Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This paper evaluates the degree of consumption insurance enjoyed by Latin American and Caribbean countries, with respect to various reference areas, by estimating a parameter expressing the sensitivity of a country's consumption growth to a measure of idiosyncratic shocks to income. The paper surveys common econometric implementations of "consumption insurance tests." The author proposes some econometric procedures in order to detect the actual presence of international risk sharing, as well as to assess the relative impact of idiosyncratic versus aggregate shocks. The evidence suggests that Latin American and Caribbean economies have been hit by non-diversifiable income shocks, that idiosyncratic risk is relatively more important than aggregate risk, and that some countries in the region appear to enjoy a certain amount of international risk diversification. The paper also identifies some macroeconomic factors that may be responsible for a higher or lower degree of risk pooling (such as international openness, financial depth, and credit availability). The findings show that the financial development of an economy is a crucial factor in determining the amount of risk sharing opportunities, as well as public expenditure. The preliminary results also suggest that trade openness and shocks to terms of trade play an important role in determining the degree of insurability of such risks.

Aggregate consumption --- Aggregate income --- Consumption --- Consumption growth --- Currencies and Exchange Rates --- Domestic consumption --- Economic Theory and Research --- Finance and Financial Sector Development --- Financial Intermediation --- Growth rates --- Income growth --- Inequality --- Levels of investments --- Macroeconomics and Economic Growth --- National income --- Poverty Reduction --- Public expenditure --- Trade openness

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

We are not seeing faster progress against poverty amongst the poorest developing countries. Yet this is implied by widely accepted "stylized facts" about the development process. The paper tries to explain what is missing from those stylized facts. Consistently with models of economic growth incorporating borrowing constraints, the analysis of a new data set for 100 developing countries reveals an adverse effect on consumption growth of high initial poverty incidence at a given initial mean. A high incidence of poverty also entails a lower subsequent rate of progress against poverty at any given growth rate (and poor countries tend to experience less steep increases in poverty during recessions). Thus, for many poor countries, the growth advantage of starting out with a low mean ("conditional convergence") is lost due to their high poverty rates. The size of the middle class - measured by developing-country, not Western, standards - appears to be an important channel linking current poverty to subsequent growth and poverty reduction. However, high current inequality is only a handicap if it entails a high incidence of poverty relative to mean consumption.

Absolute poverty --- Consumption growth --- Country regressions --- Developing countries --- Developing world --- Development research --- Economic growth --- Growth model --- Growth process --- Growth rate --- Growth rates --- High poverty --- Inequality --- Mean income --- Policy research --- Poor countries --- Poverty --- Poverty rate --- Poverty rates --- Poverty Reduction --- Pro-Poor Growth --- Reducing poverty --- Regional Economic Development --- Rural Development --- Rural Poverty Reduction --- Services and Transfers to Poor