Sectoral Growth Dynamics: Inequality Tradeoff and Sustainability in Central America
Article Sidebar
Published:
Jul 19, 2024
Keywords:
Central America, Extreme Poverty, Economic Growth, Inequality, Dampening, ARDL, Short and Long-Run Elasticities
Main Article Content
Abstract
This study is concerned with both the interlinks between inequality, extreme poverty reduction, and economic growth and estimates the dampening impact on economic growth and on extreme poverty rates using the Central American countries annualized level data. These dynamic complexities, are analyzed within the auto regressive distributed lag bounds testing approach to cointegration. The results show that when extreme poverty reduction is decomposed into two separate impacts, the growth impact on poverty reduction was lessened by the incidence of high-income inequality. The total dampening impact of inequality, varies from 1.1522% for El Salvador to 2.0589% for Honduras, due to a 1% increase in inequality. Reducing inequalities can be doubly beneficial for the extreme poor in Central American countries. The magnitude of changes in poverty reduction depends on each country-specifics, which leads to the implementation of a different strategy for extreme poverty reduction to different countries
Downloads
Download data is not yet available.
Article Details
How to Cite
Vanegas Sr, M. A. (2024). Sectoral Growth Dynamics: Inequality Tradeoff and Sustainability in Central America. Revista De Fomento Social, (309), 293–319. https://doi.org/10.32418/rfs.2024.309.5775
Section
Studies
The authors acknowledge that the Revista de Fomento Social assumes as its own the intellectual property rights over their work and grant the journal the permissions of distribution and public communication of the same established in the Berlin, Bethesda and Budapest declarations; for this reason they accept that the work presented be distributed in open access, protecting the copyright under a "Creative Commons Attribution-NonCommercial-NoDerivativeWorks 4.0 (CC BY-NC-ND) license.
You may copy, use, disseminate, transmit and publicly display provided that:
Cite the authorship of the work, the publication in Revista de Fomento Social, issue, year and the pages where you found the information.
No commercial benefit may be obtained.
No derivative works may be made for commercial purposes that are not authorized by the journal.
Authors are encouraged to disseminate the article electronically (Revista de Fomento Social, number, year, pagination, ISSN, DOI, etc.), in order to favor its circulation and diffusion, increase its citation and reach among the academic community.
The information of the journal will be provided to Dulcinea
References
Adams, R.H. (2004). Economic growth, inequality and poverty: estimating the growth elasticity of poverty. World Development, 32, 1989-2014.
Adelman, I., and Morris, C.T. (1973). Economic growth and social equity in developing countries. Stanford, CA: Stanford University Press.
Ahluwalia, M.S. (1976). Inequality, poverty and development. Journal of Development Economics, 3(4), 307-342.
Akaike, H. (1974). A new look at the statistical model identification. IEEE Transactions on Automatic Control, 19, 716-723.
Ali, W., Abdullah, A., and Azam, M. (2017). Re-visiting the environmental Kuznets curve hypothesis for Malaysia: Fresh evidence from ARDL bounds testing approach. Renewable and Sustainable Energy Reviews, 77, 990-1000.
Attanasio, O., and Binelli, (2004). Inequality, growth and redistributive policies. Proceedings of the AFD-EUDN conference, pp, 179-213, Agence Française de Developpement.
Ayad, H. (2016). Poverty, inequality and economic growth in Algeria: An ARDL approach. Journal of Social and Economic statistics, 5(1), 1-20.
Bahmani-Oskooee, M.M., and Goswami, G.G. (2003). A disaggregated approach to test the J-curve phenomenon: Japan versus her major trading partners. Journal of Economics and Finance, 27, 102-113.
Bayer, C., and Hanck, C. (2013). Combining non-cointegration tests. Journal of Time Series Analysis, 34, 83-95.
Benhabib, J., and Rustichini, A. (1996). Social conflict and growth. Journal of Economic Growth, 1, 125-142.
Bourguignon, F. (2003). The growth elasticity of poverty reduction: explaining heterogeneity across countries and time periods. In Eicher, T.S., and Turnovsky, S.J., eds, Inequality and Growth: Theory and Policy Implications, MIT Press, Cambridge, MA, pp, 3-26.
Bourguignon, F. (2004). The poverty-growth-inequality triangle. Working Paper No. 125, Indian Council for Research on International Economic Relations, New Delhi, India.
Breusch, T. (1978). Testing for autocorrelation in dynamic linear models. Journal of Australia Economic Papers, 17, 334-355.
