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Brazil’s Recent Experience with Poverty and Inequality Reduction

Brazil’s Recent Experience with Poverty and Inequality Reduction. Beijing, October 18 th , 2007 Francisco H. G. Ferreira The World Bank. Poverty in Brazil over the last quarter century: Falls from 38% to 20% from the trough of the 1983 recession to 2005. Highly volatile in the 1980s.

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Brazil’s Recent Experience with Poverty and Inequality Reduction

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  1. Brazil’s Recent Experience with Poverty and Inequality Reduction Beijing, October 18th, 2007 Francisco H. G. Ferreira The World Bank

  2. Poverty in Brazil over the last quarter century: • Falls from 38% to 20% from the trough of the 1983 recession to 2005. • Highly volatile in the 1980s. • Persistent but slow decline in the 1990s and 2000s.

  3. Resulting from a mediocre growth performance, and an inverted-U inequality trajectory:

  4. Though mediocre by comparison with other emerging economies, Brazil’s growth was still the principal driver of poverty reduction. • But the sustained reduction in inequality since 1994 has boosted that impact.

  5. All of the poverty decline in the last quarter century took place since 1993: • FGT(0) fell from 33% to 22% (a 33% decline) • FGT(1) fell from 15% to 9% (a 40% decline) • FGT(2) fell from 9% to 5% (a 44% decline) • The incidence of the growth process since 1993 has been qualitatively different:

  6. Candidate Explanation (1): Macroeconomic Stability Source: Ferreira, Leite, Litchfield and Ulyssea (2006): Economica.

  7. Candidate Explanation (2): Educational Expansion Brazil is “winning” the Tinbergen Race: the supply of skills is expanding faster than demand. Though this is good for inequality reduction, it also reflects growth weakness.

  8. Candidate Explanation (3): Trade Liberalization increased demand for low-skilled workers… Source for last two slides: Ferreira, Leite & Wai-Poi (2007): World Bank PRWP #4108

  9. Candidate Explanation (4): …thereby making growth in the tradable sectors more pro-poor. Source: Ferreira, Leite & Ravallion (2007): “Why has Brazil’s Economic Growth not had more impact on poverty?”

  10. Candidate Explanation (5): Substantial increases in expenditure on social security and assistance. Source: Ferreira, Leite & Ravallion (2007): “Why has Brazil’s Economic Growth not had more impact on poverty?”

  11. Conclusions / Take Home Points • Growth is the fundamental driver of poverty reduction – even in Latin America… • Growth with redistribution and falling inequality is both: • Possible (and there is no convincing evidence of a trade-off) • More effective in reducing poverty. • Efficiency-enhancing (“neoliberal”?) reforms can (under certain circumstances) help spur both faster growth and less inequality. • Macroeconomic stability and freer trade were key in Brazil. • But a much larger and more progressive welfare role for the State is called for.

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