Poverty and Growth in the WAEMU after the 1994 Devaluation

This paper brings out that poverty increased massively in the wake of the 1994 devaluation of the CFA franc, despite a significant recovery of economic growth. Although this increase affected all the social groups, it fell mostly on the urban poor. An analytical model is presented, which explains this puzzle by the stratification of the labour market, assuming that the formal sector workers are at the same time the investors in the informal sector. Then, capital intensity in the latter increases as the former anticipate the cut in formal sector wages that the long-awaited devaluation brings about. Ex post, they run down their assets for consumption-smoothing purposes, thus de-capitalising the informal sector firms, with a negative impact on incomes in the (urban) informal sector. Copyright 2004, Oxford University Press.