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Department of Economics, WU (Wirtschaftsuniversität Wien) Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)

No 213:
There is poverty convergence

Jesus Crespo Cuaresma (), Stephan Klasen () and Konstantin M. Wacker ()

Abstract: Martin Ravallion ("Why Don't We See Poverty Convergence?" American Economic Review, 102(1): 504-23; 2012) presents evidence against the existence of convergence in global poverty rates despite convergence in household mean income levels and the close linkage between income growth and poverty reduction. We show that this finding is driven by a specification that demands more than simple convergence in poverty headcount rates and assumes a growth elasticity of poverty reduction, which is well-known to accelerate with low initial poverty levels. If we motivate the poverty convergence equation using an arguably superior growth semi-elasticity of poverty reduction, we find highly significant and robust evidence of convergence in absolute poverty headcount ratios and poverty gaps. Relatedly, we show that the results in Ravallion (2012) are driven by the special income growth and poverty dynamics in Central and Eastern European transition economies that started with low initial poverty rates and thus observed a high elasticity of poverty reduction. Once we control for their abnormal poverty dynamics, we again find robust evidence of global convergence in poverty, even in the original specification by Ravallion (2012).

Keywords: poverty convergence, economic growth, poverty trap, transition economies; (follow links to similar papers)

JEL-Codes: I32,; D31,; P36; (follow links to similar papers)

January 2016

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