Publication: Macroeconomic Adjustment and the Poor : Analytical Issues and Cross-Country Evidence
Loading...
Published
2002-02
ISSN
Date
2013-08-07
Author(s)
Editor(s)
Abstract
The author studies the links between macroeconomic adjustment and poverty. First, he summarizes some of the recent evidence on poverty in the developing world. Second, he reviews the various channels through which macroeconomic policies affect the poor. Third, the author emphasizes the role of the labor market. He develops an analytical framework that captures some of the main features of the urban labor market in developing countries and studies the effects of fiscal adjustment on wages, employment, and poverty. Fourth, he presents cross-country regressions linking various macroeconomic and structural variables to poverty. The author finds that output growth and real exchange rate depreciations tend to lower poverty, while illiteracy, income inequality, and macroeconomic volatility tend to increase poverty. In addition, the impact of growth on poverty appears to be asymmetric, and to result from a significant relationship between episodes of increasing poverty and negative growth rates.
Link to Data Set
Citation
“Agénor, Pierre-Richard. 2002. Macroeconomic Adjustment and the Poor : Analytical Issues and Cross-Country Evidence. Policy Research Working Paper;No.2788. © World Bank. http://hdl.handle.net/10986/14856 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication South Africa’s Fragmented Cities: The Unequal Burden of Labor Market Frictions(Washington, DC: World Bank, 2026-01-08)Using high-resolution administrative, census, and satellite data, this paper shows that South African cities are characterized by spatial mismatches between where people live and where jobs are located, relative to 20 global peers. Areas within 5 kilometers of commercial centers have 9,300 fewer residents per square kilometer than expected, which is 60 percent below the global median. Poor, dense neighborhoods are most affected. In Johannesburg, a 10-percentile increase in distance from the nearest business hub corresponds to a 3.7-percentile drop in asset wealth (a proxy of household wellbeing) and 4.9-percentile drop in employment. In Cape Town, the declines are 4.0 and 3.7 percentiles, respectively. Employment is 87 percent lower in the poorest decile than the richest in Johannesburg and 61 percent lower in Cape Town. These findings suggest that South Africa’s spatial organization of people and economic activity constrains agglomeration and reinforces inequality. This methodology provides a scalable and standardized data-driven framework to analyze spatial accessibility and agglomeration frictions in complex, data-constrained urban systems.Publication The Evolution of Local Participatory Democracy in Nepal(Washington, DC: World Bank, 2025-11-05)Nepal is, according to its constitution, among the world’s most decentralized countries, with a long and complex tradition of local-level public participation. This paper traces the evolution of Nepal’s modern participatory institutions, examining the extent to which they are “induced” by external interventions versus being “organically” rooted in indigenous practices. The paper identifies three broad phases: an initial focus on participation in project implementation; a subsequent phase that expanded citizen engagement; and a third phase of citizen empowerment, culminating in the 2015 federal constitution, which granted unprecedented local autonomy. The analysis yields five key findings. First, over the past 50 years, successive reforms have progressively expanded opportunities for citizens to influence local decision-making. Second, these reforms have integrated traditional participatory mechanisms into formal institutions of local government. Third, although central-level initiatives exist, most participatory platforms continue to operate at the local level. Fourth, the federal constitution has created a new landscape of local democracy, embedding autonomy and accountability. Fifth, although they are still valued in many ethnic and territorial communities, traditional participatory practices are gradually disappearing. The paper concludes by offering policy recommendations to help donor agencies and governments strengthen Nepal’s democratic trajectory. It argues that effective interventions should build on Nepal’s deep participatory traditions while recognizing the constitutional reality of far-reaching local autonomy.Publication Institutional Capacity for Policy Implementation: An Analytical Framework(Washington, DC: World Bank, 2026-01-07)State capacity is an important prerequisite for policy implementation, yet at the country level it is difficult to measure, assess, and reform. This paper proposes a focus on institutional capacity: the ability of public institutions to implement the specific policy mandates for which they are responsible. Based on a review of existing literature, the paper defines the different dimensions that