Work in Progress
Macroeconomic volatility and poverty in South America: Inflation and business cycles in a 9-country panel, 2000–2024
Nicolás Escobar, Luis Pino-Sandoval, Iván Araya
Resumen
This paper examines whether macroeconomic conditions are associated with poverty in South America after accounting for economic development and income inequality. Using an annual panel of nine countries over 2000–2024 (201 country-year observations), we estimate country fixed-effects models with a common time trend and compare inference based on country-clustered and Driscoll–Kraay standard errors; random-effects estimates are reported as a benchmark. Poverty is measured as the log headcount ratio at US$8.30 per person per day (2021 PPP), drawing on the World Bank Poverty and Inequality Platform, combined with GDP data from the World Development Indicators and inflation data from CEPALSTAT. Across specifications, inequality is the strongest and most stable correlate of poverty: the coefficient on ln Gini remains large, positive, and highly significant. In the preferred fixed-effects specification with Driscoll–Kraay errors, inflation is positively associated with poverty (0.00173), whereas a stronger output gap is associated with lower poverty (-0.0174). GDP per capita enters negatively but less precisely, while the common time trend is negative and significant. These estimates are interpreted as conditional within-country associations rather than strict causal effects. The results suggest that durable poverty reduction requires not only growth and redistribution, but also price stability and countercyclical macroeconomic management.