Distributive Effects of Regional Trade Agreements on the ‘Small Trading Partners’: Mercosur and the Case of Uruguay and Paraguay

It is disputed whether trade liberalisation processes are sufficient for reducing poverty and inequality. We explore how ‘gains from trade’ have been distributed in the two minor trade partners of Mercosur, Uruguay and Paraguay, by analysing the impact of trade liberalisation on poverty and inequality through two main transmission channels: prices and income. In the case of Uruguay, trade liberalisation favoured a reduction in poverty indicators but had an almost zero effect on income inequality. In the case of Paraguay, trade liberalisation had a markedly negative impact in terms of poverty yet income distribution improved. We conclude that in the case of Mercosur, the effect of trade on poverty and income inequality varies per country and per region. In particular, we conclude that trade integration policies cannot be regarded as ‘poverty-alleviating’ per se.     

The Impact of Trade Liberalisation on Household Welfare in a Developing Country with Imperfect Labour Markets

Abstract

I develop an empirical methodology to assess the distributional impact of trade-induced price shocks when labour markets are imperfect. The proposed methodology relates exogenous variations in prices to changes in household welfare using a separable agricultural household model that flexibly allows the data to determine the degree of labour market imperfections. Applying this approach to Vietnam, I investigate the impact of agriculture trade liberalisation between 1993 and 1998 on overall household welfare, measured using per capita household expenditure. I find that accounting for labour market imperfections results in welfare gains that are nearly four times larger than those found when assuming complete labour markets.     

Exploring income inequality in rural,coastal Viet Nam

Income inequality has been rising in parallel with the economic liberalisation process in the former centrally planned economies. The opportunities for non‐agricultural income associated with the market liberalisation process in former centrally planned economies would seem to be important in determining inequality within the rural sector. This article reviews the trends in inequality in Viet Nam examining differential trends and hypothesised causes. Inequality is important because of its relationship to other factors in the evolution of the agricultural economy such as the incidence of poverty and the sustainability of emerging income sources. This article analyses income inequality based on data collected by the author in two Districts in coastal northern Viet Nam. The results demonstrate that non‐agricultural income sources, specifically aquaculture and wage and remittance, contribute more to present inequality than any other income source. Simulation shows that the emergence of aquaculture since the late 1980s has been driving the inequality increase in that period. Hence the analysis provides evidence that non‐agricultural income increases inequality even without asset concentration. This concentration of income is important in the north Viet Nam context since it is concurrent with present‐day land allocation and will affect the structure of future income growth.     

Do Changes in the Labour Market Take Families Out of Poverty? Determinants of Exiting Poverty in Brazilian Metropolitan Regions

Abstract

Using survival models, we test whether short-term changes in the labour market affect poverty duration. Data are from the Brazilian Monthly Employment Survey. Such a monthly dataset permits more accurate estimations of events than using annual data, but its panel follows households for a short period. Then methods that control for both right- and left-censoring should be used. The results are as follows: households with zero income are not those with the lowest chances of exiting; changes in aggregate unemployment do not affect poverty duration; and increasing wages in the informal sector has a negative effect on poverty duration.     

In the Same Boat,but not Equals: The Heterogeneous Effects of Parental Income on Child Labour

This paper examines the impact of parental income on child labour. The empirical literature has found conflicting results regarding whether poverty leads parents to send their children to work. Most of this literature, however, treats child labourers as a single homogeneous group, ignoring differences among working children in work intensity, hazard exposure, and type of employer. This paper argues that accounting for the heterogeneity in child’s working conditions may explain the conflicting results in the literature. Specifically, the existence of this heterogeneity may reflect heterogeneity in parents’ perceptions about the returns to child’s work, and hence in parental reasons to send their children to work. To test this hypothesis, I estimate the effects of parental income on child labour for various working conditions, using data from the 2010 Egypt National Child Labour Survey. This dataset provides rich information on the working conditions of child labourers. The findings show that the effect of parental income on child labour is minimal among children who work in non-hazardous jobs, jobs that are not highly physical, or in family businesses. In contrast, higher parental income does decrease the likelihood of child labour in market work, jobs that are physical and hazardous jobs.     

