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Growth and Poverty Reduction: Latin American Experience with Economy-wide Policies. Alberto Valdés Taking Action for the World’s Poor and Hungry People IFPRI and The State Council Leading Group, China Beijing, October 17-19, 2007.

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growth and poverty reduction latin american experience with economy wide policies

Growth and Poverty Reduction:Latin American Experience with Economy-wide Policies

Alberto Valdés

Taking Action for the World’s Poor and Hungry People

IFPRI and The State Council Leading Group, China

Beijing, October 17-19, 2007

why look at latin america lesson for other developing countries
Why look at Latin America? Lesson for other developing countries.
  • Economic reforms in Latin America beginning in the 1980s were deep and wide. Explicit goal: stability for growth.
  • Initially poverty goal not explicit, in part due to lack of diagnosis. With macro stability attained, in mid-1990s poverty goal explicit.
  • Introduced during major macroeconomic disequilibria, limiting government fiscal policy.
  • Fiscal belt-tightening, central bank discipline for macroeconomic stability.
  • Trade liberalization, deregulation, privatization for improving the investment environment and efficiency.
  • Corrected inherent anti-export bias in previous approach of import-substitution/closed-economy.
  • Prepared the region for now ongoing globalization.
cost reduction trade liberalization deregulation privatization
Cost reduction: trade liberalization, deregulation, privatization.
  • Lowered tariffs and non-tariff barriers.
  • Removal of price controls.
  • Reduction of state agencies, licenses and other obstacles to business and trade (both exports and imports).
  • Lessening state control of ports, roads, telecommunications, energy.
  • All aimed at lower costs of doing business.
expectations for small open economies
Expectations for small open economies
  • More trade, and more rapid growth in exports, including agriculture.
  • Initially poverty reduction not the direct focus. Later, yes.
  • However, important for poverty: More employment in exports for same amount of value added than import-competing activities.
  • Higher growth, higher incomes.

Outcomes

  • Depth and impact of reforms uneven: some countries more than others.
  • Exchange rate appreciation surprise.
  • Modernization of government very slow.
  • In general, greater global integration today.
  • Social policy shift toward targeted subsidies to poor.
growth is good for the poor
Growth is good for the poor.
  • The case is strong that sustained growth remains a necessary condition for poverty reduction.
  • Economic growth can be more pro-poor in some circumstance and less in others and that less inequality is better than more. But just by itself, growth is pro-poor.
  • Patterns of growth matter, because some industries are more intensive in unskilled labor than others.
  • Policies that are biased against higher-labor-intensive sectors work to the detriment of the poor.
questions about growth and inequality
Questions about growth and inequality
  • Can the poor take advantage of growth? Initial inequality can influence how the poor benefit.
  • Critical for reducing poverty: pro-employment growth, particularly unskilled labor.
  • In the long run the main factor appears to be education. The record in Latin America is still overall disappointing for coverage and quality compared to East Asian experience.
  • Poverty and inequality can feedback to slower growth.
    • poor exposed to worst schools, poor regions unattractive to investment, disparities and political risk.
effective public expenditures
Effective public expenditures
  • Tradeoffs and priorities: so many gaps, so few funds.
  • Little analysis of the effectiveness of spending.
  • So much of public spending end up being transfers as private subsidies. Waste of funds that might go to productive “public goods.”
  • Estimate for Latin America rural areas: a shift from 40% to 50% on public goods increases agricultural GDP per person 2.3% – without spending a penny more.