compose institutional capacity and groups them into two cross-cutting categories: organizational dimensions (personnel, financial resources, information systems, and management practices) and governance dimensions (transparency, independence, and accountability). The paper proposes measures for organizational and governance dimensions using existing data, shows intra-institutional variation of these measures within countries, and discusses how new data could be collected for better measurement of these concepts. Finally, the paper illustrates how the framework can be used to diagnose the sources of common problems related to weak policy implementation.Publication Closing the Gender Gap in Entrepreneurship: Overcoming Challenges in Law and Practice for Female Entrepreneurs(Washington, DC: World Bank, 2026-01-07)Despite significant strides toward gender equality, women around the world continue to encounter systemic obstacles that hinder their entrepreneurial success. This paper systematically reviews the literature on the barriers female entrepreneurs face and the solutions proposed to overcome these challenges. It discusses institutional factors, financial factors, human capital factors, and social and cultural factors. The literature overview is complemented by a series of stylized facts that illustrate how overcoming some of these existing barriers is correlated with improved women’s entrepreneurship and female labor force participation, drawing on the World Bank’s Women, Business and the Law database as well as the World Bank’s Enterprise Surveys. The findings underscore the need for creating an enabling environment where women can thrive as entrepreneurs.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Does Globalization Hurt the Poor?(World Bank, Washington, DC, 2002-10)Agenor attempts to examine analytically and empirically the extent to which globalization affects the poor in low- and middle-income countries. He begins with a description of various channels through which trade openness and financial integration may have an adverse effect on poverty. However, the author also stresses the possible nonlinearities involved-possibilities that have seldom been recognized in the ongoing debate. Agenor then presents cross-country regressions that relate measures of real and financial integration to poverty. The regressions control for changes in income per capita and output growth rates, as well as various other macroeconomic and structural variables, such as the inflation tax, changes in the real exchange rate and the terms of trade, health and schooling indicators, and macroeconomic volatility. The author uses not only individual indicators of trade and financial openness but also a "globalization index" based on principal components analysis, and tests for both linear and nonlinear effects. The results suggest the existence of a nonmonotonic, Laffer-type relationship between globalization and poverty. At low levels, globalization appears to hurt the poor; but beyond a certain threshold, it seems to reduce poverty-possibly because it brings with it renewed impetus for reform. So, globalization may hurt the poor not because it went too far, but rather because it did not go far enough.Publication The Mini-Integrated Macroeconomic Model for Poverty Analysis : A Framework for Analyzing the Unemployment and Poverty Effects of Fiscal and Labor Market Reforms(World Bank, Washington, DC, 2003-05)The author describes a specialized and less data-intensive version of the Integrated Macroeconomic Model for Poverty Analysis (IMMPA) developed by Agenor, Izquierdo, and Fofack (2003) and Agenor, Fernandes, Haddad, and van der Mensbrugghe (2002). The mini-IMMPA focuses only on the "real" side but it offers a more detailed treatment of the labor market (by accounting, for instance, for public education, employment subsidies, and job security provisions) and the tax structure. Simulations of a cut in payroll taxes on unskilled labor show the importance of accounting for the fiscal implications of labor market reforms when assessing their effects on unemployment and poverty.Publication The Integrated Macroeconomic Model for Poverty Analysis : A Quantitative Macroeconomic Framework for the Analysis of Poverty Reduction Strategies(World Bank, Washington, DC, 2003-07)The authors present a dynamic, quantitative macroeconomic framework designed for analyzing the impact of adjustment policies and exogenous shocks on poverty and income distribution. They emphasize the role of labor market segmentation, urban informal activities, the impact of the composition of public expenditure on supply and demand, and credit market imperfections. Numerical simulations for a prototype low-income country highlight the importance of accounting for the various channels through which poverty alleviation programs and debt relief may ultimately affect the poor.Publication Linking Representative Household Models with Household Surveys for Poverty Analysis: A Comparison of Alternative