Institutions and Poverty

This study utilises eight alternative measures of institutions and the instrumental variable method to examine the impacts of institutions on poverty. The estimates show that an economy with a robust system to control corruption, an effective government, and a stable political system will create the conditions to promote economic growth, minimise income distribution conflicts, and reduce poverty. Corruption, ineffective governments, and political instability will not only hurt income levels through market inefficiencies, but also escalate poverty incidence via increased income inequality. The results also imply that the quality of the regulatory system, rule of law, voice and accountability, and expropriation risk are inversely related to poverty but their effect on poverty is via average income rather than income distribution.     

Changes in earnings inequality and labour market segmentation: Metropolitan Santiago 1969–78

Changes in earnings inequality are examined in this article through an eclectic approach allowing for differences in human capital earnings function by labour market segments. Several findings are of interest. The first are the components of earnings inequality changes, these being, in order of importance: changes in the within segments inequality, changes in the relative share of the informal sector segment, and changes in relative income between segments. Second, these changes are found to be the result of labour market liberalisation policies such as abolition of both minimum wages and labour turnover legislation in the formal sector, the promotion of self‐employed activities in the informal sector, and, the selective mobility pattern between segments.     

Microfinance and Poverty in Bolivia

Both in its institutional range and in its penetration of financial markets, the microfinance sector in Bolivia rivals any in the world, and has played a major part in extracting the macro-economy from meltdown since the mid-1980s. We seek specifically to assess its impact on poverty, and do this through small-sample surveys on four microfinance institutions, two urban and two rural, using a range of poverty concepts: income (generated both through the borrower's enterprise and through the labour market), asset holdings and diversity, and various measures of vulnerability. All the institutions studied had, on balance, positive impacts on income and asset levels, with income impacts correlating negatively with income on account of poor households choosing to invest in low-risk, low-return assets. Microfinance may, however, augment vulnerability: average debt-service ratios of microfinance clients are disturbingly high, and if the coping mechanisms used by borrowers fail, borrowers may be forced out of the microfinance system, possibly resulting in decapitalisation and impoverishment. Poorer households are more restricted in their choice of coping strategy, and many as a consequence 'choose' coping strategies more likely to jeopardise their long-term income prospects, in particular asset sales and cuts in children's schooling. The more successful low-income borrowers are those who have voluntary savings deposits and do not rush into fixed capital purchases too early: collapse back into poverty is associated with multiple crises and the failure of one or more 'safety nets', in particular of one or more 'safety nets', in particular support from a member's solidarity group. The following actions appear to be promising for the further reduction of poverty in Bolivia: stronger efforts to mobilise rural savings, removal of lower limits on loan size, and the introduction of appropriate insurance mechanisms. In comparison with other anti-poverty measures, microfinance appears to be successful and relative cheap at reducing the poverty of those close to the poverty line, but ineffective, by comparison with labour-market and infrastructural measures, in reducing extreme poverty.     

The inadequacy of the entitlement approach to explain and remedy famines

The article suggests further improvements in the methodology to analyse market integration. It provides corrections to and methodological extensions of recent work in this journal. It also presents a way of applying market integration techniques to the analysis of shocks such as market liberalisation and war. The method is applied to the effects of liberalisation and the end of the civil war on food markets in Ethiopia. The conclusion is that liberalisation had important effects on the long‐run and short‐run integration of food markets.     