Brown, R.J., Durbin, J., and Evans, J. (1975). Techniques for testing the constancy of regression relationships over time. Journal of Royal Statistics Society, B37, 149-163.
Cingano, F. (2014). Trends in income inequality and its impact on economic growth. OECD SEM Working paper No. 163, OECD Publishing, Paris.
Dickey, D.A., and Fuller, W.A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 9(4), 1057-1071.
ECLAC. (2022). Social Panorama of Latin America, 2021. (LC/PUB.2021/17-p), Santiago, Chile
Elliot, G., Rothenberg, T., and Stock, J. (1996). Efficient tests for an autoregressive unit root. Econometrica, 64, 813-836.
Engle, R.F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica, 50, 987-1007.
Fosu, A. K. (2017). Growth, inequality, and poverty reduction in developing countries: Recent global evidence. Research in Economics, 71(2), 306-336.
Gallo, C. (2002). Economic growth and income inequality: Theoretical background and
empirical evidence. Working Paper No. 119, London: Development Planning Unit,
University College London.
Gelaw, F. (2010). The dynamic relationship among poverty, inequality, and growth in rural Ethiopia: A micro evidence. Journal of Development and Agricultural Economics, 2(5), 197-208.
Gini, C. (1912). Variabilitá e mutabilitá: contributo allo studio delle distribuzioni e delle relazioni statistiche. Bologna: Tipografia di Paolo Cuppini.
Harris, R., and Sollis, R. (2003). Applied time series modelling and forecasting. West Sussex: Wiley.
Iniquez-Montiel, A.J., and Kurosacki, T. (2018). Growth, inequality and poverty dynamics in Mexico. Latin American Review, 27(12), 1-25.
Jarque, C.M., and Bera, A.K. (1980). Efficient tests for normality, homoscedasticity and serial independence of regression residuals. Economics Letters, 6, 255-259.
Jalil, A., and Ma, Y. (2008). Financial development and economic growth: Time series evidence from Pakistan and China. Journal of Economic Cooperation among Islamic Countries, 29, 29-68.
Kaldor, N. (1956). Alternative theories of distribution. Review of Economic Studies, 23(2), 83-100.
Kalwrij, A., and Verschoor, A. (2007). Not by growth alone: The role of the distribution of income in regional diversity in poverty reduction. European Economic Review, 51(4), 805-829.
Karagiannaki, E. (2017). The empirical relationship between poverty and inequality in rich and middle-income countries. CASE paper 206/ LIP paper 3, London: Centre for Analysis of Social Exclusion, LSE.
Kuznets, S. (1955). Economic growth and income inequality. The American Economic Review XLV(1), 1-28.
Lee J., and Strazicich, M. (2003a). Minimum LM unit root test with one structural break. Economics Bulletin, AccessEcon, 33(4), 2483-2492.
Lee J., and Strazicich, M. (2003b). Minimum Lagrange multiplier unit root test with two structural breaks. Review of Economic Statistics, 85, 1082-1089.
Mansi, E., Hysa, E., Panait, M., and Voica, M.C. (2020). Poverty-A challenge for economic development? Evidences from Western Balkan countries and the European Union. Sustainability, 12(7754), 1-24.
Menegaki, A.N. (2019). The ARDL method in the energy growth nexus field: Best implementation strategy. Economies, 7(105), 1-16.
Mphuka, C., Kaonga, O., and Tembo, M. (2017). Economic growth, inequality and poverty: Estimating the growth elasticity of poverty in Zambia, 2006-2015. International Growth Center, reference number: F-41302-ZMB-1.
Narayan, P.K. (2005). The saving and investment nexus for China: Evidence for cointegration tests. Applied Economics, 37(17), 1979-1990.
Narayan, P.K. (2004). Reformulating critical values for the Bounds F-statistics approach to cointegration: An application to the tourism demand model for Fiji. Department of Economics, Discussion Papers, ISSN 1441-5429 No. 02/04, Monash University, Victoria Australia.
Nasir, A.B. M., and Mridha, H.A. (2017). Does income inequality dampen growth effect on poverty? Evidence from the US county data. The Journal of Developing Areas, 51(4), 167-177.
Papanek, G., and Kyn, O. (1986). The effect on income distribution of development, the growth rate and economic strategy. Journal of Development Economics, 23(1), 55-65.
