Fooled by the Cycle : Permanent versus Cyclical Improvements in Social Indicators
This paper studies the time series behavior of a set of widely-used social indicators and uncovers two important stylized facts. First, not all social indicators are created equal in terms of the importance of cyclical fluctuations. While some soci...
| Main Authors: | , , , , , , , |
|---|---|
| Format: | Working Paper |
| Language: | English en_US |
| Published: |
Washington, DC : World Bank
2022
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/099501006302232080/IDU036f9c1f805bad049de0832f097bc16467c57 http://hdl.handle.net/10986/37649 |
| Summary: | This paper studies the time series
behavior of a set of widely-used social indicators and
uncovers two important stylized facts. First, not all social
indicators are created equal in terms of the importance of
cyclical fluctuations. While some social indicators such as
the unemployment rate and monetary poverty show large
cyclical fluctuations, other social measures such as the
Human Development Index are, by construction, dominated by
long-run trends. Second, interestingly, yet not
surprisingly, a large part of the cyclical fluctuations in
social indicators can be explained by cyclical changes in
income (proxied by real GDP per capita). For this reason,
countries with large cyclical income volatility exhibit, in
turn, large cyclical changes in some of these social
indicators (particularly in those indicators that are more
prone to cyclical fluctuations). Since cyclical income
volatility is much larger in the developing world, these two
critical stylized facts raise fundamental issues regarding
the duration of improvements in social indicators (like the
ones observed in many developing countries during the last
commodity super-cycle). After a detailed conceptual and
methodological discussion of these issues, and relying on a
global sample of industrial and developing countries, this
paper digs deeper into the importance of cyclical versus
permanent components by extending the seminal contribution
of Datt and Ravallion (1992). In particular, it shows that
more than 40 percent of the fall in monetary poverty
observed in Latin America and the Caribbean during the
so-called Golden Decade can be attributed to cyclical
changes in income. While in principle universal, these
concerns are particularly relevant in the developing world
where, compared to developed countries, output volatility is
larger and driven, to a large extent, by external factors
(such as commodity prices). |
|---|