Kraay, Aart

Development Research Group, The World Bank
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Macroeconomics, Debt management, Economic growth, Inequality and shared prosperity
Development Research Group, The World Bank
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Last updated: January 31, 2023
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.
Citations 714 Scopus

Publication Search Results

Now showing 1 - 10 of 15
  • Publication
    Trade, Growth, and Poverty
    (World Bank, Washington, DC, 2001-06) Dollar, David; Kraay, Aart
    The evidence from individual cases and from cross-country analysis supports the view that globalization leads to faster growth and poverty reduction in poor countries. To determine the effect of globalization on growth, poverty, and inequality, the authors first identify a group of developing countries that are participating more in globalization. China, India, and several other large countries are part of this group, so well over half the population of the developing world lives in these globalizing economies. Over the past 20 years, the post-1980 globalizers have seen large increases in trade and significant declines in tariffs. Their growth rates accelerated between the 1970s and the 1980s and again between the 1980s and the 1990s, even as growth in the rich countries and the rest of the developing world slowed. The post-1980 globalizers are catching up to the rich countries, but the rest of the developing world (the non-globalizers) is falling further behind. Next, the authors ask how general these patterns are, using regressions that exploit within-country variations in trade and growth. After controlling for changes in other policies and addressing endogeneity with internal instruments, they find that trade has a strong positive effect on growth. Finally, the authors examine the effects of trade on the poor. They find little systematic evidence of a relationship between changes in trade volumes (or any other measure of globalization they consider) and changes in the income share of the poorest-or between changes in trade volumes and changes in household income inequality. They conclude, therefore, that the increase in growth rates that accompanies expanded trade translates on average into proportionate increases in incomes of the poor. Absolute poverty in the globalizing developing economies has fallen sharply in the past 20 years. The evidence from individual cases and from cross-country analysis supports the view that globalization leads to faster growth and poverty reduction in poor countries.
  • Publication
    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.
  • Publication
    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.
  • Publication
    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.
  • Publication
    Poverty Traps, Aid, and Growth
    (World Bank, Washington, DC, 2005-06) Kraay, Aart
    The authors examine the empirical evidence in support of the poverty trap view of underdevelopment. They calibrate simple aggregate growth models in which poverty traps can arise due to either low saving or low technology at low levels of development. They then use these models to assess the empirical relevance of poverty traps and their consequences for policy. The authors find little evidence of the existence of poverty traps based on these two broad mechanisms. When put to the task of explaining the persistence of low income in African countries, the models require either unreasonable values for key parameters, or else generate counterfactual predictions regarding the relations between key variables. These results call into question the view that a large scaling-up of aid to the poorest countries is a necessary condition for sharp and sustained increases in growth.
  • Publication
    Neither a Borrower Nor a Lender : Does China's Zero Net Foreign Asset Position Make Economic Sense?
    (World Bank, Washington, DC, 2005-12) Dollar, David; Kraay, Aart
    China in the past few years has emerged as a net foreign creditor on the international scene with net foreign assets slightly greater than zero percent of wealth. This is surprising given that China is a relatively poor country with a capital-labor ratio about one-fifth the world average and one-tenth the U.S. level. The main questions that the authors address are whether it makes economic sense for China to be a net creditor and how they see China's net foreign asset position evolving over the next 20 years. They calibrate a theoretical model of international capital flows featuring diminishing returns, production risk, and sovereign risk. The calibrations for China yield a predicted net foreign asset position of -17 percent of China's wealth. The authors also estimate nonstructural cross-country regressions of determinants of net foreign assets in which China is always a significant outlier with 5 to 7 percentage points more of net foreign assets relative to wealth than is predicted by its characteristics. China's extensive capital controls can explain why its current net foreign asset position is far away from what is predicted by open-economy models and cross-country empirics. It seems reasonable to assume that China's international financial integration will increase over time. The authors calibrate and predict different scenarios out to 2025. These scenarios are necessarily speculative, but it is interesting that they typically imply negative net foreign asset positions between 3 and 9 percent of wealth. What may be counter-intuitive for many policymakers is that successful institutional reform and productivity growth are likely to lead to more negative net foreign asset positions than occurs with stagnation. Starting from China's zero net foreign assets position, it would take current account deficits in the range of 2-5 percent of GDP to reach any of these net foreign assets positions. These are not unreasonable deficits, but they require a large adjustment from the present 6 percent of GDP current account surplus.
  • Publication
    Instrumental Variables Regressions with Honestly Uncertain Exclusion Restrictions
    (World Bank, Washington, DC, 2008-05) Kraay, Aart
    The validity of instrumental variables (IV) regression models depends crucially on fundamentally untestable exclusion restrictions. Typically exclusion restrictions are assumed to hold exactly in the relevant population, yet in many empirical applications there are reasonable prior grounds to doubt their literal truth. In this paper I show how to incorporate prior uncertainty about the validity of the exclusion restriction into linear IV models, and explore the consequences for inference. In particular I provide a mapping from prior uncertainty about the exclusion restriction into increased uncertainty about parameters of interest. Moderate prior uncertainty about exclusion restrictions can lead to a substantial loss of precision in estimates of structural parameters. This loss of precision is relatively more important in situations where IV estimates appear to be more precise, for example in larger samples or with stronger instruments. The author illustrates these points using several prominent recent empirical papers that use linear IV models.
  • Publication
    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.
  • Publication
    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.
  • Publication
    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.