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 Highly volatile in the 1980s. Persistent but slow decline in the 1990s and 2000s.

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

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.

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:

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

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.

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

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?”

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?”

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. 3.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. 4.But a much larger and more progressive welfare role for the State is called for.