Poverty-Growth-InequalityTriangleunderGlobaliza9on: TimeDimensionsandtheControlFactors
oftheImpactsofIntegra9on
YumekaHIRANOandShigeruOTSUBOGraduateSchoolofInterna>onalDevelopment
NagoyaUniversity
The13thInterna>onalConven>onoftheEastAsianEconomicAssocia>oninSingapore
20October,2012
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ThisresearchisfundedbytheJapanSocietyforthePromo>onofScience(JSPS)ResearchFunds(KibanA-22252005andChallengingExploratoryResearch23653066).YumekaHiranoisaJSPSDoctoralResearchFellow.ShigeruOtsuboisaprofessorandthedirectorfortheEconomicDevelopmentPolicy&ManagementProgramattheGSID,NagoyaUniversity.
Contents
1. Introduc>on:Ques>onstobeaddressed2. LiteratureSurvey3. MethodsandEmpiricalModels4. Data:Whatdoesitshow?5. RegressionResults6. ConcludingRemarks
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1.Introduc>on:P-G-IRela>onshipunderGlobaliza>on
Trade-off?
Development GovernanceInstitutions
ElasticityofPovertyReduction 'Pro-Poor' ElasticityofPovertyReduction
w.r.t.G rowth w.r.t.Distribution
GrowthIncreasesin
M eanIncom eLevel
InequalityD istributionofIncom e
D istributionofAssets
PovertyReductionin
AbsolutePoverty
GlobalizationTradeIntegration
FinancialIntegration
H RIntegration
Globalization
Source:Otsubo,Shigeru(2009),LeadingIssuesinDevelopmentwithGlobaliza8on,Fig.1-2,p58.3
1.Introduc>on:Ques>onstobeaddressed
• Growthisgoodforthepoor(Kraay,2002)• Inequalityisbadforthepoor(Ravallion,2005)• Thesocio-economicstructure,ins>tu>ons,culture,policies,and
othercountryspecificfactorsarethedeterminingfactorsoftherela>onshipsamonggrowth,inequality,andpovertyreduc>on.
• Theelas>cityofpovertyreduc>onwithrespecttoeconomicgrowth(growtheffect)isonlylessthanhalfoftheelas>cityofpovertyreduc>onwithrespecttochangesinincomedistribu>on(distribu>oneffect)(Bourguignon,2003;Ravallion,2005).
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Whethergrowthstrategyunderglobaliza9on(trade,financeandinvestment,andlabormigra9on),whichisconsideredtoexpanddomes9cdisparity,indeedachievespovertyreduc9onornot?
StocktakingofCross-CountryEmpiricalAnalysis
1.1Integra>onisgoodforgrowth?
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• (lnyct–lnyc0)/T=α+βlnyc0+λt’+εct’[1]• (lnyct–lnyc0)/T=α+βlnyc0+γlnZct+λt’+εct’[2]
yc0:theini>allevelofpercapitaincomeforcountrycyct:thelevelofincomeatyeartforthesamecountrycZct:condi>ons/factorsforincomeconvergenceatyeartforthesamecountrycλt’:>me-specificfixedeffects.εct’:arandomerrorterm.
Globaliza>on(economicintegra>on)asacrucialfactor,togetherwithpolicystancesandins>tu>onalquali>es,forthecondi>onalβ-convergence
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Source:Authors’compila>on
1.1Integra>onisgoodforgrowth?
1.2IsTradeIntegra>onDistribu>onNeutral?
7Source:Authors’compila>onusinggrowthspellsof5-9years.
1.2Isintegra>onneutraltoincomedistribu>on?
l DollarandKraay(2004):² Nosignificantcorrela>oncanbeobservedbetweenthechangesinthe
trade/GDPra>os(orchangesintariffrateandcapitalregula>ons)andthechangesintheGini,andthatnotonlytheeconomicgrowthbutalsotradeintegra>onis“onaverage”neutraltoincomedistribu>on.
l Milanovic(2005):² Tradeintegra>ongivesanega>veimpactespeciallyamongthemiddle
andlowestclasshouseholdsinpoorna>on(althoughposi>veeffectwasobservedinhighincomefamiliesofhigh-incomecountries).
