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

Growth Still Is Good for the Poor

(World Bank, Washington, DC, 2013-08) Dollar, David ; Kleineberg, Tatjana ; Kraay, Aart

Incomes in the poorest two quintiles on average increase at the same rate as overall average incomes. This is because, in a global dataset spanning 118 countries over the past four decades, changes in the share of income of the poorest quintiles are generally small and uncorrelated with changes in average income. The variation in changes in quintile shares is also small relative to the variation in growth in average incomes, implying that the latter accounts for most of the variation in income growth in the poorest quintiles. These findings hold across most regions and time periods and when conditioning on a variety of country-level factors that may matter for growth and inequality changes. This evidence confirms the central importance of economic growth for poverty reduction and illustrates the difficulty of identifying specific macroeconomic policies that are significantly associated with the relative growth rates of those in the poorest quintiles.
Aid, Disbursement Delays, and the Real Exchange Rate

(World Bank, Washington, DC, 2013-05) Jarotschkin, Alexandra ; Kraay, Aart

Aid donors and recipients have long been concerned that aid inflows may lead to an appreciation of the real exchange rate and an associated loss of competitiveness. This paper provides new evidence of the dynamic effects of aid on the real exchange rate, using an identification strategy that exploits the long delays between the approval of aid projects and the subsequent disbursements on them. These disbursement delays enable the isolation of a source of variation in aid inflows that is uncorrelated with contemporaneous macroeconomic shocks that may drive both aid and the real exchange rate. Using this predetermined component of aid as an instrument, there is little evidence that aid inflows lead to significant real exchange rate appreciations.
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.
Measuring Growth in Total Factor Productivity

(World Bank, Washington, DC, 2000-09) Ghosh, Swati R. ; Kraay, Aart

Gains in total factor productivity (TFP) reflecting more efficient use of inputs, have long been recognized as an important source of improvements in income and welfare. Cross-country differences in income levels and growth rates are mostly due to differences in productivity. Measuring TFP is therefore important in assessing countries' past and potential economic performance. But it is also difficult. This note discusses some of the difficulties using data for the Republic of Korea in 1960-70 for illustration.
Do High Interest Rates Defend Currencies during Speculative Attacks?

(World Bank, Washington, DC, 2000-01) Kraay, Aart

Drawing on evidence from a large sample of speculative attacks in industrial and developing countries, the author argues that high interest rates do not defend currencies against speculative attacks. In fact, there is a striking lack of any systematic association between interest rates and the outcome of speculative attacks. The lack of clear empirical evidence on the effects of high interest rates during speculative attacks mirrors the theoretical ambiguities on this issue.
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.
How Large Is the Government Spending Multiplier? Evidence from World Bank Lending

( 2010-12-01) Kraay, Aart

This paper proposes a novel method of isolating fluctuations in public spending that are likely to be uncorrelated with contemporaneous macroeconomic shocks and can be used to estimate government spending multipliers. The approach relies on two features unique to many low-income countries: (1) borrowing from the World Bank finances a substantial fraction of public spending, and (2) actual spending on World Bank-financed projects is typically spread out over several years following the original approval of the project. These two features imply that fluctuations in spending on World Bank projects in a given year are in large part determined by fluctuations in project approval decisions made in previous years, and so are unlikely to be correlated with shocks to output in the current year. World Bank project-level disbursement data are used to isolate the component of public spending associated with project approvals from previous years, which in turn can be used to estimate government spending multipliers, in a sample of 29 aid-dependent low-income countries. The estimated multipliers are small, reasonably precisely estimated, and rarely significantly different from zero.