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How Inclusive is Africa’s Growth?

How Inclusive is Africa’s Growth?. Abebe Aemro Selassie Assistant Director African Department, International Monetary Fund October 2011. Outline. Apparent disconnect between growth and poverty outcomes—but mainly on the basis of cross-country studies

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How Inclusive is Africa’s Growth?

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  1. How Inclusive is Africa’s Growth? Abebe Aemro Selassie Assistant Director African Department, International Monetary Fund October 2011

  2. Outline • Apparent disconnect between growth and poverty outcomes—but mainly on the basis of cross-country studies • Case study approach has much to commend it • Measuring real income • Tentative conclusions InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 2

  3. Apparent disconnect between growth and poverty outcomes in sub-Saharan Africa (SSA) InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 3

  4. When we consider only the countries that have sustained high growth over the 1995-2010 period, there is a somewhat stronger link between growth and poverty reduction InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 4

  5. Accounting for the stylized facts • Perhaps the most dominant view is that weak poverty reduction reflects: • Insufficient growth (Fosu, 2010) • Highly unequal initial income distribution • Unpropitious patterns of growth (Teal, 2011) • More recently, some authors have argued that the extent of poverty reduction in the region is being underestimated: • Income vs. consumption(Sala-i-Martin and Pinkovsky, 2010) • Changes in the ownership of assets paint a different picture about income growth (Young, 2010) InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 5

  6. Case studies on the inclusiveness of growth • Country sample: Cameroon, Ghana, Mozambique, Tanzania, Uganda, and Zambia • Absolute vs. Relative measures of inclusiveness • Absolute: annual per capita increase in consumption of poorest quartile • Relative: how did the poorest quartile fare relative to he richest quartile • We also looked • Determinants of consumption • Employment outcomes InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 6

  7. Core results • Absolute measure: • The poorest quartile of the consumption distribution in 4 out of 6 countries experienced relatively high (3½ percent) annual growth in consumption. These four countries are Ghana, Mozambique, Tanzania, and Uganda, and all of them are “high-growth countries.” • In Cameroon: growth was low, and annual per capita consumption for the poorest quartile grew by just 1 percent. • In Zambia, per capita consumption of the poorest quartile was negative. • Relative concept: • the poorest quartile did better than the highest quartile in Cameroon, Uganda. (In Zambia, too, but only in the sense that consumption decline was less negative than for the richest quartile.) InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 7

  8. Per Capita GDP Growth and Consumption Growth of the Poorest Quartile InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 8

  9. Growth incidence 95 percent confidence bounds Growth in mean Mean growth rate 43210 1 Growth rate of real consumption per capita by percentile of the distribution: the low-growth cases Annual growth rate (percent) Annual growth rate (percent) -1 -3 -5 -1 Cameroon 2001-2007 -7 -2 Zambia 1998­2004 -9 -3 1 10 20 30 40 50 60 70 80 90 100 1 10 20 30 40 50 60 70 80 90 100 Consumption percentiles Consumption percentiles InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 9

  10. Growth incidence 95 percent confidence bounds Growth in mean Meangrowth rate 6543210 7 53 1 8 6 420 Annual growth rate (percent) 9630 Annual growth rate (percent) Annual growth rate (percent) Growth rate of real consumption per capita by percentile of the distribution: the high-growth cases Annual growth rate (percent) Ghana, 1998-2005 Uganda, 2003-2010 -1 1 10 20 30 40 50 60 70 80 90 100 1 10 20 30 40 50 60 70 80 90 100 1 10 20 30 40 50 60 70 80 90 100 Consumption percentiles 1 10 20 30 40 50 60 70 80 90 100 Consumption percentiles Consumption percentiles Consumption percentiles -1 Tanzania, 2001-2007 Mozambique, 2002-2008 -3 InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 10

  11. A close relationship exists between GDP growth per capita and consumption growth of the poorest quartile InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 11

  12. The variation in consumption can be explained by 4-5 variables and these determinants are broadly stable across time and similar across countries InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 12

  13. Employment growth has been strong and rural agricultural employment growth provides much of the explanation of per capita consumption growth among the poorest households InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 13

  14. Engel’s Law: the share of total consumption devoted to food decline as real total income increases. Support for this empirical regularity exists both across and within countries InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 14

  15. Insights from Engle’s Curves Estimates • Evidence of real income being underestimated in Cameroon, Ghana and Zambia • In Uganda, evidence of income being overestimated • Main reason for the bias in the measurement of income likely because CPI inflation is overstated InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 15

  16. Summary • Cross country evidence of limited value in assessing the link between poverty and growth • Growth is central for poverty reduction, but not sufficient. • Strong linkages between agricultural growth and poverty reduction, policies to improve agricultural output and productivity likely to be useful • Policies that promote broad and sustainable growth should continue, but temporary and well targeted transfer programs could be introduced to protect the poor • Some evidence supporting those that argue that real income may be being underestimated InternationalMonetaryFund, Regional Economic Outlook for sub-SaharanAfrica, October 2011 16

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