The Dynamics of Poverty and Inequality in the Six Main Metropolitan Regions of Brazil A Decomposition Analysis

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1 The Dynamics of Poverty and Inequality in the Six Main Metropolitan Regions of Brazil A Decomposition Analysis Dr. Izete Pengo Bagolin PUCRS Brazil (Rodrigo Assis and Douglas Carneiro Graduate Students)

2 Structure of the presentation Introduction Motivations and regional diversity Facts and controversies about Brazilian Development Decomposition Analysis Inequality Poverty

3 Average GDP, Population and GDP per capita growth (%) Período GDP Population GDP per capita From From From From From

4 Inflation in the eighties and early nineties

5 Inflation in late nineties and during the two thousand

6 Inequality (Gini Index) : -1% : -9% Fonte: Pesquisa Nacional por Amostra de Domicílios, Exclusive área rural da Região Norte (exceto Tocantins).

7 Household Income (per/head) (R$ September, 2009) : -1% a.a : +4.8% a.a Fonte: Pesquisa Nacional por Amostra de Domicílios, Exclusive área rural da Região Norte (exceto Tocantins). Real Growth : +22.4%

8 Years of Schooling (country average) 8.0 Years of Schooling Years of Schooling

9 Poverty Poverty rate Poverty rate

10 Number of People living below the poverty line (millions) 70,000, ,000, ,000, ,000, ,000, ,000, ,000,

11 Number of People living with cash transfer -bolsa família (millions) 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,

12 Poor people in Brazil NÃO POBRES renda per capita R$ 465 ou mais 51,3 + 26,6 = 77,9 milhões em 2009 Renda média: 2004 R$ 1.207, R$ 1.189,32 (-2%) VULNERÁVEIS renda per capita R$ 134 a R$ ,0-1,2 = 80,8 milhões em 2009 Renda média: 2004 R$ 267, R$ 278,82 (+4%) POBRES renda per capita R$ 67 a R$ ,2-10,8 = 17,5 milhões em 2009 Renda média: 2004 R$ 101, R$ 104,04 (+2%) EXTREMAMENTE POBRES renda per capita até R$ 67 15,0-6,3 = 8,7 milhões em 2009 Renda média: 2004 R$ 101, R$ 104,04 (+2%) Milhões de pessoas 9 18 BRASIL Renda média: 2004 R$ 495, R$ 634,65 (+28%) Desigualdade (Gini): ( 6%)

13 Regional poverty South North Southeast Northeast Midwest

14 Years of Schooling (average by region) Midwest North Northeast South Southeast Brazil

15 What the government says? Around 63% of the reduction in poverty and inequality are due to improvements in the labor market economic growth From that, 30% are due to human capital improvements and the other from minimal wage increases Only a very small percentage is due to cash transfers programs

16 What the critics and academia say? The Bolsa família is the main responsible - poverty in Brazil is just hidden. The decrease in inequality is stopping and maybe even already starting to increasing again. Growth will stop soon and we are going to new stage of stagnation. The quality of education is decreasing and we have people that are functionally illiterate.

17 Departing from this controversy we are trying to address the following questions: What is the dynamic of the decrease in income inequality? - How the components of the inequality indexes are changing? Which component is reducing? Which is increasing? - How the variations in poverty rates relater to growth and Inequality?

18 Brazilian Data (Surveys) For the inequality decomposition (With Rodrigo Assis) PED monthly/yearly household sample since 1988 only for the six main metropolitan regions. For the Poverty decomposition (Douglas Carneiro) PNAD yearly household sample State and metropolitan level (for the whole country) Alternatives sources Census - each ten year; POF Yearly household sample MDS

19 The Inequality Indexes we are using The Theil-T and the Hirschman-Herfindhal (H-H) indexes are more sensitive to changes in income in the upper tail, causing greater variation in Theil-T and HH index when there are changes in higher incomes. The Bourguignon Index becomes more sensitive to changes in the lower tail of the distribution, which means that changes in the income of the poorer has greater impact on the inequality index. The Gini Index possesses the characteristic of giving greater importance to average incomes than for the extremes of the distribution. By using the concept of mean difference, the difference in income between all pairs of the distribution, the Gini coefficient is also known as the weighted sum of the ranking of rents in the population. Therefore, the index becomes more sensitive to variations in the center of the distribution.

