Economic Growth and Poverty Alleviation: A

The Dollar and Kraay (2000) paper has proved to be remarkably influential with many of its conclusions widely quoted, particularly in support of the open market policies of the ‘Washington consensus’. However, although there have been a number of critical commentaries there have been very few formal analyses of the results or of the robustness of the support which they provide for the policy conclusions. In this paper the Dollar and Kraay results are investigated from a number of different perspectives. First, a number of questions are raised about the approach adopted. In particular, the Dollar and Kraay paper is notable for having no theoretical structure supporting the specification of the equations. It is unclear how much significance therefore can be attached to the correlations uncovered. In addition, there are the well-known difficulties of drawing conclusions from large cross section samples as well as the attendant problems of data quality. Finally, the identification of poverty with the income of the lowest quintile does not map into either an absolute or relative measure of poverty. There are thus grounds for an initial scepticism. However, this paper then considers in some detail the precise results reported in Dollar and Kraay. The results are replicated and a number of experiments with different regressors and different samples are performed. It is found that the central result of a strong correlation between average per capita income and the income of the lowest quintile is robust and holds under all of the various regressions. However, a number of important caveats are noted. First, a similarly strong result is also found for the higher quintiles. One is entitled to wonder whether the regressions are picking up any movement in the distribution of income, which is known to have changed markedly in a number of countries. Second, the significance of the other regressors in Dollar and Kraay, upon which much of the policy support hinges, changes dramatically under different samples and equations. Although the negative impact of inflation is maintained in most, but not all, of the alternative experiments, the significance of the openness variable vanishes while the significance of the rule of law variable, for which Dollar and Kraay found no evidence, emerges strongly. In addition, when the Gini coefficient is substituted for the income of the bottom quintile the performance of the equation falls markedly, with, however, a strong negative correlation with average income suggesting that higher income reduces inequality. It is unclear how this result is consistent with the Dollar and Kraay findings. The implications of this paper are that in general the policy prescriptions associated with the Dollar and Kraay regressions cannot be sustained. In addition, the weakness of the variable chosen to measure poverty and the differing support provided in different specifications for the other regressors fully justifies the initial scepticism and invites further research in this area.

An appraisal of the Poverty Reduction Strategy (PRS) Initiative

In late 1999, the World Bank and International Monetary Fund (IMF) jointly launched the Poverty Reduction Strategy (PRS) Initiative, under which low income countries (LICs) would be supported to develop multi-sectoral economic and social development plans. As such, these national PRSs would serve as the effective policy conditionality for concessional lending and the allocation of debt relief. Heralded by many as path breaking, the Initiative refocused attention on the role of the State and identified poverty reduction, as opposed to growth alone, as the primary goal of policy. However, from the outset, PRSs have been controversial. The most trenchant critics have described these plans as merely re-formulated structural adjustment packages. Other, more considered accounts, have questioned whether PRSs’ are capable of overcoming the agency problems inherent to donor-recipient relationships, and their ability to succeed in the weak policy environment typified by most LICs.In spite of the passage of some ten years, a rigorous evaluation of performance has yet to be published. This thesis aims to provide such an appraisal drawing on both quantitative and qualitative evidence. It employs cross-sectional statistical and econometric methods to examine poverty, growth and inequality outcomes based on a specially constructed dataset; and two detailed analytical case studies (for Mongolia and Vietnam) to probe the causal processes.Although some aggregate evidence is found of performance gains (relating to both poverty reduction and growth), these effects are partial and statistically fragile. Moreover, while no direct evidence is found of dis-inflationary policy biases, it is possible to detect a new narrowness within PRS policymaking. This reflects an orthodox policy consensus which favours growth over distributional improvements and places emphasis on a managed liberalization process. Additionally, it proved very difficult to find a causal link been PRS adoption and beneficial outcomes. The case study materials underline the pivotal role played by the IFIs in the design and management of PRSs, and their transitory and limited impact on actual national policy responses. Conclusions support many of the propositions put by the critical literature, and find that PRSs are poorly adapted to local institutional frameworks and neglect national political economies. As a result, their substance and longer term effectiveness is in doubt.EThOS - Electronic Theses Online ServiceGBUnited Kingdo