Growth still is good for the poor
David Dollar, Tatjana Kleineberg, Aart Kraay, 19 November 2013
A key Millennium Development Goal was to halve the number of people living on less than $1.25 a day. This was met five years ahead of schedule, and the World Bank is promoting a new goal of ‘shared prosperity’ defined in terms of the growth rate of incomes in the bottom 40% of households. This column discusses research showing that there is a strong one-for-one relationship between overall growth and average income growth in the poorest quintiles. Overall growth is thus still important.
With the formulation of the Post-2015 Development Agenda in full swing, it is important to reassess how and to what extent new development challenges should be reflected in the agenda. A key part of the soon-expiring Millennium Development Goals aimed at halving absolute poverty – as defined by the World Bank's $1.25/day standard – between 1990 and 2015.
Tags: development, growth, Inequality, Millennium Development Goals, Poverty, World Bank
Public debt and economic growth: There is no ‘tipping point’
Markus Eberhardt, Andrea F Presbitero, 17 November 2013
The idea that there is a common tipping point in the relationship between public debt and economic growth is still widespread. However, this is likely due to a misinterpretation of the existing evidence. Once we allow for the relationship between debt and growth to be country-specific, there is limited evidence supporting the presence of a within-countries debt threshold.
The presence of a common threshold, or ‘tipping point’ – beyond which the detrimental impact of debt on growth is significant, or significantly increases – is currently taken as given in many policy circles.
Topics: Macroeconomic policy
Tags: austerity, debt, growth
Democracy in Africa
Thorvaldur Gylfason, 17 November 2013
Based on statistical measures of different degrees of democracy vs. autocracy, this article briefly reviews the progress of democracy around the world during the past 212 years, and places democratic developments in Africa since 1960 in that context. Democracy is positively associated with education, which in turn is associated with lower fertility and greater longevity. Democracy is also associated with reduced corruption. Together, these effects suggest democracy should be good for growth – a hypothesis that is borne out by the data.
A man’s admiration for absolute government is proportionate to the contempt he feels for those around him.
― Alexis de Tocqueville
Until the second half of the 19th century, there were so few democratic states around the world that they could be counted on the fingers of one hand.
Topics: Development, Economic history, Politics and economics
Tags: Africa, anocracy, autocracy, Corruption, democracy, education, fertility, growth, life expectancy
African polygamy: Past and present
James Fenske, 9 November 2013
Several theories link polygamy to poverty. Polygamy is concentrated in west Africa and has declined in recent decades. Geographic variation in women’s agricultural productivity does not predict differences in the prevalence of polygamy, but historical inequality and exposure to the slave trade do. Although contemporary female education does not reduce polygamy, areas with more educational investment in the past have less polygamy today. Conflict and lower rainfall lead to small increases in polygamy, whereas lower child mortality leads to a large decrease. National policies appear to have little effect.
Polygamy and poverty are both widespread in sub-Saharan Africa.1 Several arguments have been made suggesting this correlation is causal.
Topics: Development, Economic history, Poverty and income inequality
Tags: Africa, fertility, growth, polygamy, Poverty, slave trade
Long-term barriers to growth
Enrico Spolaore, Romain Wacziarg, 3 October 2013
There is now widespread agreement that ‘deep’ history matters for comparative development. Recent research has shown that ancestry – the transmission of genetic and cultural traits across generations – matters more than the history of geographic regions. This column argues that long-term divergences in inherited traits can create barriers to the diffusion of technology. The greater a population’s genetic distance to the population on the technological frontier, the lower its relative income will be. Development policies should aim at reducing barriers to exchange and communication.
Students of comparative development have turned their focus to factors rooted deeper and deeper in history.
Topics: Development, Economic history
Tags: ancestry, Culture, development, geography, growth, technology transfer
A new age of uncertainty? Measuring its effect on the UK economy
Abigail Haddow, Chris Hare, John Hooley, Tamarah Shakir, 27 August 2013
Economic uncertainty is not good for GDP growth. This column presents a new, UK-specific measure of economic uncertainty. It shows that UK economic uncertainty is now at historically high levels and that it has been unusually persistent in recent years. There is evidence that elevated uncertainty has been a factor restraining the UK recovery. What happens to uncertainty going forward will be important for growth.
Previous analysis has shown that the global financial crisis led to a rise in global macroeconomic uncertainty. Nick Bloom and others have highlighted the adverse effect of heightened uncertainty on economic activity – in particular by causing firms to cut back on hiring and investment, and leading households to become more cautious in their spending (Bloom 2011, Baker et al. 2011).
Topics: Europe's nations and regions
Tags: growth, UK
Inclusive growth revisited: Measurement and evolution
Rahul Anand, Saurabh Mishra, Shanaka J Peiris, 17 August 2013
The call for inclusive growth – the pace and distribution of economic growth – has been unanimously broadcast by policymakers across the world. This column presents a new method for measuring it that’s in line with the absolute definition of pro-poor growth. This integrated measurement should prove useful for researchers wanting to delve deeper into the patterns and to study the sources of inclusive growth.
Inclusive growth refers to both the pace and distribution of economic growth.
For growth to be sustainable and effective in reducing poverty, it needs to be inclusive (Berg and Ostry 2011a, Kraay 2004);
Topics: Global crisis, Macroeconomic policy
Tags: growth, measurement, metrics
Unleashing growth: The decline of innovation-blocking institutions
Klaus Desmet, Stephen L. Parente, 18 May 2013
Innovation is the beating heart of modern growth. This column argues that innovation-blocking institutions weaken when markets expand and competition intensifies. The rise and decline of medieval Italian crafts guilds offer valuable insights into this process. Policies that promote greater market integration and stronger competition are key steps in lowering the barriers to innovation.
Two hundred years ago, during the Napoleonic Wars, the Luddite movement rocked the English industrial landscape. Dissatisfied with falling wages and increased competition from mills employing cheap rural labour, the Luddites broke into factories at night, smashing spinning frames and power looms.
Topics: Economic history, Productivity and Innovation
Tags: growth, guilds, institutions
Why reforms fail: Political-economy forces and agriculture in Africa
M. Ataman Aksoy, Bernard Hoekman, 15 May 2013
Increasing agricultural productivity and expanding the agribusiness industry in sub-Saharan Africa is critical for poverty reduction, food security and economic growth. Numerous recent national, regional and G20-level programmes have been initiated to that effect. This column discusses new research showing that political economy forces have a major bearing on the success or failure of agricultural reform programmes. To be successful, policymakers must bear in mind the extent to which existing elites are affected by the redistribution associated with increasing returns for rural producers.
There are many hypotheses on why some nations fail and others become successful (see Acemoglu and Robinson 2012). While the debate rages on, an area of agreement is that the strength of institutions and their ability to adjust to shocks is an important factor.
Tags: Africa, growth
Eurozone: Looking for growth
Laurence Boone, Céline Renucci, Ruben Segura-Cayuela, 25 March 2013
What happens after the crisis ends? This column estimates the long-term effects of the current cyclical downturn on Eurozone economies. In the absence of any real impetus for bold reform, estimates show that the damage will indeed be long lasting, permanently impairing growth for an ageing population that requires higher growth capacity more than ever before.
The financial crisis that erupted in 2008, prolonged by a sovereign crisis in the Eurozone, led to a massive contraction in trade, as well as in investment in physical and human capital; thus undermining the foundations of future growth. This may well continue as growth will not rapidly rebound while deleveraging slowly proceeds across Eurozone economies.
Topics: Europe's nations and regions, Productivity and Innovation
Tags: Ageing, Eurozone crisis, growth, productivity, Solow