Pesaran, M.H., Shin, Y., and Smith, R.J. (2001). Bounds testing approaches to the analysis of
level relationships. Journal of Applied Econometrics, 16, 289-326.
Pesaran, M.H., and Pesaran, B. (1997). Working with Microfit 4.0: Interactive econometric analysis. Oxford University Press, Oxford.
Ramsey J.B. (1969). Test for specification errors in classical linear test squares regression analysis. Journal of the Royal Statistical Society, 31(Series B), 350-371.
Ravallion, M. (2005). A poverty-inequality trade-off? Journal of Economic Inequality, 2005(3), 169-181.
Ravallion, M. (2001). Growth, inequality, and poverty: Looking beyond averages. In A.
Shorrocks and R.V.D. Hoeven (eds), Prospects for Pro-Poor Economic Development, pp. 62-80. New York: Oxford University Press.
Ravallion, M., Chen, S. (1997). What can new survey data tell Us about recent changes in distribution and poverty. The World Bank Economic Review, 11(2), 357-382.
Schwartz, G. (1978). Estimating the dimension of a model. Annals of Statistics, 6, 461-464.
Silva-Tabosa, F.J., de Carvalho-Castelar, P.U., and Irffi, G. (2016). Brazil, 1981-2013: the effects of economic growth and income inequality on poverty. CEPAL Review, 120, 153-170.
Sumner A., Hoy, C., and Ortiz-Juarez, E. (2020). Estimates of the impact of COVID-19 on global poverty. WIDER Working Paper No. 2020/43, United Nations University, World Institute for Development Economic Research, Helsinki.
UNCTAD. (2020). The least developed countries report, 2020: Productive capacities for the new decade. UNCTAD/LDC/2020, Geneva.
UNCTAD. (2012). The least development countries report, 2012: Policies for inclusive and balanced growth. United Nations Conference on Trade and Development (UNCTAD), Geneva.
UNCTAD. (2008). The least development countries report, 2008: Growth, poverty and the terms of development partnership. United Nations Conference on Trade and Development (UNCTAD), Geneva.
United Nations. (2020). World economic situation and prospects, 2020. United Nations, New York.
Valensisi, G. (2020). COVID-19 and global poverty: Are LDCs being left behind? The European Journal of Development Research, 32, 1535-1557.
Vanegas, M. (2022). Tourism, development economics, poverty alleviation and inequality. In Croes, R, and Yang, Y (eds.) A Modern Guide to Tourism Economics. Edward Elgar Publishing: Cheltenham, UK, pp. 237-258.
Vanegas, M., and Roe, T. (2021). Economic growth, inequality and poverty: Tourism dynamics in 3 CAFTA-DR countries. Paper presented at the 6th World Research Summit for Tourism and Hospitality, University of Central Florida, 14-15, December.
Vanegas, M. (2018). Tourism, macroeconomics, growth, and the St. Louis equation. Tourism International Review, 22, 3-21.
Vanegas, M., Gartner, W., and Senauer, B. (2015). Tourism and poverty reduction: An economic sector analysis for Costa Rica and Nicaragua. Tourism Economics, 21(1), 159-182.
White, H. (1980). A heteroscedasticity-consistent covariance matrix estimator and a direct test of heteroscedasticity. Econometrica, 8, 817-838.
Yang, L. and Vizard, P. (2017). Multidimensional poverty and income inequality in the EU: An adjusted headcount approach. CASE paper 207/ LIP paper 4, LIP program, London: Centre for Analysis of Social Exclusion, LSE.
Adelman, I., and Morris, C.T. (1973). Economic growth and social equity in developing countries. Stanford, CA: Stanford University Press.
Ahluwalia, M.S. (1976). Inequality, poverty and development. Journal of Development Economics, 3(4), 307-342.
Akaike, H. (1974). A new look at the statistical model identification. IEEE Transactions on Automatic Control, 19, 716-723.
Ali, W., Abdullah, A., and Azam, M. (2017). Re-visiting the environmental Kuznets curve hypothesis for Malaysia: Fresh evidence from ARDL bounds testing approach. Renewable and Sustainable Energy Reviews, 77, 990-1000.
Attanasio, O., and Binelli, (2004). Inequality, growth and redistributive policies. Proceedings of the AFD-EUDN conference, pp, 179-213, Agence Française de Developpement.
Ayad, H. (2016). Poverty, inequality and economic growth in Algeria: An ARDL approach. Journal of Social and Economic statistics, 5(1), 1-20.
