External Shocks, Fiscal Policy and Income Distribution: Alternative Scenarios for Moldova

47 Pages Posted: 20 Apr 2016

See all articles by Jouko Kinnunen

Jouko Kinnunen

Government of the Republic of Finland - VATT Institute for Economic Research

Hans Lofgren

World Bank

Victor Sulla

World Bank - Research Department

Dino Merotto

World Bank

Date Written: February 1, 2013

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.

Keywords: Economic Theory & Research, Debt Markets, Emerging Markets, Labor Policies, Currencies and Exchange Rates

Suggested Citation

Kinnunen, Jouko and Lofgren, Hans and Sulla, Victor and Merotto, Dino, External Shocks, Fiscal Policy and Income Distribution: Alternative Scenarios for Moldova (February 1, 2013). World Bank Policy Research Working Paper No. 6365. Available at SSRN: https://ssrn.com/abstract=2221158

Jouko Kinnunen (Contact Author)

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

Hans Lofgren

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Victor Sulla

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Dino Merotto

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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