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Growth and Poverty Reduction: Latin American Experience with Economy-wide Policies. Alberto Valdés Taking Action for the World’s Poor and Hungry People IFPRI and The State Council Leading Group, China Beijing, October 17-19, 2007.
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Growth and Poverty Reduction:Latin American Experience with Economy-wide Policies Alberto Valdés Taking Action for the World’s Poor and Hungry People IFPRI and The State Council Leading Group, China Beijing, October 17-19, 2007
Why look at Latin America? Lesson for other developing countries. • Economic reforms in Latin America beginning in the 1980s were deep and wide. Explicit goal: stability for growth. • Initially poverty goal not explicit, in part due to lack of diagnosis. With macro stability attained, in mid-1990s poverty goal explicit. • Introduced during major macroeconomic disequilibria, limiting government fiscal policy. • Fiscal belt-tightening, central bank discipline for macroeconomic stability. • Trade liberalization, deregulation, privatization for improving the investment environment and efficiency. • Corrected inherent anti-export bias in previous approach of import-substitution/closed-economy. • Prepared the region for now ongoing globalization.
Cost reduction: trade liberalization, deregulation, privatization. • Lowered tariffs and non-tariff barriers. • Removal of price controls. • Reduction of state agencies, licenses and other obstacles to business and trade (both exports and imports). • Lessening state control of ports, roads, telecommunications, energy. • All aimed at lower costs of doing business.
Expectations for small open economies • More trade, and more rapid growth in exports, including agriculture. • Initially poverty reduction not the direct focus. Later, yes. • However, important for poverty: More employment in exports for same amount of value added than import-competing activities. • Higher growth, higher incomes. Outcomes • Depth and impact of reforms uneven: some countries more than others. • Exchange rate appreciation surprise. • Modernization of government very slow. • In general, greater global integration today. • Social policy shift toward targeted subsidies to poor.
Growth is good for the poor. • The case is strong that sustained growth remains a necessary condition for poverty reduction. • Economic growth can be more pro-poor in some circumstance and less in others and that less inequality is better than more. But just by itself, growth is pro-poor. • Patterns of growth matter, because some industries are more intensive in unskilled labor than others. • Policies that are biased against higher-labor-intensive sectors work to the detriment of the poor.
Questions about growth and inequality • Can the poor take advantage of growth? Initial inequality can influence how the poor benefit. • Critical for reducing poverty: pro-employment growth, particularly unskilled labor. • In the long run the main factor appears to be education. The record in Latin America is still overall disappointing for coverage and quality compared to East Asian experience. • Poverty and inequality can feedback to slower growth. • poor exposed to worst schools, poor regions unattractive to investment, disparities and political risk.
Effective public expenditures • Tradeoffs and priorities: so many gaps, so few funds. • Little analysis of the effectiveness of spending. • So much of public spending end up being transfers as private subsidies. Waste of funds that might go to productive “public goods.” • Estimate for Latin America rural areas: a shift from 40% to 50% on public goods increases agricultural GDP per person 2.3% – without spending a penny more.