Price policy,poverty, and power within rural West African households

This paper explores the impact of agricultural price policy on poverty in West Africa, a region in which prices are an important tool for raising rural household incomes. A game-theoretic, collective model of household income generation and resource allocation is developed that incorporates three features typical of West African rural households: preference heterogeneity among women and men, individual resource control, and power-mediated bargaining over resource control in the face of changes in households' economic environments. To explore price effects, the model is used to simulate the income impacts of large increases in cotton prices accompanying fast-paced agricultural liberalisation in Burkina Faso in the 1980s. The paper shows that where resources are controlled individually by household members, rather than pooled, Pareto efficiency in income generation does not hold. The impact of agricultural price policy on poverty is mediated by bargaining over resource control within households. Both the relative bargaining power of women and men and the degree of preference heterogeneity between them play fundamental roles in the outcome of such bargaining. The results point to a lower ability of households to take advantage of price incentives and thereby raise their incomes than a unitary household model, in which preferences do not differ and resources are pooled, predicts. They suggest that the effectiveness of price policy in reducing poverty in the region would be enhanced by taking into account the incentive structure within households as well as individual household members' ability to bargain over the benefit and cost streams flowing from price changes.     

Risk-adjusted poverty in Argentina: measurement and determinants

This paper presents a methodology for adjusting measures of income and poverty for the risk faced by a household. The approach draws on the standard economic concept of risk aversion, and it is based on the intuition that households will prefer a steady stream of income to a variable one with the same mean. Relying on a Constant Relative Risk Aversion utility function, we use panel data for Argentina to compute risk-adjusted income and poverty measures. At the aggregate level, we find that taking risk into account substantially increases the poverty headcount. Moreover, a regression analysis suggests that many household characteristics are correlated not only with the average income of the household over time, but also with its variability.     

Poverty traps and nonlinear income dynamics with measurement error and individual heterogeneity

Theories of poverty traps stand in sharp contrast to the view that anybody can make it through hard work and thrift. However, empirical detection of poverty traps is complicated by the lack of long panels, measurement error and attrition. This paper shows how dynamic pseudo-panel methods can overcome these difficulties, allowing estimation of nonlinear income dynamics and testing of the presence of poverty traps. The paper explicitly allows for heterogeneity in income dynamics, to account for the possibility that particular groups of individuals may face traps, even if the average individual does not. These methods are used to examine the evidence for a poverty trap in labour earnings, income and expenditure in urban Mexico and are compared to panel data estimates from a short rotating panel. The results do find evidence of nonlinearities in household income dynamics, and demonstrate large bias in the panel data estimates. Nevertheless, even after allowing for heterogeneity and accounting for measurement error, we find no evidence for the existence of a poverty trap for any group in our sample.     

Conditional Cash Transfers,Adult Work Incentives,and Poverty

Conditional cash transfer (CCT) programmes aim to alleviate poverty through monetary and in-kind benefits, as well as reduce future incidence of poverty by encouraging investments in education, health and nutrition. The success of CCT programmes at reducing poverty depends on whether, and the extent to which, cash transfers affect adult work incentives. In this paper we examine whether the PROGRESA programme of Mexico affects adult participation in the labour market and overall adult leisure time, and we link these effects to the impact of the programme on poverty. Utilising the experimental design of PROGRESA's evaluation sample, we find that the programme does not have any significant effect on adult labour force participation and leisure time. Our findings on adult work incentives are reinforced further by the result that PROGRESA leads to a substantial reduction in poverty. The poverty reduction effects are stronger for the poverty gap and severity of poverty measures.     

The determinants of teenage schooling in Jamaica: Rich vs. poor,females vs. males

The belief that schooling is an important way to reduce poverty and increase social mobility has lead to large government‐sponsored investment in education in developing countries. Jamaica has an impressive literacy and primary enrolment rate, yet the ability of its secondary school system to enhance social mobility and reduce inequality is limited. Regression results from a nationally representative household survey show that family background variables (parental education and income) are important determinants of secondary school enrolment, and income is the single most important determinant of enrolment in an ‘elite’ high school, with the impact being twice as large for females. Part of the income effect is shown to represent unobserved community heterogeneity. One conclusion is that the recent ‘cost‐sharing’ education policy of the Jamaican government, if applied selectively to the elite academic high schools, will fall disproportionately upon rich households.     

