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Research Highlights 2009: Director's Office

2009 Annual Research Highlights Report Cover

 Full Report 

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The Director conducted research on poverty and inequality, focusing on monitoring the developing world’s progress against poverty—including the impacts of the global financial crisis—understanding why some countries are more successful than others in reducing poverty, and evaluating specific anti-poverty policies.

Highlights

A comparative perspective on poverty reduction in Brazil,
China, and India
 

Brazil, China and India have embarked on programs of market-oriented economic reforms. China was the first; 25 years of a control economy left large potential gains from reform by the time that process started in the late 1970s. Brazil and India followed in earnest in the early to mid 1990s. All three countries have also seen progress against poverty in their reform periods. China has clearly seen the most rapid progress overall; more surprisingly though, Brazil is ahead of India in terms of its proportionate rate of poverty reduction.

History is important to understanding the differences between these three countries in their progress against poverty. China’s high pace of poverty reduction reflects both growth-promoting policies—to undo the damage left by past policy failures—and the advantageous initial conditions left by the pre-reform regime—notably the relatively low inequality in access to productive inputs (land and human capital), which meant that the poor were able to share more fully in the gains from growth.

By contrast, Brazil’s pre-reform regime was one of high inequality, with distortions that probably kept inequality high. Brazil’s historically high inequality has clearly been a constraint on progress against poverty; high inequality meant that a low share of the gains from growth went to the poor, and the high inequality may well have retarded growth, which was low over most of the period, though picking up in the reform period.

Nonetheless, Brazil has been doing reasonably well against poverty in its reform period, by combining greater macroeconomic stability with more effective and pro-poor social policies. While Brazil’s macroeconomic instability of the past was rather extreme, the experiences of all three countries confirm the importance of keeping inflation under control; periods of higher inflation brought slower progress against poverty in all three countries. However, without substantially higher growth rates, it will be very difficult for Brazil to achieve China’s success against poverty.

Since the late 1980s, rising inequality in China has attenuated the gains to the poor from growth and threatens the growth process looking forward. Indeed, without more effective efforts to redistribute, China is well on the way to becoming a high inequality country, like Brazil. In addressing the country’s new inequality problem, China can learn from Brazil. Combining China’s growth-promoting policies with Brazil’s social policies would surely be a good formula for any country.

In all three countries, the sectoral pattern of growth mattered to poverty reduction, independently of the overall rate of growth. In China, growth in the output of the primary sector (mainly agriculture) was the main driving force in poverty reduction, while in Brazil and India, the tertiary (services) sector was more important. The secondary (industrial) sector played a less important direct role in all three countries (though there may well be indirect effects via growth in the other two sectors). Given that different types of policies are needed to foster growth in different sectors, the sectoral priorities of policy makers—which have varied over time within each country as well as between them—have mattered to progress against poverty.

Brazil (since the mid 1990s) and India (going back to the 1970s) have clearly been more aggressive than China in their efforts to attack poverty through direct interventions, such as using (conditional or unconditional) transfers. This may not be too surprising, given that Brazil clearly has greater capacity for attacking poverty through redistribution that either China or India. However, countries such as China and India can learn from Brazil’s success in addressing the (continuing) problem of high inequality. Indeed, China appears to be well on the way to having a similar capacity for redistribution as Brazil. All three countries need to invest more in rigorous impact evaluations of their future social policies.  

Looking forward, India’s success in delivering better health and education to its poor must surely be seen as the key factor in assuring more rapid poverty reduction—by allowing the poor to participate more fully from the opportunities unleashed by India’s more robust growth process. Just as Brazil has begun to seriously tackle the country’s high income inequality, India needs to address more vigorously its own inequalities, particularly in human development.

One can summarize this comparative assessment by imagining a simple score card for the two key dimensions of effective country performance against poverty: pro-poor growth and pro-poor social policies. In their reform periods, China clearly scores well on the pro-poor growth side of the card, but neither Brazil nor India do; in Brazil’s case for lack of growth and in India’s case for lack of poverty-reducing growth. Brazil scores well on the social policies side, but China and India do not; in China’s case, progress has been slow in implementing new social policies more relevant to the new market economy (despite historical advantages in this area, inherited from the past regime) and in India’s case, the bigger problem has been the extent of capture of the many existing policies by non-poor groups.1 

Martin Ravallion, Director

 

 

Notes

1. Ravallion, Martin. 2009. “A Comparative Perspective on Poverty Reduction in Brazil, China, and India.”  Policy Research Working Paper 5080, World Bank, Washington, DC. (World Bank Research Observer, March 2010).




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