Methodologies(World Bank, Washington, D.C., 2004-06)The authors compare three approaches to linking representative-household macro models with micro household income data in terms of their implications for measuring the poverty and distributional effects of policy shocks. These approaches are a simple micro-accounting method, an extension of that method to account for changes in employment structure, and the Beta distribution approach. Even though in the authors simulation exercises the three methods do not lead to fundamentally different results in absolute terms, they show that potential differences in the measurement of distributional and poverty effects of policy shocks can be very large.Publication Business Cycles, Economic Crises, and the Poor : Testing for Asymmetric Effects(World Bank, Washington, DC, 2001-10)The author examines whether output contraction associated with cyclical output fluctuations and economic crises have an asymmetric effect on poverty. He identifies four potential sources of asymmetry: expectations and cofident factors, credit rationing at the firm level (induced by either adeverse selection problems or negative shocks to net worth), borrowing constraints at the household level, and the "labor hoarding" hypothesis. He also identifies some testable implications of these alternative explanations. The author then proposes a vector autoregression technique (involving the detrended components of real output, the unemployment rate, real wages, and the poverty rate) to test whether the initial cyclical position of the economy, and the size of the initial drop in the output gap in a downturn, matter in assessing the extent to which output shocks affect poverty. He applies the technique to Brazil, using annual data for 1981-99. The results indicate that poverty responds asymmetrically to output shocks, showing less sensitivity when the economy is initially in a downturn.
Users also downloaded
Showing related downloaded files
Publication MIGA Annual Report 2013 : Insuring Investments, Ensuring Opportunities(Washington, DC: World Bank Group, 2013-10-11)In fiscal year 2013, Multilateral Investment Guarantee Agency (MIGA) issued 2.8 billion dollars in investment guarantees for projects in our developing member countries. At 1.5 billion dollars, representing more than half of new business, the bulk of MIGA's guarantees issued support investments in Sub-Saharan Africa. Sixty-nine percent of new business volume this year was in complex projects in infrastructure and extractive industries, a strategic priority for the Agency. This year, 82 percent of MIGA's new volume fell into one or more of strategic priority areas: investments in the world's poorest countries, "South-South" investments, investments in conflict-affected countries, and investments in complex projects. MIGA also established the conflict-affected and fragile economies facility to further deepen support to this priority area.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.Publication The Firm-Level Impact of the Covid–19 Pandemic(World Bank, Washington, DC, 2020-09-02)The World Bank commissioned a firm-level survey to provide quantitative evidence of the impact of the Coronavirus (COVID-19) pandemic. Two rounds of data have now been collected for the months of March and May using a nationally representative World Bank survey providing information on the impact of the Coronavirus (COVID-19) pandemic. The survey includes five hundred firms spanning a wide range of industries and firm sizes, as well as the formal and informal sector. This note provides a snapshot of how the firms’ outcomes and response to the pandemic have changed between the months of March and May 2020.Publication The Role of Social Ties in Factor Allocation(Published by Oxford University Press on behalf of the World Bank, 2019-10)We investigate whether social structure helps or hinders factor allocation using unusually rich data from the Gambia. Evidence indicates that land available for cultivation is allocated unequally across households; and that factor transfers are more common between neighbors, co-ethnics, and kinship-related households. Does this lead to the conclusion that land inequality is due to flows of land between households being impeded by social divisions? To answer this question, a novel methodology that approaches exhaustive data on dyadic flows from an aggregate point of view is introduced. Land transfers lead to a more equal distribution of land and to more comparable factor ratios across households in general. But equalizing transfers of land are not more likely within ethnic or kinship groups. In conclusion, ethnic and kinship divisions do not hinder land and labor transfers in a way that contributes to aggregate factor inequality. Labor transfers do not equilibrate factor ratios across households. But it cannot be ruled out that they serve a beneficial role, for example, to deal with unanticipated health shocks.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.