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

Jesus Crespo Cuaresma (), Stephan Klasen () and Konstantin Wacker

No 153, Courant Research Centre: Poverty, Equity and Growth - Discussion Papers from Courant Research Centre PEG

Abstract: Martin Ravallion ("Why Don't We See Poverty Convergence?" American Economic Review, 102(1): 504-23; 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 (search for similar items in EconPapers)
JEL-codes: I32 D31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ltv and nep-mac
Date: 2013-11-05
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