Development

What is the elasticity of poverty in low- and middle-income countries (LMICs) with respect to rich world economies?

Given the rise in international trade and capital flows across countries, low- and middle-income countries may be very exposed to economic fluctuations in wealthy countries. This high exposure may mean that economic growth and stability in very wealthy countries, like the United States, has a substantial impact on poverty and deprivation in LMICs.

We’d like an estimate of how a 1% change in rich-world GDP (you could use US or OECD GDP for concreteness) translates on average into changes in incomes for people in LMICs. The ideal format for this estimate would be the expected percent change in income for someone living in an LMIC given a 1% increase in rich-world (or US/OECD) GDP. 

We’re open to alternatives, such as an estimate of how a 1% increase in US/OECD GDP translates to changes in the share of people below the global poverty line, if you can leverage existing literature which presents that data. However, because we are interested in a broader measure than just headcount poverty, we’d prefer not to limit ourselves in that way. 

These impacts may be different depending on the source of rich-world growth (for example, new trade policy vs. new technology). We think it would be too challenging to estimate impacts for every possible source; we are most interested in productivity and macroeconomic policy, and less interested in other sources.

We’re interested in estimates of how large this impact might be, and whether this should inform our valuation of economic growth and macroeconomic policy in rich countries. We aren’t aware of work that estimates this parameter directly, but we think it’s possible such work exists and we haven’t seen it. (For example, we know that the World Bank and IMF, among other organizations, incorporate growth spillovers in their forecasting, though we aren’t aware of public versions of those spillover estimates or how they’re estimated.) 

We expect this prompt to be different from many of the others, because it may require novel data work. If you do your own data work, please upload any analysis files to GitHub so that we can review them, in addition to clearly explaining your approach in your write-up.

If you are interested in this prompt, we suggest that you:

  • Review some of the literature on the relationship between country growth rates and poverty reduction, as it might provide some empirical strategies for extrapolating to rich-country GDP.

    • It might be helpful to also examine specific mechanisms, such as declines in exports to rich countries or declines in foreign direct investment.

  • Search for literature attempting to answer this question directly.

  • Use data from the World Bank or elsewhere to estimate this directly.

    • It might be informative to both estimate a general correlation and to look at specific episodes that clearly originated in one place and spread to affect other countries (such as the 2008 financial crisis).

  • Consider disadvantages to your empirical approach and how those should affect Open Philanthropy’s usage of these estimates.

A more advanced analysis might also split the results by different types of LMICs (income levels, geography, etc.) to examine whether the relationship differs in certain situations or countries (e.g. based on a country’s income level, or its economic relationships with the rich world).

Suggested reading:

This prompt is meant to help you get started, but we are very open to different approaches to answering this question.