GROWTH, DISTRIBUTION AND POVERTY IN MADAGASCAR: LEARNING FROM A MICROSIMULATION MODEL IN A GENERAL EQUILIBRIUM FRAMEWORK

This paper presents an applied microsimulation model built on household data withexplicit treatment of heterogeneity of skills, labor preferences and opportunities, andconsumption preferences at the individual and/or household level, while allowing for anendogenous determination of relative prices between sectors. The model is primarily focused onlabor markets and labor allocation at the household level, but consumption behavior is alsomodeled. Modeling choices are driven by a desire to make the best possible use ofmicroeconomic information derived from household data. This framework supports analysis ofthe impact of different growth strategies on poverty and income distribution, without making useof the “representative agent” assumption. The model is built on household survey data andrepresents the behavior of 4,508 households. Household behavioral equations are estimatedeconometrically. Different sets of simulation are carried out to examine the comparative staticsof the model and study the impact of different growth strategies on poverty and inequality.Simulation results show the potential usefulness of this class of models to derive both povertyand inequality measures and transition matrices without prior assumptions regarding the intragroupincome distribution. Market clearing equations allow for the endogenous determination ofrelative prices between sectors. The impact of different growth strategies on poverty andinequality is complex given general equilibrium effects and the wide range of household positionsin markets for factors and goods markets. Partial equilibrium analysis or the use ofrepresentative households would miss these effects.