Macroeconomic instability makes growth less pro poor, in Africa and elsewhere: A preliminary examination

The recent literature on the determinants of poverty changes across countries has been focused on the change of average level of income per capita and its distribution, generally measured by a Gini coefficient. While the instability of income is more and more considered as an explaining factor of the average rate of income, it is not generally considered as a factor of higher poverty for a given level of income. However it can be expected that income volatility is a factor of poverty, due to the existence of poverty traps. In this paper we argue that income instability may result in higher poverty for a given level of income. Considering that in Africa poverty during the last two decades has been increasing whereas it was decreasing in other developing countries, and that income instability is higher in Africa than it is elsewhere, it is relevant to examine whether this higher instability has been a factor of higher poverty beyond the fact that it lowers growth. In order to answer to this question, the paper first summarizes the evolution of poverty from available statistical data, and then introduces income instability in an appropriate model of a poverty change. The econometric results corresponding to this model show that income instability may have, besides income growth and Gini coefficient change, an additional impact on poverty change. Even if it is low, since income instability is higher among Sub Saharan African countries, this impact can explain a part of their larger poverty incidence.