Kraay, Aart

Person:
Kraay, Aart

Development Research Group, The World Bank

Fields of Specialization

Macroeconomics, Debt management, Economic growth, Inequality and shared prosperity

Departments

Development Research Group, The World Bank

Last updated January 31, 2023

Biography

Aart Kraay is Director of Research in the Development Research Group at the World Bank. He joined the World Bank in 1995 after earning a Ph.D. in economics from Harvard University (1995), and a B.Sc. in economics from the University of Toronto (1990). His research interests include international capital movements, growth and inequality, governance, and the Chinese economy. His research on these topics has been published in scholarly journals such as the Quarterly Journal of Economics, the Review of Economics and Statistics, the Economic Journal, the Journal of Monetary Economics, the Journal of International Economics, and the Journal of the European Economic Association. He is an associate editor of the Journal of Development Economics, and co-editor of the World Bank Economic Review. He has also held visiting positions at the International Monetary Fund and the Sloan School of Management at MIT, and has taught at the School of Advanced International Studies at Johns Hopkins University.

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Publication Search Results

Now showing 1 - 10 of 10

"Crowding in" and the Returns to Government Investment in Low-Income Countries

(World Bank, Washington, DC, 2014-02) Eden, Maya ; Kraay, Aart

This paper estimates the effect of government investment on private investment in a sample of 39 low-income countries. Fluctuations in a predetermined component of disbursements on loans from official creditors to developing country governments are used as an instrument for fluctuations in public investment. The analysis finds evidence of "crowding in": an extra dollar of government investment raises private investment by roughly two dollars, and output by 1.5 dollars. To understand the implications for the return to public investment, a CES production function with public and private capital as inputs is calibrated. For most countries in the sample, the returns to government investment exceed the world interest rate. However, for some countries that already have high government investment rates, the return to further investment is below the world interest rate.
Do Poverty Traps Exist?

(World Bank, Washington, DC, 2014-04) Kraay, Aart ; McKenzie, David

This paper reviews the empirical evidence on the existence of poverty traps, understood as self-reinforcing mechanisms through which poor individuals or countries remain poor. Poverty traps have captured the interest of many development policy makers, because poverty traps provide a theoretically coherent explanation for persistent poverty. They also suggest that temporary policy interventions may have long-term effects on poverty. However, a review of the reduced-form empirical evidence suggests that truly stagnant incomes of the sort predicted by standard models of poverty traps are in fact quite rare. Moreover, the empirical evidence regarding several canonical mechanisms underlying models of poverty traps is mixed.
Growth is Good for the Poor

(World Bank, Washington, DC, 2001-04) Dollar, David ; Kraay, Aart

When average income rises, the average incomes of the poorest fifth of society rise proportionately. This is a consequence of the strong empirical regularity that the share of income accruing to the bottom quintile does not vary systematically with average income. The authors document this empirical regularity in a sample of 92 countries spanning the past four decades and show that it holds across regions, periods, income levels, and growth rates. The authors next ask whether the factors that explain cross-country differences in the growth rates of average incomes have differential effects on the poorest fifth of society. They find that several determinants of growth--such as good rule of law, opennness to international trade, and developed financial markets--have little systematic effect on the share of income that accrues to the bottom quintile. Consequently, these factors benefit the poorest fifth of society as much as everyone else. Thee is some weak evidence that stabilization from high inflation and reductions in the overall size of government not only increase growth but also increase the income share of the poorest fifth in society. Finally, the authors examine several factors commonly thought to disproportionately benefit the poorest in society, but find little evidence of their effects. The absence of robust findings emphasizes that relatively little is known about the broad forces that account for the cross-country and intertemporal variation in the share of income accruing to the poorest fifth of society.
Growth, Inequality, and Social Welfare : Cross-Country Evidence

(World Bank, Washington, DC, 2014-04) Dollar, David ; Kleineberg, Tatjana ; Kraay, Aart

Social welfare functions that assign weights to individuals based on their income levels can be used to document the relative importance of growth and inequality changes for changes in social welfare. In a large panel of industrial and developing countries over the past 40 years, most of the cross-country and over-time variation in changes in social welfare is due to changes in average incomes. In contrast, the changes in inequality observed during this period are on average much smaller than changes in average incomes, are uncorrelated with changes in average incomes, and have contributed relatively little to changes in social welfare.
Does IDA Engage in Defensive Lending?

