Macro Stability can be Detrimental to Poverty

Iwan J. Azis ()
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Iwan J. Azis: Professor, Cornell University

Economics and Finance in Indonesia, 2009, vol. 57, 1-23

Abstract: Consider the following propositions frequently voiced by policy makers and economists alike: Proposition 1: Macroeconomic stability is essential for growth, and economic growth is the single most important factor influencing poverty. By implication, macroeconomic stability should be upheld. Furthermore, low inflation is good for the poor, thus macro stability is even more essential for poverty reduction. Proposition 2: Slower growth and higher inflation can worsen poverty; by implication, maintaining macroeconomic stability is necessary for reducing poverty. Despite the seemingly logical narrative in the above propositions, no generalization can be made as to their validity. Only after we identify the detailed transmission mechanisms from macro policy to poverty can we be more certain about the propositions. In this paper I identify and use such transmission mechanisms, and show by using the Indonesian case that the above two propositions are void, at the very least inadequate. The mechanisms involve some complex relations in whom growth, stability, income inequality and poverty are all endogenous and interrelated.

Keywords: Macroeconomic Stability; Economic Growth; Poverty (search for similar items in EconPapers)
JEL-codes: E0 F43 I32 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:lpe:efijnl:200901

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