Pro Poor Macroeconomics

This book tackles the disagreements that affect those looking to establish the macroeconomic policies needed to halve poverty over the next ten years. It presents a pro-poor macroeconomic policy allowing countries to recapture policy space, help promote growth, reduce inequality and diminish poverty in a sustainable way.

The relationship between growth, inequality, and poverty lies at the heart of development economics. This volume draws together many of the most important recent contributions to the controversies surrounding this topic. Some of the chapters help explain why there is profound disagreement on crucial issues of growth, poverty and inequality within academic circles, and among organizations and various groups active in the development field. Another central theme is the cross-country evidence on the relationship between growth and poverty, and the extent to which it is valid to draw policy conclusions from this empirical evidence. The volume also shows how new microeconomic techniques such as poverty maps and microsimulation models can be used to improve poverty analysis and the design of pro-poor policies. The overall conclusion points to the need for diverse strategies towards growth and poverty, rather than simple blanket policy rules. Initial conditions, specific country structures, and time horizons all play a significant role. Initial conditions affect the speed with which growth reduces poverty and can also determine whether policies such as trade liberalization have a pro-poor or an anti-poor outcome. Improved education is valuable in itself, and also contributes to poverty reduction; but its effect on inequality depends on supply and demand factors, which differ significantly across countries. Likewise, the quantitative impact on poverty of redistribution from the rich to the poor vis-a-vis an increase in total national income can vary greatly across countries. Hence the need for creative approaches to poverty which take full account of the specific circumstances of individual nations and which assign a central role to inequality analysis in the discussion of poverty-alleviation policies.

The winners of the Nobel Prize in Economics upend the most common assumptions about how economics works in this gripping and disruptive portrait of how poor people actually live. Why do the poor borrow to save? Why do they miss out on free life-saving immunizations, but pay for unnecessary drugs? In Poor Economics, Abhijit V. Banerjee and Esther Duflo, two award-winning MIT professors, answer these questions based on years of field research from around the world. Called "marvelous, rewarding" by the Wall Street Journal, the book offers a radical rethinking of the economics of poverty and an intimate view of life on 99 cents a day. Poor Economics shows that creating a world without poverty begins with understanding the daily decisions facing the poor.

Human Development is widely recognised as the overriding goal of development, yet its realization is challenged by growing inequality, macro-economic fluctuations, and recurrent financial crises. This edited collection reflects on the work of Richard Jolly and includes contributions from leading scholars of development, all of whom have worked with Richard Jolly at varying points in his distinguished career. The volume advances thinking in the area of Human Development by discussing the evolution of its conceptualization and the policy implications, and the achievements in related key areas such as education, social protection, and employment. It juxtaposes these theoretical and (at times) real life improvements with disturbing developments in terms of growing inequality and macro-economic instability. It documents the growing income inequality which has characterized both developing and developed countries. It shows that there has been a decline in some countries and identifies the policies adopted in these exceptional cases. It also shows also where and how public expenditure on Human Development in developing countries has been affected by the 2008 financial crisis and presents a new framework for a pro-growth pro-Human Development macro-economics, including suggestions for the countercyclical regulation of financial flows. The book also argues that a series of disruptive factors are nudging the innovation trajectory in new potentially pro-poor and pro-Human Development directions, especially if policies speed-up the diffusion of new efficient appropriate technologies in low and middle income economies.

Growth is pro-poor if the poverty measure of interest falls. This implies three potential sources of pro-poor growth: (a) a high rate of growth of average incomes; (b) a high sensitivity of poverty to growth in average incomes; and (c) a poverty-reducing pattern of growth in relative incomes. I empirically decompose changes in poverty in a large sample of developing countries into these components. In the medium run, most of the variation in changes in poverty is due to growth, suggesting that policies and institutions that promote broad-based growth should be central to pro-poor growth. Most of the remainder is due to poverty-reducing patterns of growth in relative incomes, rather than differences in the sensitivity of poverty to growth in average incomes. Cross-country evidence provides little guidance on policies and institutions that promote these other sources of pro-poor growth.

The paper investigates the existence of "super pro-poor" policies-that is, policies that directly influence the income of the poor after accounting for the effect of growth. It uses a dynamic panel estimator to capture both across- and within-country effects, and a Bayesian-type robustness check to account for model uncertainty. The findings confirm that growth raises the income of the poor, although this relationship is less than one-to-one. The analysis also identifies four super pro-poor conditions that are influenced by policy: inflation, government size, educational achievement, and financial development.

"That raising income levels alleviates poverty, and that economic growth can be more or less effective in doing so, is well known and has received renewed attention in the search for pro-poor growth. What is less well explored is the reverse channel: that poverty may, in fact, be part of the reason for a country's poor growth performance. This more elabborated view of the development process opens the door to the existence of vicious circles in which low growth results in high poverty and high poverty in turn results in low growth. Poverty Reduction and Growth is about the existence of these vicious circles in Latin America and the Caribbean about the ways and means to convert them into virtuous circles in which poverty reduction and high growth reinforce each other. Through its analysis of fresh data and the attention it pays to issues such as the persistent inequality in the region, the role played by various microdeterminants of income, and the potential existence of human capital underinvestment traps, this title should be a valuable contribution to the current regional debate on poverty and growth, a debate that is critical to the design of policies conducive to enhancing welfare in all is dimensions among the poor of Latin America and the Caribbean."

The paper investigates the existence of super pro-poor policies--that is, policies that directly influence the income of the poor after accounting for the effect of growth. It uses a dynamic panel estimator to capture both across- and within-country effects, and a Bayesian-type robustness check to account for model uncertainty. The findings confirm that growth raises the income of the poor, although this relationship is less than one-to-one. The analysis also identifies four super pro-poor conditions that are influenced by policy: inflation, government size, educational achievement, and financial development.