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External shocks, fiscal policy and income distribution : alternative scenarios for Moldova

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  • Kinnunen, Jouko
  • Lofgren, Hans
  • Sulla, Victor
  • Merotto, Dino

Abstract

The economy of Moldova, which has one of the lowest levels of gross national income per capita in the World Bank Europe and Central Asia region, is strongly linked to the outside world, especially to the neighboring countries of the European Union and the Commonwealth of Independent States. This paper analyzes a set of scenarios for Moldova up to 2020, defined to shed light on issues related to an alternative future dominated by goods and services exports as opposed to today's reliance on worker remittances. The analysis is based on a Moldovan version of MAMS (Maquette for Millennium Development Goal Simulations), a CGE (Computable General Equilibrium) model for country strategy analysis. In sum, the impact of increased export demand and productivity growth is more positive when these shocks are directed to manufacturing, a sector more heavily linked to international trade, compared with agriculture. Increased productivity in transport and communications generates faster growth with widely diffused benefits, reaching households in a relatively equitable manner compared with foreign trade-induced growth. A comparison between adverse shocks in two areas, higher energy import prices, and lower remittances, designed to have similar effects on gross domestic product, suggests that a remittance shock leads to less of a poverty increase, related to the fact that remittance-receiving households are not highly vulnerable; among sectors, agriculture is most vulnerable due to heavy energy reliance. Finally, well-targeted transfer schemes may offer an effective tool for diffusing the benefits of economic growth to the whole population, perhaps also contributing to more general acceptance of structural change.

Suggested Citation

  • Kinnunen, Jouko & Lofgren, Hans & Sulla, Victor & Merotto, Dino, 2013. "External shocks, fiscal policy and income distribution : alternative scenarios for Moldova," Policy Research Working Paper Series 6365, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6365
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    1. International Monetary Fund, 2012. "Republic of Moldova; Staff Report for the 2012 Article IV Consultation, Fifth Reviews Under the Extended Arrangement and Under the Three-Year Arrangement Under the Extended Credit Facility, and Reques," IMF Staff Country Reports 12/288, International Monetary Fund.
    2. International Monetary Fund, 2010. "Republic of Moldova; Selected Issues Paper," IMF Staff Country Reports 10/232, International Monetary Fund.
    3. International Monetary Fund, 2008. "Republic of Moldova; Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Nonobservance of Performance Criterion: Staff Report; Staf," IMF Staff Country Reports 08/320, International Monetary Fund.
    4. International Monetary Fund, 2012. "Republic of Moldova; Selected Issues," IMF Staff Country Reports 12/289, International Monetary Fund.
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    7. International Monetary Fund, 2010. "Republic of Moldova; Request for a Three-Year Arrangement Under the Extended Credit Facility and Request for an Extended Arrangement," IMF Staff Country Reports 10/32, International Monetary Fund.
    8. International Monetary Fund, 2012. "Republic of Moldova; Fourth Reviews Under the Extended Arrangement and Under the Three-Year Arrangement Under the Extended Credit Facility, and Requests for Waiver for Nonobservance of a Performance C," IMF Staff Country Reports 12/38, International Monetary Fund.
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    14. International Monetary Fund, 2008. "Republic of Moldova; Selected Issues," IMF Staff Country Reports 08/134, International Monetary Fund.
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    Keywords

    Economic Theory&Research; Debt Markets; Emerging Markets; Labor Policies; Currencies and Exchange Rates;

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