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GTAP Resource #1548

"Implications of Household Saving on Poverty"
by Ivanic, Maros

The commonly observed difference between household income and expenditure appears increasingly important in the poverty reduction
debate. Previous studies that explored poverty reduction using household survey data have struggled with significant discrepancies between household income and expenditure but they have left them largely unreconciled. However, because this difference is more significant for the poorest households, ignoring it has places a significant strain on the credibility of the poverty results without fully understanding the differences between income and expenditure of the poorest households.

To address the problem of the difference between household income and expenditure, this paper proposes explaining this difference as household saving determined within the household demand system. It justifies this inclusion of savings in households demand structures based on empirical and theoretical grounds. Following the work of Hertel et al. (2004), this paper performs a multilateral trade liberalization in an adjusted GTAP model to explore the implications of such a treatment of savings on the poverty results.

The paper finds out that household saving greatly affects the very poorest households that rely on selling their own assets as a coping strategy. Even though their ability to dissave, in general, acts positively on the poorest households that are able to afford the basic consumption, a falling price of saving greatly reduces their wellbeing through placing more strain on their asset reduction. Also the paper finds out that the price of savings has opposing effects on the poor and the rich, thus
potentially increasing the size of the poverty gap when falling, and decreasing it when falling.

Hertel, T. W., Ivanic, M., Preckel, P. V., and Cranfield, J. A. (2004). The earnings effects of multilateral trade liberalization: Implications for poverty. World Bank Economic Review.

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: (5/7/2004)
Updated: Dimaranan, B. (12/7/2006)
Visits: 2,315
No keywords have been specified.

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