Module 7: Evaluating the Poverty Impacts of Economy-Wide Policies

Poverty and Inequality Course: Module 7
April 16-17, 2007
9:00 am - 4:00 pm

Policy impact analysis is essentially an exercise in social evaluation as it involves a comparison of social states on the basis of a criterion stemming from the policy objective. In general, social evaluation is as an assessment of variations in individual and social welfare attributable to an exogenous chock or the implementation of a policy. Economic shocks and policies may have at once macroeconomic, structural and distributional implications working through a number of flow-of-funds variables, and a set of markets. This creates a need for an analytical framework that explicitly accounts for the interdependence between these three dimensions. A general equilibrium model offers such a framework. In addition, it is used to infer the counterfactual state. This module is an introduction to social impact analysis within a general equilibrium framework. The basic approach followed here is to link a social evaluation criterion to a computable general equilibrium (CGE) model describing the fundamental determinants of poverty namely, individual behavior and social interaction. The participants will learn how to build and run a simple CGE model in EViews. They will also learn how to link such a model to a poverty module based on a parameterization of the Lorenz curve. The full simulation model will then be used to illustrate the assessment of the poverty impacts of exogenous shocks (Dutch disease and terms of trade shocks), and changes in budgetary policies. The module ends with a presentation of two case studies of trade reform for China and Morocco.

Course Instructor: B. Essama-Nssah

Course Outline: Evaluating the Poverty Impacts of Economy-Wide Policies (17kb PDF)

Core Reading List

1. De Melo Jaime and Robinson Sherman (1989). Product Differentiation and the Treatment of Foreign Trade in Computable General Equilibrium Models of Small Economies. Journal of International Economics, 27:47-67. (1.87mb PDF) 
2. B. Decaluwé, L. Savard, E. Thorbecke (2005). General Equilibrium Approach for Poverty Analysis: With an Application to Cameroon. African Development Review 17 (2), 213–243. doi:10.1111/j.1017-6772.2005.00113.x
3. Devarajan Shantayanan, Jeffrey D. Lewis, and Robinson Sherman (1990). Policy Lessons from Trade-Focused, Two-Sector Models. Journal of Policy Modeling, 12(4):635-657. (2.56mb PDF) 
4. Dinwiddy, C.L. and F. J. Teal (1988). Chapters 1 and 3. In The Two-Sector General Equilibrium Model. A New Approach. Oxford: Phillip Allan/St. Martin’s Press.
5. Essama-Nssah, B. (August 2005). The Poverty and Distributional Impact of Macroeconomic Shocks and Policies: A Review of Modeling Approaches, World Bank Policy Research Working Paper, No. 3682. (438kb PDF) 
6. Essama-Nssah, B. (January 2004). Building and Running General Equilibrium Models in EViews. World Bank Policy Research Working Paper, No. 3197. (261kb PDF) 
7. Essama-Nssah, B. (December 2005). Simulating the Poverty Impact of Macroeconomic Shocks and Policies, World Bank Policy Research Working Paper.  No. 3788. (330kb PDF) 
8. Essama-Nssah, B. (February 2005). Inequality and Poverty Simulations within the Lorenz Framework.  Mimeo (398kb PDF)
9. Ravallion Martin and Lokshin Michael (August 2004). Gainers and Losers from Trade Reform in Morocco. Policy Research Working Paper.  No. 3368.  (0.66mb PDF)
10. Robinson, Sherman (1989). Chapter 18:  Multisectoral Models. In Hollis Chenery and T.N. Srinivasan (eds.) Handbook of Development Economics. Volume II. Amsterdam: Elsevier. 
11. Sen Amartya (1989). Chapter 1: The Concepts of Development. In Hollis Chenery and T.N. Srinivasan (eds.) Handbook of Development Economics. Vol.1 Amsterdam: Elsevier. 
12. Varian Hal R. (1998). How to Build an Economic Model in Your Spare Time. In Michael Szenberg (ed.) Passion and Craft: Economists at Work. Ann Arbor: University of Michigan Press.

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