Convergence, Shocks and Poverty

Tinbergen Institute Working Paper 2002-035/2

21 Pages Posted: 27 Apr 2002

See all articles by Chris Elbers

Chris Elbers

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Jan Willem Gunning

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Bill H. Kinsey

Vrije Universiteit Amsterdam, School of Business and Economics

Date Written: 2002

Abstract

Using a unique panel data set for rural households in Zimbabwe we estimate a microeconomic model of growth under uncertainty, a stochastic version of the Ramsey model with livestock as the single asset. We use the estimation results in simulation experiments (over a 20-year period) to quantify the importance of convergence, household fixed effects and shocks. First, we find powerful convergence. In the absence of shocks and without household fixed effects there is rapid growth over the period (5.6% growth p.a. in per capita assets) even though there is no technical progress. The process of adjusting the capital stock (livestock) to its steady state value is - as expected - strongly equalising: the coefficient of variation (across households) of livestock ownership falls from 78% to 6%. Secondly, when we allow for household fixed effects - the case of conditional convergence - the aggregate growth rate is very similar but inequality remains high throughout the period! Finally, we find that shocks have strong and persistent effects. In this model shocks affect aggregate growth both ex ante and ex post. These effects are strong: shocks reduce aggregate growth over the period by a fifth and increase inequality substantially.

Keywords: convergence, poverty dynamics, growth under uncertainty.

JEL Classification: O12, D91

Suggested Citation

Elbers, Chris and Gunning, Jan Willem and Kinsey, Bill H., Convergence, Shocks and Poverty (2002). Tinbergen Institute Working Paper 2002-035/2. Available at SSRN: https://ssrn.com/abstract=306964 or http://dx.doi.org/10.2139/ssrn.306964

Chris Elbers (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Jan Willem Gunning

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+ 310 20 444 6141 (Phone)
+ 310 20 444 6004 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Bill H. Kinsey

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31 (0)20 44 46144 (Phone)

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