Africa and Poverty Traps

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Africa and Poverty Traps

• Ben Jones and Ben Olken
• April 21, 2006

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African divergence
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Alternate views

• Poverty traps
• Non-convexity creating multiple equilibria
• Low growth state at low income
• Income threshold (countries below threshold are
  stuck)
• Big push to get over threshold
• Policy room for massive, one-off aid
  intervention
• State variable Typically capital, but could
  include public goods, human capital,
  institutions, etc.
• Neoclassical
• Convex production, no thresholds
• Many possible important state variables,
  including capital, human capital, geography,
  institutions, etc
• Still room for aid
• Key difference is whether there are one-off
  interventions to get over thresholds, not in what
  inputs matter for growth

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Which is it? Evidence from the Medium Run

• Can African countries grow?
• Is there a safe income threshold?
• Does capital matter?

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Can African Countries Grow?
Best 10-Year Growth Episode
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Can African Countries Grow?
Income after Best 10-Yr Growth Episode, Relative
to Prior Peak
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Is there a safe income threshold?
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Is there a safe income threshold?
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Does Capital Matter?
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Does Capital Matter?

• Little role for capital, especially in
  accelerations
• What then is associated with accelerations and
  collapses?
• Accelerations
• Steady expansions in international trade
• Labor shift to manufacturing
• Collapses
• Monetary instability and large devaluations
• Labor shift from manufacturing
• Civil conflict

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The Start-Stop View

• Summary
• No evidence for income threshold within reach of
  African countries
• Sustained, rapid growth expansions are common
• Sustained, rapid collapses also common
• Little role for capital
• Poverty traps?
• Not obvious in data
• Stochastic traps may exist, but then natural
  income variation much greater than plausible aid
  levels, and any safe income threshold comes
  only at very high income
• Implications
• Large one-off interventions would not be
  sufficient
• Need to focus on (1) how to trigger natural
  accelerations, (2) how to prevent collapses
• What are the key inputs? Not the aggregate
  capital stock.