Growth and Chronic Poverty: Evidence from Rural Communities in Ethiopia |
| |
Authors: | Stefan Dercon John Hoddinott Tassew Woldehanna |
| |
Institution: | 1. University of Oxford , Oxford , UK Stefan.Dercon@economics.ox.ac.uk;3. International Food Policy Research Institute (IFPRI) , Washington , DC , USA;4. Addis Ababa University , Addis Ababa , Ethiopia |
| |
Abstract: | This article employs a computable general equilibrium model for Sandinista Nicaragua to argue that a foreign exchange constrained economy does not necessarily fall prey to the inflation‐devaluation‐inflation vicious cycle characteristic of more mature Keynesian economies. It is seen that when the economy is shocked by a devaluation, prices do not rise proportionately. Output increases and the distribution of income can actually improve. These results support Sandinista policy of raising wages along with devaluation, a policy widely criticised as counterproductive. When the model is structured to account for the combined effects of Sandinista policies, however, including rising government expenditure and multiple effective exchange rates, a host of macroeconomic problems experienced by the regime arise. Stagflation sets in, income distribution deteriorates and the incentives for export production seriously diminish. |
| |
Keywords: | |
|
|