, just as they may suffer less from the loss of old opportunities in sectors that were artificially protected before reform. Poverty's lower sensitivity to growth under adjustment lending, is bad news when an economy expands, and good news when it contracts. These results could be interpreted as giving support to either the critics, or the supporters of structural adjustment programs.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2517.

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Date of creation: 31 Jan 2001
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Handle: RePEc:wbk:wbrwps:2517
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  1. Ravallion, Martin, 2001. "Growth, Inequality and Poverty: Looking Beyond Averages," World Development, Elsevier, vol. 29(11), pages 1803-1815, November.
  2. Easterly, William & Fischer, Stanley, 2000. "Inflation and the poor," Policy Research Working Paper Series 2335, The World Bank.
  3. Bruno, Michael & Ravallion, Martin & Squire, Lyn, 1996. "Equity and growth in developing countries : old and new perspectives on the policy issues," Policy Research Working Paper Series 1563, The World Bank.
  4. James E. Rauch, 1994. "Balanced and Unbalanced Growth," NBER Working Papers 4659, National Bureau of Economic Research, Inc.
  5. Lipton, Michael & Ravallion, Martin, 1993. "Poverty and policy," Policy Research Working Paper Series 1130, The World Bank.
  6. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  7. Ratna Sahay & Deepak Mishra & Poonam Gupta, 2003. "Output Response to Currency Crises," IMF Working Papers 03/230, International Monetary Fund.
  8. Ravallion, Martin, 1997. "Can high-inequality developing countries escape absolute poverty?," Policy Research Working Paper Series 1775, The World Bank.
  9. Przeworski, Adam & Vreeland, James Raymond, 2000. "The effect of IMF programs on economic growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 385-421, August.
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