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GTAP Resource #1461

"Overcoming Poverty and Food Insecurity: A Dynamic CGE Approach"
by Shane, Mathew and Terry Roe

One of the more perplexing economic problems is the persistence of poverty and food insecurity. In spite of dramatic world economic growth over more than 40 years, almost 1 billion people live in a state of food insecurity and dire poverty with less than $2 PPP per day of income. What does it take to substantially reduce this poverty and food insecurity? In this paper, we explore alternative ways of reducing poverty and food insecurity.

Objective: To evaluate means for reducing poverty and food insecurity. Alternative scenarios focusing on investments to increase productivity growth, TFP, agricultural productivity, and/or labor productivity, investments to reduce fertility rates, and investments to increase the number of scientists per capita are utilized.

Approach: Using a dynamic CGE, multi-country model, we evaluate the impact of alternative strategies for overcoming poverty and food insecurity. We start with 3 countries representing average characteristics of a “poor” country, a middle-income country, and a high-income country. Starting with the Deininger and Squire income distribution data set, we parametize the income distributions in 154 countries into gamma function distributions. Using the order and scale parameters as dependent variables, we econometrically estimate the impact of changes in per capita income, the agricultural share of GDP, the fertility rate, agricultural labor share of the labor force, and the number of scientists per capita on those parameters. We also utilize the recent results on the role of institutions in increasing the rate of economic growth. However, rather than draw upon the econometrically estimated coefficients directly, we relate the role of institutions to making factor markets, particularly rural capital and land markets complete. In this case, we find that these institutional innovations increase the income of the poor to the Upper end of the magnitude found in the recent work of Easterly. The alternative scenarios involve assumptions about the impact of public investments on the independent variables. Once we have determined the impacts of alternative public investment strategies on the independent variables, we use the changes to recalibrate our dynamic model and thus evaluate the longer term impact on the income distribution and, in particular, the changes implied to the lowest tail of the distribution. The key result is that the completeness of factor markets is, proportionately, more important to raising the income of the poor that it is for agents in the “modern” segment of the economy. Second, depending on the distribution of initial wealth, the rich have less to gain from institutional reform than the poor. If agents are myopic, bad institutions (those that prevent markets from being complete) can last forever.

Results: Investments which increase productivity growth either directly or indirectly through increase numbers of scientist per capita tend to be successful in reducing poverty and food insecurity. The composition of investments between factors that would tend to increase total factor productivity (TFP), agricultural productivity, and labor productivity are a critical component of this. Investments in human capital development which will alter fertility rates and increase labor productivity are found to be particularly important. Educational investments which result in a larger research capacity resulting in more scientists per capita is a critical component of this. Not surprisingly, the job of transforming the economy to increase the relative productivity and income of the lowest segment of the economy is not viewed as an easy job. Political and institutional transformations necessary to dramatically change income distributions to alleviate a large part of poverty and food insecurity is considered the most difficult part of the process and one which is deemed to be unlikely to take place in many of the most critically affected countries and regions

Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Presented at the 7th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2004
Created: Shane, M. (4/29/2004)
Updated: Shane, M. (4/30/2004)
Visits: 2,533
No keywords have been specified.

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