Africa and Poverty Traps Ben Jones and Ben
Africa and Poverty Traps Ben Jones and Ben Olken April 21, 2006
African divergence 1
Alternate views • “Poverty traps” – Non-convexity creating multiple equilibria – Low growth state at low income – Income threshold (countries below threshold are stuck) – Big push to get over threshold • Policy: room for massive, one-off aid intervention • State variable: Typically capital, but could include public goods, human capital, institutions, etc. • Neoclassical – Convex production, no thresholds – Many possible important state variables, including capital, human capital, geography, institutions, etc – Still room for aid • Key difference is whethere are one-off interventions to get over thresholds, not in what inputs matter for growth 2
Which is it? Evidence from the Medium Run 1. Can African countries grow? 2. Is there a “safe” income threshold? 3. Does capital matter? 3
Can African Countries Grow? Best 10 -Year Growth Episode 4
Can African Countries Grow? Income after Best 10 -Yr Growth Episode, Relative to Prior Peak 5
Is there a “safe” income threshold? 6
Is there a “safe” income threshold? 7
Does Capital Matter? 8
Does Capital Matter? • Little role for capital, especially in accelerations • What then is associated with accelerations and collapses? • Accelerations • Steady expansions in international trade • Labor shift to manufacturing • Collapses • Monetary instability and large devaluations • Labor shift from manufacturing • Civil conflict 9
The Start-Stop View • Summary – No evidence for income threshold within reach of African countries – Sustained, rapid growth expansions are common – Sustained, rapid collapses also common – Little role for capital • Poverty traps? – Not obvious in data – Stochastic traps may exist, but then natural income variation much greater than plausible aid levels, and any “safe” income threshold comes only at very high income • Implications – Large one-off interventions would not be sufficient – Need to focus on (1) how to trigger natural accelerations, (2) how to prevent collapses 10 – What are the key inputs? Not the aggregate capital stock.
- Slides: 11