Bahmani-Oskooee, M.M., and Goswami, G.G. (2003). A disaggregated approach to test the J-curve phenomenon: Japan versus her major trading partners. Journal of Economics and Finance, 27, 102-113.
Bayer, C., and Hanck, C. (2013). Combining non-cointegration tests. Journal of Time Series Analysis, 34, 83-95.
Benhabib, J., and Rustichini, A. (1996). Social conflict and growth. Journal of Economic Growth, 1, 125-142.
Bourguignon, F. (2003). The growth elasticity of poverty reduction: explaining heterogeneity across countries and time periods. In Eicher, T.S., and Turnovsky, S.J., eds, Inequality and Growth: Theory and Policy Implications, MIT Press, Cambridge, MA, pp, 3-26.
Bourguignon, F. (2004). The poverty-growth-inequality triangle. Working Paper No. 125, Indian Council for Research on International Economic Relations, New Delhi, India.
Breusch, T. (1978). Testing for autocorrelation in dynamic linear models. Journal of Australia Economic Papers, 17, 334-355.
Brown, R.J., Durbin, J., and Evans, J. (1975). Techniques for testing the constancy of regression relationships over time. Journal of Royal Statistics Society, B37, 149-163.
Cingano, F. (2014). Trends in income inequality and its impact on economic growth. OECD SEM Working paper No. 163, OECD Publishing, Paris.
Dickey, D.A., and Fuller, W.A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 9(4), 1057-1071.
ECLAC. (2022). Social Panorama of Latin America, 2021. (LC/PUB.2021/17-p), Santiago, Chile
Elliot, G., Rothenberg, T., and Stock, J. (1996). Efficient tests for an autoregressive unit root. Econometrica, 64, 813-836.
Engle, R.F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica, 50, 987-1007.
Fosu, A. K. (2017). Growth, inequality, and poverty reduction in developing countries: Recent global evidence. Research in Economics, 71(2), 306-336.
Gallo, C. (2002). Economic growth and income inequality: Theoretical background and
empirical evidence. Working Paper No. 119, London: Development Planning Unit,
University College London.
Gelaw, F. (2010). The dynamic relationship among poverty, inequality, and growth in rural Ethiopia: A micro evidence. Journal of Development and Agricultural Economics, 2(5), 197-208.
Gini, C. (1912). Variabilitá e mutabilitá: contributo allo studio delle distribuzioni e delle relazioni statistiche. Bologna: Tipografia di Paolo Cuppini.
Harris, R., and Sollis, R. (2003). Applied time series modelling and forecasting. West Sussex: Wiley.
Iniquez-Montiel, A.J., and Kurosacki, T. (2018). Growth, inequality and poverty dynamics in Mexico. Latin American Review, 27(12), 1-25.
Jarque, C.M., and Bera, A.K. (1980). Efficient tests for normality, homoscedasticity and serial independence of regression residuals. Economics Letters, 6, 255-259.
Jalil, A., and Ma, Y. (2008). Financial development and economic growth: Time series evidence from Pakistan and China. Journal of Economic Cooperation among Islamic Countries, 29, 29-68.
Kaldor, N. (1956). Alternative theories of distribution. Review of Economic Studies, 23(2), 83-100.
Kalwrij, A., and Verschoor, A. (2007). Not by growth alone: The role of the distribution of income in regional diversity in poverty reduction. European Economic Review, 51(4), 805-829.
Karagiannaki, E. (2017). The empirical relationship between poverty and inequality in rich and middle-income countries. CASE paper 206/ LIP paper 3, London: Centre for Analysis of Social Exclusion, LSE.
Kuznets, S. (1955). Economic growth and income inequality. The American Economic Review XLV(1), 1-28.
Lee J., and Strazicich, M. (2003a). Minimum LM unit root test with one structural break. Economics Bulletin, AccessEcon, 33(4), 2483-2492.
Lee J., and Strazicich, M. (2003b). Minimum Lagrange multiplier unit root test with two structural breaks. Review of Economic Statistics, 85, 1082-1089.
Mansi, E., Hysa, E., Panait, M., and Voica, M.C. (2020). Poverty-A challenge for economic development? Evidences from Western Balkan countries and the European Union. Sustainability, 12(7754), 1-24.
Menegaki, A.N. (2019). The ARDL method in the energy growth nexus field: Best implementation strategy. Economies, 7(105), 1-16.
