Assessing inequality and poverty in long-term growth projections: A general equilibrium analysis for six developing countries

Abstract

Most projections of long-term economic development, such as the shared socioeconomic pathway (SSP) scenarios in climate change research, do not quantify future effects on income distribution and poverty. To reduce this knowledge gap, we present some numerical simulations based on a recursive-dynamic general equilibrium model with household details, focusing on relative and absolute poverty in six developing countries: Albania, Bolivia, Ethiopia, Malawi, Nicaragua, and Vietnam. The results under the SSP2 reference scenario suggest that the exogenously projected gross domestic product (GDP) and population growth, combined with long-term structural change, produce lower absolute but higher relative poverty. An alternative scenario of stronger trade integration further amplifies the impact on income inequality. Indeed, more international trade tends to increase capital income, which mainly benefits rich households, but generally decreases agricultural earnings, which are important for rural poor households. • We analysed the impact of some long-term projections of economic growth on income distribution and poverty. • We extended a recursive dynamic CGE model with data from household surveys to obtain 12 distinct household classes in six developing countries. • A reference scenario of economic development (SSP2) generally entails widening income inequality. • Accelerated trade integration only marginally amplifies the impact on income inequality, but contributes to eradicating absolute poverty. • Increasing capital incomes and decreasing agricultural earnings are key drivers of the increased inequality.