Growth and poverty in developing countries

Despite the developing countries' impressive aggregate growth of the past 25 years, its benefits have only reached the poor to a very limited degree. Not only have the poorest countries grown relatively slowly, but growth processes are such that within most developing countries, the incomes of the poor increase much less than the average. Although many policies have been proposed to counter these trends, little has been done to estimate the possibilities for significantly reducing world poverty within a reasonable period. This paper develops a quantitative framework to project levels of poverty under different assumptions about GNP growth population growth and changes in income distribution. Although the interactions among development processes and policy instruments are not modelled in any detail, the results serve to clarify the nature of the problem. The policy simulations demonstrate that the elimination of absolute poverty by the end of this century is a highly unlikely prospect; even to achieve a substantial reduction will require a combination of policies designed to accelerate the growth of poor countries, to distribute the benefits of growth more equitably, and to reduce population increase.     

An intemporal model of asset prices in a Markov economy with a limiting stationary distribution

A testable single-beta model of asset prices is presented. Ifstate variables have a long-run stationary joint dysfunction,then the rate return on a very long-term default-free discountbond will be perfectly correlated with the representative investor'smarginal utility of consumption. Thus, the covariance of anasset's return with the return on such a bond will be an appropriatemeasure of the asset's riskiness. The model can be, therefore,applied or tested even though the market portfolio or aggregateconsumption may not be observable. It also is shown that theexpected rate of return on a very long-term bond is equal toits variance. This proposition can be tested to determine whetherstate variables follow stationary processes.     

Time-varying risk and return in the bond market: a test of a new equilibrium pricing model

This article uses bond market data to empirically test the assetpricing model of Kazemi (1992). According to this model therate of return on a long-term, pure-discount, default-free bondwill be perfectly correlated with changes in the marginal utilityof the representative investor. The covariability between financialasset returns and returns on such a bond can therefore serveas a measure of the riskiness of assets. The aim of this studyis to determine whether the model can explain cross-sectionaldifferences in the monthly returns of bonds with different maturitydates. We estimate and test the restrictions imposed by themodel on returns of default-free bonds, while allowing the conditionaldistribution of bond returns to be time varying. The model isrejected during the full sample period (1973-1995) and the subperiod(1973-1980) when the Federal Reserve's focus is on interestrates, while the model is not rejected during the subperiod(1981-1995) when the Federal Reserve's focus is on money supply.     

Poverty and progress: choices for the developing world

Some development strategists equate progress with economic growth and others consider increased equity in income distribution or a reduction in poverty as indicators of progress. This report examined the empirical relationship between economic growth and income distribution using data derived from a number of recent comparative studies. Various studies supported the Kuznets hypothesis, which states that during the early phases of development income distribution worsens and improves during the later phases. These studies demonstrated that as per capita income increases in poor countries, income distribution worsens until the per capita income reaches the $800 level. After that level is reached, income distribution generally improves. In a study of 11 countries, the relationship, in recent years, between income growth for the rich and for the poor, and income growth for the country as a whole was examined. Of the 11 countries, Taiwan, Yugoslavia, Sri Lanka, Korea, and Costa Rica were ranked as good performers, since more than 30% of the increment in national income was allocated to the poorest 60% of the population. The countries of India, Philippines, Turkey, and Colombia were ranked as intermediate performers since 20-30% of the increment in national income went to the poorest 60%. Poor performance countries were Brazil, Mexico, and Peru. In these countries less than 20% of the income increment was allocated to the poorest 60%. A table provided comparative national income and income distribution data for the 11 countries. These findings did not permit an assessment of different development strategies; however, they did indicate that: 1) some countries, such as Taiwan, Yugoslavia, and Korea, achieved both rapid growth and greater income distribution equity; and that 2) although some countires, such as Sri Lanka, which stressed equity, grew less rapidly than other countries, such as Mexico, which stressed economic growth, the poor fared much better in the former countries than in the latter countries. The conclusion was reached that proverty must be reduced by: 1) improving income distribution; 2) promoting economic growth; and 3) reducing population growth. Efforts must be directed toward preventing the poor from falling behind the rich as development proceeds.     

Interaction between theory and observation in development

The author reviews empirical research carried out over the past 30 years with respect to the process of development. He first examines the extent to which economic theories and generalizations derived from the experience of the developed countries are relevant to the developing countries. He next explores the relationship between the ‘structural transformation’ that occurs in the process of development and economic growth, summarizing his own current research on several issues. Finally he compares applications of the neoclassical growth model to both the more advanced countries, whose economic transformation is near completion, and the developing countries still in the process of structural transformation. The author argues that further empirical work can reduce the controversy between neoclassical and structural approaches to development by making possible the formulation of computable models in which the distinction between developing and developed countries can be largely reduced to observable differences in certain statistical parameters: initial conditions, price and income elasticities, and adjustment lags.