² Investmentintegra>onislikelytobenefitonlythetopincomeclass,althoughitisnotyetsta>s>callysignificant.
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1.3Whataretheappropriate>medimensionsinanalyzingtheroleofins>tu>ons?
• Previousstudiesfocusedonthequalityofeconomicpolicies(trade,fiscalandmonetarypolicies,etc.)
• Thispaperpaysmoreaven>ontoins>tu>onalquality/capacityasthecontrolfactorsoftheimpactsofintegra>on.
• Ins>tu>onhasdifferentnature,whichtakeslonger>metogiveitseffectsthanpolicychanges(Williamson,2000).
• Qualityofins>tu>onsshouldbeoneofthekeydeterminantsforeconomicgrowthandpovertyreduc>oninthelongerrun.
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3.MethodsandEmpiricalModels
1)Globaliza>onandGrowth:Doesintegra>onpromotegrowthandincomeconvergence?(lnyct–lnyc0)/T=α+βlnyc0+γlnGinic0+δlnZct+θlnGct+λt’+εct’[3]
2)Globaliza>onandInequality:Isintegra>onneutraltoincomedistribu>on?a)Es>mate1)forthegrowthratesofaverageincomeofthepoorestquin>le(andtestΔθ)(lnypct–lnypc0)/T=α+βlnypc0+γ(lnyct–lnyc0)/T+δlnGinic0+η lnZct+θlnGct+λt’+εct’[4]b)Es>matelevelrela>onshipalaDollarandKraay(2004,Eq.3).lnypct=α+βlnyct+δlnZct+θlnGct+μc+λt+εct[5]Countryfixed-effectses>ma>onsareconducted(i.e.es>ma>ngμc).c)Percapitaincomein1)isreplacedbymeasurementsofinequality(Gini,5thquin>leincomeshare)
(lnGinict–lnGinic0)/T=α+βlnGinic0+γ[(lnyct–lnyc0)/T]+δlnZct+θlnGct+λt’+εct’ [6]3)PoveryandGrowth/Inequality:Changesinpovertyindicatorsareregressedongrowthand(levelsof/changesin)inequalitymeasurementswithtwosetsofcontrolvariablesZandG.(lnPovct–lnPovc0)/T=α+βlnPovc0+γ[(lnyct–lnyc0)/T]+δlnGinic0+ε[(lnGinict–lnGinic0)/T]+ηlnZct+θlnGct+λt’+εct’[7]
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AseriesofpanelregressionanalysesingrowthspellsformajorsegmentsoftheP-G-Itriangleunderglobaliza>on
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Lessons from the Cross-country Estimates of the Kuznets Curve
Source: Bourguignon 2004, Figure 5
Ifthemodelstartsfromagrowthspellequa>onwithanassump>onofcountry-specificeffectsingrowths/changes,howwouldthees>matedcoefficients(sensi>vi>es)behave?
3.1FixedEffects
3.2Instruments
• Thecurrentstudyusessimpleandstandardizedinstrumentsoflaggedvaluesforthelevels(includinglaggedperiodaveragesforperiodaverages),andini>alvalueandlaggedrateofchangesforgrowthspells.
• Explanatoryvariablesareinstrumentedonlywhenitseemslogicaltomobilizeinstruments.Ingrowthregressions(Eq.[3]),mostvariables,exceptforini>alvalues,areinstrumented.
• Inlevelregressionsforthepoorestquin>leincome(Eq.[5]),onlyna>onalaveragepercapitaincomeisinstrumented.
• Similarly,onlyincomegrowthspellsareinstrumentedintheGiniconvergenceregressions(Eq.[6]).Inthepovertychange(P-G-I)regressions(Eq.[7]),onlyGinichangesareinstrumented.
