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Achieving Growth to Reduce Poverty. L. Alan Winters Chief Economist Department for International Development 27 th January 2011. Shares in Long-run Poverty Reduction (Kraay cross-section). January 2011. 2. Growth is …. A private sector phenomenon Governments facilitate, don’t do
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Achieving Growth to Reduce Poverty L. Alan Winters Chief Economist Department for International Development 27th January 2011
Shares in Long-run Poverty Reduction (Kraay cross-section) January 2011 2
Growth is …. • A private sector phenomenon • Governments facilitate, don’t do • Long run • Is due to improvements in productivity (allocation is static, even if important) • which requires innovation • Freedom for private sector to respond to signals • which requires appropriate governance
Growth Statistics Source: L Alan Winters, Wonhyuk Lim, Lucia Hanmer, Sidney Augustin (2010)
Accelerations, Collapses and Stagnation Growth Accelerations Growth Collapses & Stagnation • Economic Reform • + Political Change • + Terms of Trade Shock • Financial Liberalisation • Decreases in Exports • Economic flexibility • Institutions
Five Common Characteristics of Successful Growth Sustained Long Run Growth • Exploitation of world economy • Macroeconomic stability • High rates of saving and investment • Markets allocating resources • Committed, credible, capable government “no recipes, just ingredients” Michael Spence, 2010
Escaping from Growth Collapses and Achieving Sustained Growth • Trade & Openness • Macroeconomic Stability • Infrastructure • Financial Sector Development • Human Development • Skills Investment is the Common Theme Governance is the Common Requirement
Implementing Reforms • Vision • Priorities and focus • But remember possible interactions • Consult and Communicate • Private sector, population, even public sector • Identify needs/wishes, constraints • Identify pressure points • Clear messages, consistent policy • Ongoing – reform fatigue, adjust to shocks
Implementation – Credible Packages • Short run and long run? • Both but not necessarily at the same time • Fair distribution → politically sustainable • Successful reform outlives governments • Ensure that ‘poverty’ argument is addressed sensibly and not captured by interests • Flexibility within agreed principles • Shocks happen • Markets offer flexibility – but explain this
India Deregulation and Labour Markets • Industries Act 1951 → control of all • De-licensing – one-third of industries in 1985, most or rest 1991 • Industrial Disputes Act 1947 • Amended extensively by states – some ‘pro-labour’, some ‘pro-employer’ • Both reforms boost firm numbers and real output • But biggest gains from combination of de-licensing and ‘pro-employer’ reforms Aghion, Burgess, Redding, Zilibotti (2009)
Chile – trade and labour markets • Dramatic trade liberalisation 1973 – averages and dispersion (uniformity as bulwark against lobbying) • Crisis in 1982 → maintained principles of the reform time-bound increases • Wide consultation of interests • Linked to labour market and exchange rate depreciation; a few specific concessions • Edwards and Lederman (1999)
Uganda – trade, taxes, expenditure, macro • Starting point in 1986 dire • Tax rationalisation and clarity • Tariff reductions and harmonisation • Favouritism dramatically reduced; regulations • Export taxes removed • Explicit poverty polices, PETS
Colombia Reforms in 1990s: • Reduced dismissal costs by 60-80% • Elimination of interest rate caps, better financial regulation • Eliminate exchange controls • Freed inward FDI • Deep tariff cuts Eslava, Haltiwanger, Kugler and Kugler (2004, 2010)
Factors behind pro-poor growth (Kraay)regression of components of poverty reduction on policy variables; long spells only