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Pro-Poor Growth in Brazil:Where does the Country Stand?

Edinaldo Tebaldi, PhDBryant University - USA

Laboratrio de Estudos da Pobreza - CAEN/UFC/Brazil

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Outline

Poverty Trends in Brazil

Brazils engine to reduce poverty

Education and Poverty

Institutions and Poverty

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A National Perspective Brazil

Poverty reduction and Economic GrowthLula is inaugurated asPresident in Jan/2003

5.0 454

2

4

2

42

42 42 4

414

.

5

41 . . . 68

. 3 . .

25 15 14 40. 41

4.0 . 79 . )

8 . 0 04 .

41 4038 capita

(%) .

3.0 2 39 2 . 7 .

- 6

35pe

r 2.0 1 1 34 P(0)

.

. . 03 9 32

P

8

-

Rate

1 . 24.

real

2 1. 29 0 30. . 59

Poverty

6

in

Growth 0.0 - - 0 0

.2 . 2

25-1.0

-- 1

.1 2 . 5

-2.0 201995

1996 1997 1998 1999

2001

200220

03

2004 2005 2006 2007

2008

Growth - Real GDP per capita Poverty Rate

Source: Authors compilation using PNAD and BCB data 0.66 correlation between growth andpoverty rates

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Income Inequality is alsodeclining in Brazil

poorest 55.00 0 0 0 0 0.62.

.61

.61

610 0 . 0.6160 . 60 0 .

10%

50.00 60 0 0.6050

. 59

nc

om

e

47 48 0 0.59. 0

58

45.00 46 . 57 0 0.5845 . Index

rc

est

/

57 43 00.57.

43 42 42 41 56Gin

40.00 41

0.5610%

35.00 0.55

Incom

e

0.5430.00 0.53

19

95

1996

19

97

1998

19

99

20

01

20022003

20

04

2005 20

06

2007

10% richest/ 10% poorest GiniSource: Manso, Ataliba and Franca (2009)

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Significant differences in Poverty Rates across

706050403020100

regions in Brazil

Headcount Poverty Rates P(0), by Region, Brazil, 1995-200868

65

. 1 .4 54

51 . 8 50.. 02

41

40 42 41

.

. 3 .. 3 0 4 34

31 . 5 28 29 .8

28. 25 .6. 823 0

.5 . 18

0 17 . 5 . 2

Northeast North Central-west Southeast South Brazil1995 2004 2008

Source: Authors compilation using data from PNAD and Manso, Ataliba and Tebaldi (2006)

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All metrics indicates the same pattern:

Poverty Incidence decreased significantlyacross regions in Brazil

Poverty Gap P(1), by Region, Brazil, 1995-2008

PovertyGap

40 36 .

1 32 35 . 4 30 2

4

25

23 . .4 4

.

25 1 20 . 1716 2

.

20 9 . 14 14 6 . .

12

5 11 3 10

10 15 . . 1 . 7 . 8

1

.

10 1 6 6 . 5 . 0

50

Northeast North Central-west Southeast South Brazil1995 2004 2008

Source: Authors compilation using data from PNAD and Manso, Ataliba and Tebaldi (2006)

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Is economic growth or inequality-decreasing

policies the engine of poverty reduction inBrazil?

Ravallion and Chen (2003) Decomposition

(Pdenotes change in a particular measure of poverty, K denotes the mean income growth component

Hdenotes the income distribution component

tand iindex time and economic area, respectively.

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Recent Growth in Brazil is relativelymore pro-poor

The Sources of Pro-poor Growth: Share of variance due to growth, Brazil 1995-2008

Growth

0.7 0.690.63

VarianceD

ueto

0.70.60.6

0.610.55

0.53

Share

of

0.50.50.4

0.49

Head Count Poverty Gap Squared poverty gap1995-2002 2002-2008

Source: Tebaldi, Manso, and Ataliba (2009 working Paper) - PNAD data

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how to spur growth and enhance thebenefits from growth to the poor?

Economic Growth Distribution of benefitsfrom growth

Poverty reduction

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Educational Inequality as a sourceof income inequality

Bourguignon and Ferreira (2007) showthatin Brazil inequality of opportunitycaused by persons family-related background,

including parents educational attainment,has a significant impact on incomeinequality;

From 10 to 37 percent of income inequalityThey also find that education is the

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mostpromising policy for reducing inequality;

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Educational Inequality as a sourceof income inequality and poverty

Average Family Income, Brazil, R$, 20080-8 Years of 9-12 Years >=13 years ofSchooling of Schooling schooling

North R$ 293 R$ 481 R$ 1,137Northeast R$ 242 R$ 434 R$ 1,428Southeast R$ 472 R$ 711 R$ 1,843South R$ 497 R$ 737 R$ 1,696Central-west R$ 460 R$ 713 R$ 2,113Brazil R$ 383 R$ 632 R$ 1,729

Educational Attainment of the poor 80% 19% 1%Source: Authors compilation using data from PNAD

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Education as a source of EconomicGrowth

A large literature using Brazilian datashowsthat education is a key factor indetermining the countrys pattern of long-run

economic growth;

Economic growth and productivity could be significantlyaugmented by improving the 40% poorestworkersaccess to education and programs to improve theirskills (Dias and Dias, 2007) ;

Significant returns to education in Brazil (Sachsida et al,2004; Resende and Wyllie, 2005)Average return range from 10 % 15 % per additional year ofeducation

Significant returns to individuals with low levels of

educational attainment (poor)

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but focusing only on Education might create

another failed Panacea for growth promotionand poverty alleviation

Poor institutional quality (orgovernance)influences poverty via marketinefficiencies, misallocation of resources,

and broke incentives.

