How Appropriate Are Global Models for Long-Run Poverty Assessment?

Type Working Paper
Title How Appropriate Are Global Models for Long-Run Poverty Assessment?
Publication (Day/Month/Year) 2012
Page numbers 1-11
The major shift in global food and fuel prices in the past several years has left the world with a significantly higher level of consumer prices and especially food prices, which raises an important question of the long-run impacts of high prices on global poverty. While short run-impacts of the most important consumer prices have been assessed satisfactorily by a number of researchers, the long-run impacts are less clear due to our current lack of understanding how households respond to change in relative prices and incomes by changing their consumption and household production over extended periods of time. Many of the difficulties in assessing long-run price impacts on households have been approximated by a global or national CGE models, however, is currently not clear how well the use of a representative agent and the imperfectly estimated behavioral parameters approximate the behavior of actual households and what are the implications of the discrepancies between the representative and actual household on poverty assessment. In this paper we address some of the key issues of household behavior by contrasting the predictions of the representative agent and the household and measuring the impact of any discrepancies on poverty assessment. We find, that even though the representative agent of the GTAP model performs poorly in predicting household consumption mainly due to inflexibly specified preferences, it nevertheless improves our estimates of poverty impacts.

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