The Inclusiveness of Africa s Recent High- Growth Episode: Evidence from Six Countries

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1 The Inclusiveness of Africa s Recent High- Growth Episode: Evidence from Six Countries Rodrigo Garcia-Verdu, Abebe Aemro Selassie, and Alun Thomas African Department International Monetary Fund 2012 Economic Development in Africa Centre for the Study of African Economies (CSAE) St. Catherine s College, Oxford March 20, 2012

2 1. Apparent disconnect between growth and poverty outcomes in Sub-Saharan Africa 2. Prompting a debate 3. Six case studies on the inclusiveness of growth 4. Measuring real income using Engel curves 5. Conclusions 2

3 The acceleration of growth since the mid 1990s has been accompanied by modest reductions in poverty headcounts in SSA More progress has been made in improving social and health indicators GDP per capita growth has played a part, supported by improvements in technology, increasingly responsive political processes, more effective aid, and diffusion of medical technology 3

4 Real GDP and per Capita Growth, Real GDP Real GDP per Capita Headcount Poverty Index using the $1.25 dollars per day poverty line (percent of the population below the poverty line) East Asia and Pacific Eastern Europe and Central Asia 4.0 Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Average in percent Percent Developing world

5 Sub-Saharan Africa Countries Sub-Saharan Africa High Growth Countries Average change in $1.25 poverty hdcount (%) GNB ZMB NGA MDGGIN ZAF CIV TZA ZMB RWA CIV MDG BDI CAFKEN MWI NER LSO CAF ETH GHA MLI GHA UGA UGA MDG SWZSEN MDG BFA MLI UGA SEN ZAFETH CMR GIN KEN CMR GMB NER y = x R² = Average per capita growth (%) Average change in $1.25 poverty hdcount (%) RWA NGA MWI TZA ETH UGAUGA GHA GHA MLIUGA MLI BFA ETH BFA RWA NGA MOZ UGA TZA MOZ y = x R² = UGA Average per capita growth (%) 5

6 Perhaps the most dominant view is that weak poverty reduction reflects: Insufficient growth Highly unequal initial income distribution Unpropitious patterns of growth More recently, some authors have argued that the extent of poverty reduction in the region is being underestimated: Measurement issues Income vs. consumption Changes in the ownership of assets provides a different picture about income growth 6

7 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 analyzed: Determinants of consumption Employment outcomes 7

8 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 measure: 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 8

9 Cameroon Zambia Annual growth rate (percent) Annual growth rate (percent) Consumption percentiles Consumption percentiles Growth incidence Growth in mean 95 percent confidence bounds Mean growth rate 9

0 Annual growth rate (percent) 6 5 4 3 2 Ghana, 1998-2005 0 Annual growth rate (percent) 8 6 4 Uganda, 2003-2010 1 1 10 20 30 40 50 60 70 80 90 100 Consumption percentiles 2 1 10 20 30 40 50 60 70 80

10 0 Annual growth rate (percent) Ghana, Annual growth rate (percent) Uganda, Consumption percentiles Consumption percentiles 0 9 Tanzania, Mozambique, Annual growth rate (percent) 6 3 Annual growth rate (percent) Consumption percentiles Consumption percentiles Growth incidence Growth in mean 95 percent confidence bounds Mean growth rate 10

11 Percent GDP Growth per Capita Per Capita Consumption Growth of the Poorest quartile Per Capita Consumption Growth of the Poorest quartile (using regional price deflators) Cameroon Zambia Ghana Tanzania Uganda Mozambique 11

Macroeconomic, Poverty, and Consumption Aggregates in Sample Countries (Annual percentage change, except where stated) Period Growth per Capita Poverty Headcount Gini Coefficient Per Capita