Institutions have a vital role in affecting poverty becauseinstitutions mediate the impacts of economictransformations (e.g. Globalization, liberalization) and thedistribution of economic outcomes (Sindzingre, 2005) .

Good governance is a pre-requisite for poverty alleviation(Tebaldi and Mohan, 2009; Grindle, 2004).

In an economy with extensive government intervention,the activity with the highest returns to skills might belobbying the government for favors.(Easterly, 2002)

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Institutions and Poverty

Poor economies and the poorfaceendogenous forces that make it hardto promote and coordinate the types of

collective action necessary to tip apopulation from an unequal to a moreequal set of institutions (Bowles, 2006).

Inequality in the allotment of politicalpowerto the educated might createinequity in income distribution, resulting inthe uneducated being trapped in poverty

(Chong and Calderon, 2000).

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Poor instittuions(or incentives) may discourage people

from acquiring the education that would help them toget out of poverty

Reasons to not Attend School - Individuals 15 - 17 years, Brazil-2004Reasons Brazil Northeast North Southeast South Central-west

Working or searching for a job 20.1 18 15 21.3 26.7 20There was no school nearby home or no 5.3 5.3 6.7 4.4 6.1 5.8transportation from home to schoolCould afford staying in school 2.3 1.8 1.5 2.9 3.2 1.5Obtained the desired level of education ordropped out due to own or parents' choice(Por vontade prpria ou dos pais ou 45.6 47.8 43.9 46.0 41.1 43.8responsveis ou concluiu a srie ou cursodesejado)Other Reasons 26.6 27.3 31.8 25.1 22.9 28.9

Fonte: PNAD, 2004In a stagnant economy without incentives to invest in the future, studentswill goof off in the classroom or sometimes not show up at all, parents willoften pull their children away to work on the farm, and teachers will whilethe time away as overqualified babysitters (Easterly, 2002:82)

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Poverty and Quality ofInstitutionsCross-country evidence

1 0 0

ve

ra

ge

NGATZAZMB 1 0 0 NGA TZAZMB

8 0

MDG8 0

MDGNICIND BGD INDNIC

HTI ETHMOZ MOZ

6 0

PAK MLIBFA6 0

PAK BFAMLIMWI MWI

SEN SENCMR

4 0

4 0

PHLEGY

HND LKA SLVVEN ZAF VEN

2 0

PRYGTM2 0

PRY THACOLARGMEXPANROM ARGROM

DOMJAMTUR DOMMARBGR CRI

JORTUN CHL TUNJOR URY CHL0

URY0

POL HUN POL HUN

-2 -1.5 -1 -.5 0 .5 1 1.5 2 -2 -1.5 -1 -.5 0 .5 1 1.5 2Control of Corruption - Average Regulatory Quality - Average

bandwidth = .8 bandwidth = .8

1 0 0

Avera

ge

1 0 0NGA ZMBTZA NGA ZMBTZA

8 0

MDG8 0

MDGBGD

IND BGDHTI NIC ETH NIC INDHTI ETHBFAMLI BFAMLI

6 0

PAKMWI

6 0

PAKMWI

IDN SEN IDNCMR CMRCIV4 0

PHL4 0

CIVBOL BOLEGYCHN

HND SLV LKAVEN PER ZAF VENHND SLV ZAFPERPRYGTM THA

2 0

2 0

PRY GTM THABRACOL BRAMEXARG PAN COLROM PANARGM EX

DOMJAM TURMAR ROMBGR TUNJOR CHL DOMJAMMARTURBGR CRI CHL

URY JOR TUNPOLHUN

0 URY

POLHUN-2 -1.5 -1 -.5 0 .5 1 1.5 2 -2 -1.5 -1 -.5 0 .5 1 1.5 2

Rule of Law - Average Government Effectiveness - Averagebandwidth = .8 bandwidth = .8

Source: Authors compilation using data from the World Development Indicators.

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Institutions and Poverty:Rough Estimates

Holding mean income constant, an improvementinthe quality of institutions in Brazil of about half-standard deviation from the cross-country meanwould be associated with a reduction of about 5 points

in the countrys poverty rate (Tebaldi and Mohan,2009);Improvements in institutions would also

boostinnovation, increase mean income and reduce

poverty;

if Brazil had the same market regulatory system as that of the U.S. (thedifference in the regulatory quality index between these two countries isabout 1.2 points), Brazilian residents would have produced about 2.5times more patents than what they actually produced between 1970 and2003. Tebaldi and Elmslie (2009);

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Income and Institutions: Hall and Jones (1999); Acemoglu et al (2001);

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Institutions and Poverty

Corruption, ineffective governments, andpoliticalinstability will hurt the poor via:

Lower income levels due to market inefficiencies. increase poverty incidence via increased income inequality.

Programs that target the poor will have limitedandshort-term effects on poverty if thefundamental poverty-causing factor quality ofinstitutions were not addressed as part of thestrategy to eradicate poverty.Policies aimed at reducing poverty should

considerimproving institutions in developingcountries as a necessary condition for economicdevelopment and poverty eradication.

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The Path Ahead in Brazil

Expand the investments and projects aimedatreducing Educational Inequality

Provide to the poor access tohigh-qualitybasic education;Expand the use of technology to deliver education, particularlyinremote areas

Reform InstitutionsImplement micro and macro strategies that mightincreasetheincentives for human capital accumulationControl of corruption and nepotism

Enhance meritocracy in the public sector, particularly in theeducational sector

Make the Brazilian job-market more flexible

Focus on improving overall GovernanceRule of Law, Voice and accountability, government effectiveness

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Questions?

am very grateful to Professors Flavio Ataliba

and Carlos Manso, from the Laboratrio deEstudos da Pobreza - CAEN/UFC/Brazil, fortheir comments, assistance and data support.