(World Bank, Washington, DC, 2007-08) Geginat, Carolin ; Kraay, Aart

Multilateral development banks are frequently accused of "defensive lending," the practice of extending new loans purely in order to ensure that existing loans are repaid. This paper empirically examine this hypothesis using data on lending by and repayments to the International Development Association (IDA), which is the largest provider of concessional development loans to low-income countries. The authors argue that key institutional features of IDA both (i) potentially create incentives for defensive lending, and (ii) enable particularly sharp tests of the defensive lending hypothesis. The authors find that there is a surprisingly robust partial correlation between disbursements on new IDA loans and repayments on existing loans. However, a closer look at the evidence suggests that defensive lending is unlikely to be a major explanation for this partial correlation.
The Welfare Effects of a Large Depreciation : The Case of Egypt, 2000-05

(World Bank, Washington, DC, 2007-04) Kraay, Aart

The Egyptian pound depreciated sharply between 2000 and 2005, declining by 26 percent in nominal trade-weighted terms. The author investigates the effect of the large depreciation on household welfare operating through exchange rate-induced changes in consumer prices. He estimates exchange rate pass-through regressions using disaggregated monthly consumer price indices to isolate the impact of the exchange rate changes on consumer prices. Then he uses household-level data from the 2000 and 2005 Egyptian household surveys to quantify the welfare effects of these consumer price changes at the household level. The average welfare loss due to exchange rate-induced price increases was equivalent to 7.4 percent of initial expenditure. Stronger estimated exchange rate pass-through for food items imply that this effect disproportionately affected poorer households.
Who Gets Debt Relief?

(World Bank, Washington, DC, 2006-08-01) Chauvin, Nicolas Depetris ; Kraay, Aart

The authors use preliminary results from an ongoing effort to construct estimates of debt relief to study its allocation across a sample of 62 low-income countries. They find some evidence that debt relief, particularly from multilateral creditors, has been allocated to countries with better policies in recent years. Somewhat surprisingly, conditional on per capita incomes and policy, more indebted countries are not much more likely to receive debt relief. But countries that have large debts especially to multilateral creditors are more likely to receive debt relief. The authors do not find much evidence that debt relief responds to shocks to GDP growth. Finally, most of the persistence in debt relief is driven by slowly changing country characteristics, indicating that it may be difficult for countries to "exit" from cycles of repeated debt relief.
Weak Instruments in Growth Regressions: Implications for Recent Cross-Country Evidence on Inequality and Growth

(World Health Organization, 2015-11) Kraay, Aart

This paper revisits four recent cross-country empirical studies on the effects of inequality on growth. All four studies report strongly significant negative effects, using the popular system generalized method of moments estimator that is frequently used in cross-country growth empirics. This paper shows that the internal instruments relied on by this estimator in these inequality-and-growth regressions are weak, and that weak instrument-consistent confidence sets for the effect of inequality on growth include a wide range of positive and negative values. This suggests that strong conclusions about the effect of inequality on growth— in either direction—cannot be drawn from these studies. This paper also systematically explores a wide range of alternative sets of internal instruments, and finds that problems of weak instruments are pervasive across these alternatives. More generally, the paper illustrates the importance of documenting instrument strength, basing inferences on procedures that are robust to weak instruments, and considering alternative instrument sets when using the system generalized method of moments estimator for cross-country growth empirics.
Can Disaggregated Indicators Identify Governance Reform Priorities?

( 2010-03-01) Kraay, Aart ; Tawara, Norikazu

Many highly-disaggregated cross-country indicators of institutional quality and the business environment have been developed in recent years. The promise of these indicators is that they can be used to identify specific reform priorities that policymakers and aid donors can target in their efforts to improve institutional and regulatory quality outcomes. Doing so however requires evidence on the partial effects of these many very detailed variables on outcomes of interest, for example, investor perceptions of corruption or the quality of the regulatory environment. In this paper we use Bayesian Model Averaging (BMA) to systematically document the partial correlations between disaggregated indicators and several closely-related outcome variables of interest using two leading datasets: the Global Integrity Index and the Doing Business indicators. We find major instability across outcomes and across levels of disaggregation in the set of indicators identified by BMA as important determinants of outcomes. Disaggregated indicators that are important determinants of one outcome are on average not important determinants of other very similar outcomes. And for a given outcome variable, indicators that are important at one level of disaggregation are on average not important at other levels of disaggregation. These findings illustrate the difficulties in using highly-disaggregated indicators to identify reform priorities.
Measuring Corruption : Myths and Realities

(World Bank, Washington, DC, 2007-04) Kaufmann, Daniel ; Kraay, Aart ; Mastruzzi, Massimo

The report points out that over the past decade measuring corruption has become an ever-growing empirical field. This empirical analysis questions the traditional notion of viewing the firm as an 'investment climate taker' and thus ignoring the view that powerful conglomerates can also shape the business climate and thus become 'investment climate makers'. The study implies that it is warranted to move away from simply blaming government officials for prevailing corruption, and to question the value of popular initiatives such as voluntary-and often un-monitorable-codes of conduct. In this report, some popular notions are espoused, which either lack clarity or are not backed up by rigorous analysis or evidence. In this article the authors highlight some of the main issues in these debates, in the form of seven myths and their associated realities, and conclude by also pointing to some brief implications for the private sector role in fighting corruption.