12 Macroeconomic, Poverty, and Consumption Aggregates in Sample Countries (Annual percentage change, except where stated) Period Growth per Capita Poverty Headcount Gini Coefficient Per Capita Consumption Latest estimate Initial estimate Latest estimate NIPA data All households Survey data Poorest Ratio of poorest quartile quartile to average Cameroon Zambia Ghana Tanzania Uganda Mozambique Memo items: Bangladesh Cambodia Vietnam For per capita consumption growth rates, upper line is deflated by aggregate CPI, lower line is deflated by regional CPIs 2 Estimate based on Bangladesh growth incidence curve. 3 For Cambodia and Vietnam, the poorest quintile replaces the poorest quartile. 12

13 Log Household Consumption Determinants (Most Recent Survey) 1 Ghana Cameroon Uganda Mozambique Tanzania Zambia / Household size (log) 0.37 *** 0.29 *** 0.24 *** 0.26 *** 0.31 *** 0.17 *** Age (log) 0.13 *** 0.18 *** 0.20 *** 0.16 *** *** Male head of household 0.03 *** *** 0.04 *** 0.06 ** 0.02 Employment dummy 0.16 *** 0.04 ** *** 0.21 *** 0.07 *** Agriculture sector dummy *** *** *** *** *** *** Manufacturing sector dummy *** ** * *** 0.03 * Government sector dummy *** 0.19 *** 0.16 *** *** 0.02 Primary schooling 0.07 ** 0.08 *** *** 0.12 *** 0.13 *** 0.04 * Lower secondary schooling 0.16 *** 0.16 *** *** 0.44 *** 0.13 *** Upper secondary schooling 0.38 *** 0.29 *** *** 0.71 *** 0.47 *** College/nursing/teacher training 0.69 *** 0.59 *** 0.87 *** 1.00 *** 1.23 *** 1.03 *** Urban dummy 0.24 *** 0.21 *** 0.20 *** 0.12 *** 0.23 *** 0.12 *** Diagnostic statistics Number of observations R -squared Sources: IMF staff estimates based on data from various household surveys (see Appendix I). Note: ***,**,* indicate statistical significance at the 99 percent, 95 percent, and 90 percent levels, respectively. 1 Characteristics refer to head of household except for household size and urban dummy. 2 For Zambia, the manufacturing dummy refers to nonagriculture, nongovernment salaried employment. 13

14 Employment Indicators (Annual percentage change, except where stated) Period Total Employment Employment Output Elasticity Urban Employment Agricultural Employment Rural Agricultural Employment Formal Sector Employment 1 Cameroon Ghana Mozambique Tanzania Uganda Zambia Memo items: Cambodia Vietnam n.a Sub-Saharan Africa (sample median) Sources: Household surveys; Vietnam Ministry of Planning and Investment and UNDP (2010); World Bank (2008). 1 Latest estimate in percent of working-age population. 2 Agricultural employment is for

15 Percent Food expenditure share and household consumption expenditure per capita in a sample of 84 countries (2010) Total household consumption expenditures per capita in US dollars (Ln) Percent Food expenditure as a share of total household consumption by deciles of the total household consumption distribution in Ghana Food share 1991 Food share 1998 Food share 2005 Average 1991 Average 1998 Average Deciles of the total household consumption distribution 15

This empirical regularity can be used to measure the biases built in the Consumer Price Index (Costa, 2001, and Hamilton, 2001): if estimated Engel curves drift over time towards the origin, so that

16 This empirical regularity can be used to measure the biases built in the Consumer Price Index (Costa, 2001, and Hamilton, 2001): if estimated Engel curves drift over time towards the origin, so that households are allocating less consumption to food than in previous years, then this is evidence that inflation overestimates true cost-ofliving increases Estimated Engel curve for Ghana using data for the period

17 Dependent variable: Food consumption as a share of total household consumption County Cameroon Ghana Uganda Zambia Periods Constant *** *** *** *** Total real household consumption ( *** *** *** *** d (second year dummy) *** *** *** *** Household size *** *** *** *** Age of household head *** *** *** *** Male head of household ** ** *** *** Employed *** *** * *** Number of observations 22,140 13,950 16,727 29,246 R-squared Adjusted R-squared

18 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 18

19 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 19

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