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3.3TimeDimensions
Impactsindifferent>medimensions1) Short-term(1to4years)2) Medium-term(5to9years)3) Long-term(overtenyears)Inordertoavoidmixingupkinksandshi}singrowthchangesineachspell,astheproblemspointedoutbyPritchev(2000)andetal.
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Figure4:KinksinDecadalGrowthPerformance
Source:Authors’compila>onbasedonWDI
4.Data:Whatdoesitshow?• Thegrowthspellsoftheaforemen>onedthreedifferent>medura>ons
arecompiledfromtheavailabledatapointsofbovom-quin>leincomesharesduringtheperiodfrom1978to2010.
• MostofthedatasetcomesfromWDI,exceptHDIindexfromUNDP,Ins>tu>onIndexfromICRGandFreedomHouse.
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AverageYear No.ofCountries
No.ofGrowthSpells
Period
ShortTerm 1.75 79 561 1981-2010
MediumTerm 5.72 99 245 1978-2010
LongTerm 11.17 86 116 1979-2010
• Highergrowthperformanceinthedecadaldummyforthe2000s.(Eq.[2]).• Incomeconvergence,bothamongeachregionandamongeachincomegroup,is
detectedacrossgrowthspellsofdifferent>medura>ons,withhighersignificancefoundinthelonger-termdatabase.(Eqs.[3]&[4])
• Crisesdummiesfoundanega>veandsignificantcoefficientintheshortspells,butfoundposi>veandsignificantcoefficientsinthelongerspells.Countriesexperiencingcrises(DebtCrisis:1982-83,AsianFinancialCrisis:1997-98,andtheWorldFinancialCrsis:2008-09)tendtoovercometheshort-termnega>veimpactwithreformsandcounterpoliciesandenjoyevenhigherrateofgrowthsasendresults.(Eq.[6])
• Surprisingly,landlocked-countrydummiesfoundposi>ve(andsignificantinshortspells)coefficients.(Eq.[7])
• Posi>veandsignificantcoefficientswerefoundfortransi>onaleconomiesandtheFormerSovietUnion(FSU)dummies,acrossgrowthspellsofthethree>medura>ons.(Eqs.[8]&[9]).
• Ini>alinequalitytendstounderminesubsequentgrowthperformance(astotaleffects).(Eq.[10]-[11])
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4.Data:Whatdoesitshow?(Table1-3)
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FromTable4Cross-correla>ons• thecorrela>onbetweenrateofchangesininequality(GINI)andthatin
povertyheadcountra>o(HCR)istwiceashighinthelongerspells(0.46)ascomparedtothatinthemedium-termspells(0.23).
• Whilethegrowthintheaverageincomeofthebovomquin>leishighlycorrelatedwithoverallGINI,therateofchangesinthena>onalaverageincomeislargelyneutraltoincomedistribu>oninthesegrowthspells.
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4.Data:Whatdoesitshow?
5.RegressionResults
PleaseRefertotheTablesofRegressionResults.
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5.1GrowthRegressions(Block1)Table5:• Asignificantposi>veimpactongrowthofFDIs(theperiodaverage
ra>osofFDItoGDP)isdetected.• Remivances(thatrepresentsmigrantworkers)havenega>ve
rela>onswith(par>aleffectson)growthperformancewithlesstomoderatesignificance.
• Theresultsforthetradeintegra>onaremixed.Asasingleexplanatoryvariable,theini>alvalueoftradetoGDPra>ohasalesstomoderatelysignificantposi>vecoefficient.Inasetofpolicy,ins>tu>onvariablesandtheFDI,theaveragerateofchangeintradetoGDPra>ohasamoderatelysignificantposi>vecoefficient.
• Otherresultsarelargelyinsignificantandsome>mescounterintui>ve.