Mphuka, C., Kaonga, O., and Tembo, M. (2017). Economic growth, inequality and poverty: Estimating the growth elasticity of poverty in Zambia, 2006-2015. International Growth Center, reference number: F-41302-ZMB-1.
Narayan, P.K. (2005). The saving and investment nexus for China: Evidence for cointegration tests. Applied Economics, 37(17), 1979-1990.
Narayan, P.K. (2004). Reformulating critical values for the Bounds F-statistics approach to cointegration: An application to the tourism demand model for Fiji. Department of Economics, Discussion Papers, ISSN 1441-5429 No. 02/04, Monash University, Victoria Australia.
Nasir, A.B. M., and Mridha, H.A. (2017). Does income inequality dampen growth effect on poverty? Evidence from the US county data. The Journal of Developing Areas, 51(4), 167-177.
Papanek, G., and Kyn, O. (1986). The effect on income distribution of development, the growth rate and economic strategy. Journal of Development Economics, 23(1), 55-65.
Pesaran, M.H., Shin, Y., and Smith, R.J. (2001). Bounds testing approaches to the analysis of
level relationships. Journal of Applied Econometrics, 16, 289-326.
Pesaran, M.H., and Pesaran, B. (1997). Working with Microfit 4.0: Interactive econometric analysis. Oxford University Press, Oxford.
Ramsey J.B. (1969). Test for specification errors in classical linear test squares regression analysis. Journal of the Royal Statistical Society, 31(Series B), 350-371.
Ravallion, M. (2005). A poverty-inequality trade-off? Journal of Economic Inequality, 2005(3), 169-181.
Ravallion, M. (2001). Growth, inequality, and poverty: Looking beyond averages. In A.
Shorrocks and R.V.D. Hoeven (eds), Prospects for Pro-Poor Economic Development, pp. 62-80. New York: Oxford University Press.
Ravallion, M., Chen, S. (1997). What can new survey data tell Us about recent changes in distribution and poverty. The World Bank Economic Review, 11(2), 357-382.
Schwartz, G. (1978). Estimating the dimension of a model. Annals of Statistics, 6, 461-464.
Silva-Tabosa, F.J., de Carvalho-Castelar, P.U., and Irffi, G. (2016). Brazil, 1981-2013: the effects of economic growth and income inequality on poverty. CEPAL Review, 120, 153-170.
Sumner A., Hoy, C., and Ortiz-Juarez, E. (2020). Estimates of the impact of COVID-19 on global poverty. WIDER Working Paper No. 2020/43, United Nations University, World Institute for Development Economic Research, Helsinki.
UNCTAD. (2020). The least developed countries report, 2020: Productive capacities for the new decade. UNCTAD/LDC/2020, Geneva.
UNCTAD. (2012). The least development countries report, 2012: Policies for inclusive and balanced growth. United Nations Conference on Trade and Development (UNCTAD), Geneva.
UNCTAD. (2008). The least development countries report, 2008: Growth, poverty and the terms of development partnership. United Nations Conference on Trade and Development (UNCTAD), Geneva.
United Nations. (2020). World economic situation and prospects, 2020. United Nations, New York.
Valensisi, G. (2020). COVID-19 and global poverty: Are LDCs being left behind? The European Journal of Development Research, 32, 1535-1557.
Vanegas, M. (2022). Tourism, development economics, poverty alleviation and inequality. In Croes, R, and Yang, Y (eds.) A Modern Guide to Tourism Economics. Edward Elgar Publishing: Cheltenham, UK, pp. 237-258.
Vanegas, M., and Roe, T. (2021). Economic growth, inequality and poverty: Tourism dynamics in 3 CAFTA-DR countries. Paper presented at the 6th World Research Summit for Tourism and Hospitality, University of Central Florida, 14-15, December.
Vanegas, M. (2018). Tourism, macroeconomics, growth, and the St. Louis equation. Tourism International Review, 22, 3-21.
Vanegas, M., Gartner, W., and Senauer, B. (2015). Tourism and poverty reduction: An economic sector analysis for Costa Rica and Nicaragua. Tourism Economics, 21(1), 159-182.
White, H. (1980). A heteroscedasticity-consistent covariance matrix estimator and a direct test of heteroscedasticity. Econometrica, 8, 817-838.
Yang, L. and Vizard, P. (2017). Multidimensional poverty and income inequality in the EU: An adjusted headcount approach. CASE paper 207/ LIP paper 4, LIP program, London: Centre for Analysis of Social Exclusion, LSE.