Inequality and Poverty Reduction Brazil and Mexico

1. Inequality and Poverty ReductionBrazil and Mexico Lecture # 19 Week 13

2. Structure of this class • Evolution of Inequality in Brazil 1981 – 2004 • Potential explanations for the inverted U finding • Results and questions • Evolution of Poverty in Brazil • Results and questions • Poverty-reduction efforts in Mexico via PROGRESA/OPORTUNIDADES • Results • Concluding comments

3. Evolution of Inequality in Brazil

4. Potential explanations When trying to explain inequality: • Gender of household head does not seem to play a role • Age of household head also has low explanatory power • Education attainment of household head seems the most important (34 to 42 percent) • Family type also important (6 to 11 percent) • Race appears to be important as well ( 11 to 13 percent) • Regional differences play a role (7 to 13 percent) • Urban/rural differences are also important ( 5 to 17 percent)

5. Results and questions • The most striking result for the case of Brazil is “regional” and “rural-urban” convergence • Q1: Could it be that the regime change from ISI to outward-oriented development strategy played a role? • Q2: How different income sources can explain total inequality? Some findings to the latter question: income from employment (formal and informal) , from self-employment , from social insurance transfers, and from social assistance transfers (Projeto Alvorada, Bolsa Escola, and Bolsa Familia)

6. Q3: Changes in income inequality over time?1981 – 1993 increase in inequality mostly due to high inflation

7. But also due to declines in returns to education 1993 – 1994 decrease in inequality due to: (a) decline returns to education (b) Reduction in racial inequalities (c ) Reduction between between rural and urban inequalities Probably: growth in the modern agricultural sector and trade liberalization, high commodity prices, greater access to land (via land reforms) among small land-holders…

8. Evolution of poverty (1981-83 recession, and 1984-86 recovery)

9. Results and questions I982 – 1983: increase due to recession 1984 – 1986: Decrease due to recovery under the “Cruzado Plan” 1994 – 2003: Growth and decline in inequality In turn largely explained by educational expansion

10. Poverty – reduction efforts: Mexico’s PROGRESA/OPORTUNIDADES Background: 1997: Introduction by the federal government of the Programa de Educación, Salud y Alimentación (PROGRESA) to break the intergenerational transmission of poverty Main objective: improve the educational, health, and nutritional status of poor families, and particularly children and their mothers PROGRESA provides cash transfers (to mothers) linked to children’s enrollment and regular school attendance and to clinic attendance. Also in-kind benefits and nutritional supplements for children up to age five, and pregnant and lactating women 1999: PROGRESA covered 2.6 million families or about 40% of all rural families (one-ninth of the families in Mexico with resources equivalent to 0.2 % of GDP

11. Three distinctive features relative to previous programs: • Efficient and cost-effective targeting extreme poverty households using a marginality index (by region) from census data • Multi- sector focus in that the program intervenes simultaneously in health, education and nutrition • Rigorous evaluation of impact of the program. Distinction between treatment (506 localities) and controls (186 localities) allows for meaningful comparisons

12. Results The International Food Policy Institute reports on impact of the program: Education • Children more likely to enroll in school • Higher enrollment rates after 6th grade • Expected increase in educational attainment by 10% rural children

13. Health • PROGRESA children have 12% lower incidence of illness • Adults have 19% fewer days of difficulty with daily activities • Visits to local clinics growing faster on average • Pregnant women visits during first month increased by 8%

14. Nutrition • Median food expenditures increase by 13% • 12-36 month children reduction in stunning by 16% • Projections suggest that higher nutrition can lead to higher productivity increasing earnings by 2.9% Costs Low relative to previous programs (LICONSA, 40 per 100, and TORTIBALES (14 per 100 and for targeted programs in other countries, PROGRESA is cost-effective: 3.9 pesos per 100 pesos transferred

15. Concluding comments • PROGRESA – style programs increasingly popular (i.e., Brazil: Bolsa Scola, Colombia: Familias en Accion, Honduras: Programa de Alimentacion Familiar, Nicaragua: Red de Proteccion Social, Jamaica: Program Advancement through health and education) • Pending issues, though: • Longer period to assess lower transmission of poverty • Are passing standards for school children lower? • Quality of the services? • Dependency? • Slow response to poverty relief during crisis  Next class: Environmental Challenges (consult syllabus)