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5.1GrowthRegressions(Block1)Table6-7:• Althoughtheresultsobtainedfromthevola>leshort-termgrowth
spellsaresomewhatunstable,itisgenerallytruethattheimpactofmacroeconomicpolicymanagementismoresignificantlyvisibleinshorterspellsascomparedtothoseinthelongerspells.
• Whilethesizeofthegovernmentisgenerallynega>velyassociatedwithgrowthperformanceintheshortterm,thateffectbecomesnegligibleinthelongerterm.
• Theimportanceofinfla>oncontrol,i.e.,thepreserva>onofthevalueofcurrency,persiststhroughoutthe>medura>ons.
• Thesignificanceoftheimpactofins>tu>onalqualitytendstoincreaseinthelonger>mespans.Italsoincreasesrela>vetothoseofmacroeconomicpolicymanagement/stancevariables.Ittakeslonger>metoobservetheposi>veimpactofhigherins>tu>onalquality,justlikeittakeslonger>metobuildit.
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Table8• Tradetendstobepro-poorwithlesssignificance(Column5),while
FDItendstobean>-poorwithlesstomoderatesignificance.• Ins>tu>onalqualityasmeasuredbyICRGcompositeandpoli>cal
situa>onindicatorstunedouttobesignificantlyan>-poorinarela>vesense.Thoseindicatorsofins>tu>onalquality(orgovernance)aredevelopedwithins>tu>onalinvestorsinmind,andthuslargelypro-investment,pro-growth,andsupply-sideoriented.
• Whiledemocracyandsecurityhaveposi>vees>matedcoefficientswithlesssignificance,nega>veandsignificantcoefficientisavachedtoacapacityindicatorthatmeasuresacountry’soverallmanagementcapacity.
• Thisresultalsoindicatestheneedofdevelopingpro-equality(thus,pro-poor)ins>tu>onalqualityindicatorsfortheanalysesaimedatiden>fyingfactorsformoreequitable,pro-poorgrowth.
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5.2InequalityRegressions(Block2)
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5.2InequalityRegressions(Block2)
Table9:es>matesofthecross-countryfixedeffects(thatshouldadduptozero)areobtainedusingthefivedequa>oninthecolumn(12)inTable8.• Ethiopia,Moldova,Zambia,Ukraine,Pakistan,Belarus,
Vietnam,KyrgyzRepublic,BurkinaFaso,andIndiaareiden>fiedasthetoptencountriesofpro-poorcountryfixedeffects.
• Brazil,Columbia,Bolivia,Panama,Argen>ne,SouthAfrica,Venezuela,Guatemala,Honduras,andParaguayareiden>fiedasthecountrieswithleastpro-poorfixedeffects.
• Thisiden>fica>onofpro-poorfixedeffects,however,dependsheavilyontheselec>onofperiodsinthesetofobserva>ons.
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5.2InequalityRegressions(Block2)Table10• ThereisasignificantabsoluteconvergenceinGiniacrosscountries(Column1).As
such,nopar>cularrela>onshipbetweenincomeandinequalityisnecessitated.GiventhecountryspecificeffectspostulatedinEq.[5],thesefixedeffectsdropoutintheregressionswithgrowthspells(Eq.[6]).
• AninsignificantcoefficientfoundinColumn(2)andmixed(sign)andinsignificantcoefficientsavachedtoincomegrowthterminthecolumnsofTable9signifythisfact.
• Moderatelysignificantandnega>vecoefficientsavachedtoincomegrowthimplythat,whenthesegmentofincomegrowthcausedbyfacesofintegra>onisseparatelyaccountedfor,growthpropelledbydomes>creasonstendtoreduceinequality.Inotherwords,thisinturnimpliesthatgrowthpropelledbyintegra>ontendstowideninequality.
• Amongthethreemodali>esofintegra>on,remivances—thatsignifytheexistenceofinterna>onalmigrantworkers—areslightlysignificantandhaveverystablenega>veimpact(pro-equalityimpact)onGini.
