Neil McCulloch

Trade Liberalization and Poverty: The Evidence So Far

This paper assesses the current state of evidence on the impact of trade policy reform on poverty in developing countries. There is little empirical evidence addressing this question directly, but a lot of related evidence on specific aspects. We summarize this evidence using an analytic framework addressing four key areas: economic growth and stability; households and markets; wages and employment and government revenue. Twelve key questions are identified and empirical studies and results are discussed. We argue that there is no simple generalizable conclusion about the relationship between trade liberalization and poverty, and the picture is much less negative than is often suggested. In the long run and on average, trade liberalization is likely to be strongly poverty alleviating, and there is no convincing evidence that it will generally increase overall poverty or vulnerability. But there is evidence that the poor may be less well placed in the short run to protect themselves against adverse effects and take advantage of favorable opportunities.

Simulating the impact of policy upon chronic and transitory poverty in rural Pakistan

Anti‐poverty programmes often seek to improve their impact by targeting households for assistance according to welfare measures in a single time period. However, a growing literature shows the importance to poor households of fluctuations in their welfare from month to month and year to year. This study uses a five‐year panel of 686 households from rural Pakistan to investigate the magnitude of chronic or transitory poverty making an explicit adjustment for measurement error. The impact of two types of policies (those designed to ‘smooth’ incomes and those designed to promote income growth) on the severity of chronic and transitory poverty is examined. Since the largest part of the squared poverty gap in our sample is transitory, large reductions in poverty can be achieved by interventions designed to ‘smooth’ incomes, but reducing chronic poverty in the long‐term requires large and sustained growth in household incomes. The level and variability of incomes is then modelled as a function of household characteristics, education and assets. The resulting model of the income generation process is used to simulate the impact that a range of transfer and investment policies would have upon chronic and transitory poverty.

Being Poor and Becoming Poor: Poverty Status and Poverty Transitions in Rural Pakistan

This paper contrasts the results of conventional poverty status regressions with an alternative approach, the analysis of poverty transitions, using a five-year longitudinal household survey from rural Pakistan. The results show that while the incidence of income poverty in the sample villages was high, turnover among the poor was rapid. Almost 60 percent of households experienced poverty during the five years of the panel but only 35 percent stayed in poverty for two or more years. Only 3 percent of households were poor in all five years of the panel. Furthermore, the correlates of entries and exits from poverty are found to differ in important but unexpected ways from those of poverty status. The policy implications of these findings, if confirmed elsewhere, indicate that targeting antipoverty policies using the characteristics of the currently poor is highly problematic.

Vulnerability and chronic poverty in rural Sichuan

Abstract Chinese anti-poverty policy stresses the long-term structural nature of rural poverty. This paper shows that poverty in rural Sichuan during 1991–95 was both dynamic and persistent. A new measure of chronic poverty is defined––as a high vulnerability to being poor––and compared with traditional interpretations of chronic poverty as low mean consumption. Households are highly vulnerable to falling into poverty even when their average consumption is some distance above the poverty line. The determinants of low mean consumption and high vulnerability appear however to be similar suggesting that policies to increase mean consumption will also reduce vulnerability.

RICE PRICES AND POVERTY IN INDONESIA

Abstract One of the reasons often given for government policies that promote higher rice prices is the desire to protect farmers and to reduce poverty, particularly in rural areas. The underlying assumption is that farmers benefit from higher rice prices and that helping farmers will reduce poverty since the majority of the rural poor are connected in some way with agriculture. This paper examines the evidence underlying this assumption. I show that only around a quarter of all households plant rice. A large majority of the population, including in rural areas, consume more rice than they produce and most are therefore harmed by higher rice prices. Those that gain from higher prices tend to be farmers with access to slightly larger plots of land. Thus an increase in the rice price constitutes a transfer from the large majority of consumers to a minority of producers at all income levels.

Pathways Out of Poverty During an Economic Crisis: An Empirical Assessment of Rural Indonesia

Most poor people in developing countries still live in rural areas and are primarily engaged in low productivity farming activities. Thus pathways out of poverty are likely to be strongly connected to productivity increases in the rural economy, whether they are realized in farming, in rural nonfarm enterprises, or by way of rural-urban migration. The authors use cross-sectional data from the Central Statistical Board for 1993 and 2002, as well as a panel data set from the Indonesia Family Life Survey for 1993 and 2000, to show which pathways out of poverty were most successful over this period. The findings suggest that increased engagement of farmers in rural nonfarm enterprises is an important route out of rural poverty, but that most of the rural agricultural poor that exit poverty still do so while remaining rural and agricultural. So changes in agricultural prices, wages, and productivity still play a critical role in moving people out of poverty.

The Impact of Structural Reforms on Poverty: A Simple Methodology with Extensions

Structural reforms are often designed to change the prices of key goods and services. Since the overall intention of such reforms is the reduction of poverty, it is important to understand how the resulting price changes affect the poor. However, organizations seeking to provide timely advice to policymakers in developing countries often do not have the data and resources needed to undertake the most sophisticated approaches to such analysis. McCulloch outlines a simple methodology based on the analysis of household survey data to estimate the first-order impact of a variety of structural reforms. He also elaborates on the ways in which this methodology may be extended in a flexible way to account for particular features of a country in question. Finally, he outlines the direction of some extensions on the approach to tackle dynamics, risk, and qualitative poverty analysis.

Does Better Provincial Governance Boost Private Investment in Vietnam

A large literature asserts a causal relationship between the quality of economic governance and economic performance. However, attempts to establish such a link at an aggregate level have met with considerable methodological criticism. We match a panel of Vietnamese enterprises from 2006-2010 with a unique panel dataset measuring sub-national economic governance, and then exploit rules on the terms of local leaders and the mandatory retirement age to estimate a causal link between local governance and domestic private investment. With one exception, we do not find a significant relationship between aspects of local economic governance and private investment. The exception is transparency, which is strongly associated with higher investment, although the weakness of our instruments makes it difficult to determine the size of the effect.

A Tale of Two Cities: The Political Economy of Local Investment Climates in Indonesia

ABSTRACT There is little doubt that protecting property rights, reducing corruption, and improving public services are desirable long-term objectives for all countries. But are such institutional prescriptions sufficient, or even necessary, to achieve investment and growth? By exploring the political economy of the cities of Solo and Manado in Indonesia, this article shows that relationship-based, rather than rule-based, cooperation between government leaders and local firms can provide an effective mechanism to boost investment and improve local investment climates. Our findings challenge the conventional wisdom that impartial rule-based economic governance is a precondition for investment, although it suggests that the creation of such institutions may make growth more sustainable and equitable in the medium and long term.

A NOTE ON RICE PRODUCTION, CONSUMPTION AND IMPORT DATA IN INDONESIA

Abstract Debate about Indonesian rice policy has focused on estimates of production and consumption levels, and the level of imports they imply. However, Indonesian rice production and consumption data are controversial. Rice consumption as estimated from household survey data is much lower than officially reported rice production. This suggests that Indonesia is a net rice exporter, but in fact it has generally been a net importer. Some researchers argue that rice consumption data are underestimated; others contend that production is over-estimated because of inaccuracies in ‘eye estimates’ of harvested area. This paper reviews how rice production and consumption are measured, notes major weaknesses, and surveys attempts to reconcile consumption and production data and examine their consistency with rice import data. It concludes that rice prices are the only accurate indicator of the balance between supply and demand, and hence of the appropriate level of imports.