Why We Don't See Poverty Convergence: The Role of Macroeconomic Volatility

18 Pages Posted: 16 Nov 2013

See all articles by Jesus Crespo Cuaresma

Jesus Crespo Cuaresma

Vienna University of Economics and Business

Stephan Klasen

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Konstantin M. Wacker

University of Groningen - Faculty of Economics and Business

Date Written: October 2013

Abstract

Martin Ravallion ("Why Don't We See Poverty Convergence?" American Economic Review, 102(1): 504-523; 2012) presents evidence against the existence of poverty convergence in aggregate data despite the conditional convergence of per capita income levels and the close linkage between growth and poverty reduction in standard neoclassic growth theory and associated empirics. In this contribution we address this puzzle.

After showing some evidence of regional convergence, we demonstrate that macroeconomic volatility prevents countries with a higher incidence of poverty from converging in poverty levels to those with less poverty on a global scale. Once volatility is controlled for, the relevant convergence parameter shows the expected negative sign and is robust to various estimation techniques and model specifications. Only if a country’s volatility exceeds a relatively high threshold level, it no longer converges. Similarly, initial poverty only exercises a negative impact on mean (income) convergence in countries where macroeconomic volatility is high.

Keywords: poverty convergence, macroeconomic volatility

JEL Classification: I32, D31, E32

Suggested Citation

Crespo Cuaresma, Jesus and Klasen, Stephan and Wacker, Konstantin M., Why We Don't See Poverty Convergence: The Role of Macroeconomic Volatility (October 2013). Available at SSRN: https://ssrn.com/abstract=2354794 or http://dx.doi.org/10.2139/ssrn.2354794

Jesus Crespo Cuaresma

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Stephan Klasen

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany
+49-551-397303 (Phone)
+49-551-397302 (Fax)

HOME PAGE: www.vwl.wiso.uni-goettingen.de/klasen.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Konstantin M. Wacker (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

HOME PAGE: http://sites.google.com/rug.nl/kmwacker

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