20 Average Inequality by index

21 Average income by region

22 Year of Schooling - average

26 Inequality Decomposition Theil, HH, Bourguignon Gini - traditional and Dagun Decomposition What we are expecting? More inequality between groups and less inequality within groups Fall in the share of inequality within groups Increase in the share of inequality between groups. And when we are talking about Gini we expect that the residual (or transvariation) also decrease.

27 What we have? Higher inequality within groups Smaller Inequality between groups

29 How the shares changed over the time for Theil-T, HH and Bourguignon? Expected result Against expected Theil H-H Bourguignon Brasilia Porto Alegre Belo Horizonte Recife Salvador Sao Paulo Brasilia Porto Alegre Recife Salvador Belo Horizonte Sao Paulo Brasilia Sao Paulo Belo Horizonte Porto Alegre Recife Salvador

30 Changes in the shares of Theil-T, H-H e Bourguignon from 1998 to 2008 Region Dimension Theil-T H-H Bourguignon Belo Horizonte Distrito Federal Porto Alegre Recife Salvador São Paulo Within 0,58% 0,78% 0,47% Between -0,58% -0,78% -0,47% Within -2,59% -2,31% -2,01% Between 2,59% 2,31% 2,01% Within -0,96% -0,48% 1,46% Between 0,96% 0,48% -1,46% Within 2,66% -0,42% 5,39% Between -2,66% 0,42% -5,39% Within 1,36% -0,58% 1,43% Between -1,36% 0,58% -1,43% Within 0,39% 1,22% -0,05% Between -0,39% -1,22% 0,05%

31 How about the Gini Decomposition? Inequality Between Groups is the highest, followed by transvariation and smallest part is inequality within groups. Within Between Transvariation Expected All regions Brasilia Porto Alegre 0 Against expected 0 Belo Horizonte Recife Salvado Sao Paulo All regions

33 Região Dimensão Gini Within -5,38% Belo Between -0,25% Horizonte Transvariation 5,62% Within -2,54% Distrito Between 2,21% Federal Transvariation 0,33% Within -3,37% Porto Alegre Between 0,29% Transvariation 3,08% Within -0,83% Recife Between -4,70% Transvariation 5,54% Within -1,58% Salvador Between -2,17% Transvariation 3,75% Within -2,21% São Paulo Between -1,95% Transvariation 4,15%

34 Poverty Decomposition Proportion of poor people (P0) Shapley Decomposition Poverty variation is decomposed in: Growth component Distribution component

35 The components The effect of the growth component shows the variation in average income when the income distribution keeps unchanged. The effect of redistribution is represented by change in the levels of income distribution while the growth in unchanged.

36 The results When the growth component is negative it means the growths contributed to poverty reduction. Likewise, when the redistribution component is negative the fall in income inequality resulted in a decrease in poverty.

37 What we got? From there was no patters among the regions and the redistribution component explained more the variations. From all regions reduced poverty and the growth component contributed more to explain the variations.

38 Poverty variation, Growth and Inequality components from Column1 Var. Poverty Growth Comp. Inequality Comp. Belem Fortaleza Recife Salvador Belo Horizonte Rio De Janeiro Sao Paulo Curitiba Porto Alegre Dustrito Federal

39 Poverty variation, Growth and Inequality components from Region Var. Poverty Growth Comp. Inequality Comp. Belem Fortaleza Recife Salvador Belo Horizonte Rio De Janeiro Sao Paulo Curitiba Porto Alegre Dustrito Federal

40 Região Metropolitana Belém Fortaleza Recife Salvador Belo Horizonte Rio de Janeiro São Paulo Curitiba Porto Alegre Distrito Federal Periodo Linha de pobreza R$140,00 ΔP Linha de pobreza R$232,50 ΔP

41 Concluding remarks The decrease in inequality - increased the proportion of inequality that is not related to education. Inequality was more important to explain poverty variation before the cash transfer program (bolsa família). Growth is explaining poverty reduction in the second part of the period.

42 Thank you! Izete

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