Redistribution,consumer demand and employment in Kenyan furniture‐making

Earlier macro‐level studies of the secondary employment and income effects of an income redistribution ignored a key element in the income distribution‐technology‐employment hypothesis. No account was taken of the diversity of factor proportions within each industry, which is reflected in the size distribution of firms. This case study has been addressed at the level of a particular product group. From an expenditure survey the poor of Kenya are revealed to buy furniture predominantly from the smaller, more labour‐intensive firms in the industry. Consequently, a policy of income redistribution through growth will further the expansion of employment and earnings opportunities in the low income sector of the industry.     

Statistical Tragedy in Africa? Evaluating the Data Base for African Economic Development

Abstract

Measurement is increasingly at the centre of debates in African economic development. Some remarkable upward revisions of GDP, which are signs of statistical systems improving, caused the declaration of a statistical tragedy in Africa. This special issue evaluates the database for African economic development with articles on the quality of the data on GDP, health and education, poverty, labour, agriculture and income distribution.     

Why is Poverty So High Among Afro-Brazilians? A Decomposition Analysis of the Racial Poverty Gap

This study aimed to identify the major factors underlying the discrepancy in poverty levels between whites and blacks in Brazil. An Oaxaca–Blinder-type decomposition was performed in order to quantify the extent to which differences in observed characteristics (characteristics effect) account for this difference. The remaining unexplained part (coefficients effect) provides evidence on how these characteristics are differentially associated with the risk of poverty in each group. Our results show that the characteristics effect explains a large part of the discrepancy in poverty levels: education and labour variables explain one-half of the gap, and geographic and sociodemographic variables another two-fifths.     

Labour and Its Discontents: The Consequences of Orthodox Reform in Venezuela and Mexico

The negative impacts of orthodox liberalisation policies on labour in Venezuela and Mexico were representative of outcomes elsewhere in Latin America. Untheorised increases in precarious informal work, unemployment, and emigration as well as a growing breech between wages and productivity followed trade, capital, and labour market reforms and the prescribed macro stabilisation policies. Orthodox reforms in both countries paradoxically facilitated market failures given the forms or modes taken by foreign direct investment (FDI), which introduced ever more increasing scale economies with their attendant information imperfections. In addition, the growing competition from tradeable goods faced by domestic producers in both countries and the decision to buy rather than make technologies by way of FDI undermined job creation and induced inter-sectoral flows toward service sector and informal work.     

The labour market and income distribution in post-socialist economies – Non-obvious regularities

The goal of this paper is to analyse the major processes which took place on the labour market of post-socialist economies and to check what the outcomes of thee mechanisms used for income distribution. Few findings are especially interesting because of its counterintuitive character. First, there is a “strange” relation between the depth of recession and scale of rise in unemployment. Countries which suffered from quite moderate fall in GDP experienced high level of unemployment, while the economies which noticed substantial recession were able to sustain very limited unemployment rate. One can also expect that economy which suffered from sharp rise in unemployment should be the one in which income inequalities deteriorate in the biggest extend. Again, this is not what has happened in post-socialist countries. Economies like Russia or Ukraine which noticed quite limited rise in unemployment rates, experienced the highest deterioration in the income inequalities indicators. Finally, closer look at labour markets of EU New Member states shows that social cohesion in these countries is a much bigger problem than it appears from simple Gini coefficients.     

Smallholder Livelihood Adaptation in the Context of Neoliberal Policy Reforms: A Case of Maize Farmers in Southern Veracruz,Mexico

Governments around the world have embraced trade liberalisation as a means of enhancing efficiency to realise economic growth and alleviate poverty. Likewise, the Mexican government implemented neoliberal policy reforms, the NAFTA in particular, to stimulate sustainable development. Using the Mexican maize sector as illustration, this article describes the adaptation process of smallholders to market changes shaped by these reforms. Going beyond the aggregated level, we have investigated smallholders' livelihood strategies. Contrary to what economic models estimated, our data suggests that farmers intensified the cultivation of maize rather than switch to sectors in which Mexico has a comparative advantage.