Brazil’s Recent Experience with
Poverty and Inequality Reduction
Beijing, October 18th, 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.
Persistent but slow decline in the 1990s and 2000s.
Poverty indices over time in Brazil using the administrative poverty line,
1981--2005
0.40
0.35
0.30
0.25
FGT(a)
•
•
•
0.20
0.15
0.10
0.05
0.00
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1992 1993 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005
Years
Source: Authors' calculation from PNADs.
Headcount
Poverty Gap
FGT(2)
Resulting from a mediocre growth performance,
and an inverted-U inequality trajectory:
Evolution of per capita GDP and household per capita income in Brazil: 1985-2004
5200
5100
GDP per capita 1996 R$
5000
4900
4800
4700
4600
4500
4400
0.93
0.64
4300
0.88
4200
0.62
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Year
0.83
Source: Authors' calculation from PNADs.
0.60
0.78
0.58
0.73
0.68
0.56
0.63
0.54
0.58
GE (0)
GE (1)
Gini
2005
2004
2003
2002
2001
1999
1998
1997
1996
1995
1993
1992
1990
1989
1988
1987
1986
1985
1984
1983
1982
0.52
1981
0.53
• 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.
Decomposition of changes in poverty into growth and redistribution components
0.04
0.02
-0.06
-0.08
-0.1
-0.12
-0.14
Source: Authors' calculation from PNADs.
Growth
Redistribution
Residual
93-05:
FGT(2)
93-05:
Poverty Gap
93-05:
Headcount
81-93:
FGT(2)
-0.04
81-93:
Poverty Gap
-0.02
81-93:
Headcount
Percentage points changes
0
• 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:
Figure 8: Growth Incidence Curves for Brazil
4%
2%
0%
%
-2%
-4%
-6%
-8%
0
10
20
30
40
50
60
70
80
90
Percentiles
Source: Authors' calculation.
1985-2004
1993-2004
1985-1993
100
Candidate Explanation (1): Macroeconomic Stability
0.90
10
Desigualdade (Theil)
Log inflação
9
0.85
8
0.80
6
Theil
0.75
5
0.70
4
3
0.65
2
0.60
1
2004
2002
1999
1997
1995
1993
1990
1988
1986
1984
0
1981
0.55
Source: Ferreira, Leite, Litchfield and Ulyssea (2006): Economica.
log inflação
7
Candidate Explanation (2): Educational Expansion
Figure 4: Skill Wage Premium and Share of Skilled Workers in Total
Employment, 1987-2004
45%
4.5
43%
4.3
4.06
4.0
38%
3.8
Share of Skilled Workers
3.48
35%
3.5
33%
3.3
30%
3.0
28%
2.8
25%
2.5
23%
2.3
23.7%
20%
Ratio of Average Skilled to Unkilled
Hourly Wages
40%
2.0
20.2%
18%
1.8
15%
1.5
1987
1988
1989
1990
1992
1993
1995
1996
1997
1998
1999
2001
2002
2004
Year
Source: Authors' calculation from PNADs.
Note: Unskilled workers have 10 or fewer years of schooling. Skilled workers have 11 or more years of schooling.
Share
Ratio
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.
Candidate Explanation (3): Trade Liberalization
increased demand for low-skilled workers…
Figure 14: Observed and counterfactual household per capita income growth
incidence curves, 1995-1988: all trade-mandated changes from second stage.
110%
90%
70%
%
50%
30%
10%
-10%
-30%
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
percentiles
Source: Authors' calculation from PNADs.
g (p)
g 2(p)
g 3(p)
Source for last two slides: Ferreira, Leite & Wai-Poi (2007): World Bank PRWP #4108
Candidate Explanation (4): …thereby making growth
in the tradable sectors more pro-poor.
Figure 7: Weighted Average of sectoral elasticity for poverty gap index
2
1
0
-1
-2
-3
Elasticities
-4
-5
-6
-7
-8
-9
-10
-11
-12
-13
-14
-15
-16
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Source: Authors' calculation.
Primary
Secondary
Tertiary
Source: Ferreira, Leite & Ravallion (2007): “Why has Brazil’s Economic Growth not had
more impact on poverty?”
Candidate Explanation (5): Substantial increases in
expenditure on social security and assistance.
Figure 1: Evolution of Federal expenditure in social security and assistance
1.2E+11
1E+11
8E+10
R$
6E+10
4E+10
2E+10
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Social Assistance
Social Security
Both
Source: Authors' calculation.
Source: Ferreira, Leite & Ravallion (2007): “Why has Brazil’s Economic Growth not had
more impact on poverty?”
Conclusions / Take Home Points
1.
Growth is the fundamental driver of poverty reduction –
even in Latin America…
2.
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.
3.
•
4.
Macroeconomic stability and freer trade were key in Brazil.
But a much larger and more progressive welfare role
for the State is called for.