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Abstract
This paper presents an applied microsimulation model built on household data with
explicit treatment of heterogeneity of skills, labor preferences and opportunities, and
consumption preferences at the individual and/or household level, while allowing for an
endogenous determination of relative prices between sectors. The model is primarily focused on
labor markets and labor allocation at the household level, but consumption behavior is also
modeled. Modeling choices are driven by a desire to make the best possible use of
microeconomic information derived from household data. This framework supports analysis of
the impact of different growth strategies on poverty and income distribution, without making use
of the “representative agent” assumption. The model is built on household survey data and
represents the behavior of 4,508 households. Household behavioral equations are estimated
econometrically. Different sets of simulation are carried out to examine the comparative statics
of 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 poverty
and inequality measures and transition matrices without prior assumptions regarding the intragroup
income distribution. Market clearing equations allow for the endogenous determination of
relative prices between sectors. The impact of different growth strategies on poverty and
inequality is complex given general equilibrium effects and the wide range of household positions
in markets for factors and goods markets. Partial equilibrium analysis or the use of
representative households would miss these effects.