• Higherins>tu>onalqualityasmeasuredinICRGcompositeandpoli>calsitua>onindicatorsexpandsinequality,thoughitpromotesgrowthasseeninBlock1.
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5.3PovertyRegressions(Block3)Table11• Thereismoderatelysignificantabsoluteconvergenceinpoverty
headcountra>os(HCR)acrosscountries(Column1).• Thisstudy,withmanygrowthspellstakenfromcountriesin
transi>onincludingtheFSUstates,findshigherelas>cityofpovertyreduc>onforeconomicgrowth(Columns2,3and4).Theresultsofregressionswithpolicyvariables(Column5)indicatethatalargergovernmenttendstobepro-poor,andthatinfla>onisan>-poor.
• Ins>tu>onalqualityasmeasuredintheinvestor-orientedICRGindicators,whilepromo>ngoveralleconomicgrowth,affectsequality(GINIandbovomquin>leincomerela>vetothecountryaverage)nega>vely.
• higherins>tu>onalquality(ICRGindicators)reducespoverty(HCR)(Columns6and7).
• Noneofthevariablesofintegra>onturnsouttobe(strongly)significantintheequa>onspresentedinColumns(8)and(9).
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5.3PovertyRegressions(Block3)• Asatendency,ahigherini>alleveloftradeintegra>on
(tradetoGDPra>o)tendstoreducepovertyinasubsequentperiod,withlesstomoderatesignificance.Ahigheraveragerateofchangeinintegra>onthroughtrade,however,tendstoincreasepoverty.
• AlthoughFDIspromotegrowthrathersignificantly,thesameFDIstendtoexpandinequality(Gini),asreportedearlier.
• Thecombinedimpactonpovertyreduc>onisthusmixedandsta>s>callyinsignificantduringthisexercise.Althoughtheimpactofremivancesisstablyconducivetopovertyreduc>on,itislargelyinsignificantsta>s>callyamongthesamplecollectedforthisstudy.
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6.ConcludingRemarks• 1)theabsoluteincomeconvergenceineachincomegroup
(withdivergencebetweenincomegroups);• 2)thecondi>onalincomeconvergenceamongcountries
acrossincomegroups;and• 3)theabsolute(and,ofcourse,condi>onal)convergencein
inequality(GINI)andpovertyheadcountra>os(HCR)acrosscountries.
• However,unlikeearlierstudiesthatfoundhigherinequalityelas>cityofpovertyreduc>on,thisstudy,withmanygrowthspellstakenfromcountriesintransi>onincludingtheFSUstates,findshigherelas>cityofpovertyreduc>onforeconomicgrowth.
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6.ConcludingRemarks• rela>velyhighersignificanceof‘ins>tu>ons’withlowersignificanceof
‘policystances’inthelongergrowthspells.• Amongthethreedimensionsofintegra>ontestedinthisstudy
(interna>onaltrade,FDI,andremivances),highersignificanceexistsin:1)FDI(posi>ve)ingrowth;2)FDI(nega>ve)andtrade(posi>ve)intheincomeofbovomquin>lerela>vetona>onalaverage;and3)remivances(nega>ve)inpoverty(i.e.,reducepovertyheadcountra>o),butnotwithsufficientsta>s>calsignificance(atleastnotyet).
• Tradeismostlyneutraltoincomedistribu>on(GINI),whileFDIandremivancestendtoexertnega>veandposi>veimpacts,respec>vely.
• Ins>tu>onalqualityasmeasuredintheinvestor-orientedICRGindicators,whilepromo>ngoveralleconomicgrowth,affectsequality(GINIandbovomquin>leincomerela>vetothecountryaverage)nega>vely.AsthecombinedresultoftheP-G-Itriangle,however,higherins>tu>onalquality(ICRGindicators)reducespoverty(HCR).
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Thankyouforyouraven>on.
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