Is there a Brazilian model of development?

By Armando Barrientos and Edmund Amann. Originally published in Policy In Focus, a publication of the UNDP’s International Policy Centre for Inclusive Growth.

As the world begins to wake up to the dire social and economic consequences of rising inequality, we must recognise that it is not an inevitable side-effect of economic growth and development. Many Latin American countries, and Brazil in particular, have demonstrated it is possible to achieve inclusive growth, which has reduced inequality and poverty.

Despite its current difficulties, Brazil offers a striking example of inclusive growth. Inequality has fallen sharply over the past decade and a half, a period which has also seen the country lift an estimated 40 million people out of poverty. Although growth rates have been modest in comparison to China or India, Brazil has implemented a raft of measures to ensure the results of such growth have been shared throughout society. While Brazilians have seen their incomes rise, the poorest have benefited most.

PiF

The growth experienced by Brazil hasn’t simply been attained through the unsustainable exploitation of natural resources. Despite serious lingering problems, deforestation rates in the Amazon have fallen remarkably since 2004. New jobs have been created, child mortality has plummeted, and schooling rates have increased.

So how have these gains been achieved, are they sustainable, what challenges remain, and what can other developing countries learn from Brazil’s experiences? These were the questions asked by a team of researchers from Brazil, Europe and the USA who formed the International Research Initiative on Brazil and Africa (IRIBA). This issue of Policy in Focus looks at the findings and insights they have produced.

The foundations of Brazilian progress can be traced back to the transition from a dictatorship to a democracy in the mid-1980s and the vision for the country which emerged. A firm consensus between citizens and politicians to address the ‘social debt’ created by soaring inequality set the country on a new path. After the economy was stabilised in the mid-1990s, the economic management pursued by successive governments enabled innovative social policies to flourish.

As a more inclusive and prosperous Brazil has developed, the public demand for further progress has also grown. The large protests surrounding the 2014 Football World Cup, worries about an economy mired in recession, and deep concern with serious corruption scandals demonstrate that the Brazilian consensus is under considerable strain. Public demand for better public services and transport infrastructure, less corruption and a more progressive tax system must be addressed by the country’s leaders. While much has improved, Brazil faces pressing challenges. It must ensure that the development gains made over the past decade and a half throughout times of economic growth are not eroded or scaled back throughout the troubling economic times it presently faces. The sustainability of those gains may well be the most important piece of any such Brazilian model of development, yet the jury is still out as to what extent this may be possible.

While the Brazilian experience is the product of a unique set of circumstances, it contains many lessons that should inspire debate and critical appraisal in other developing countries. The world is changing rapidly, and there are more opportunities than ever for genuine cooperation between countries of the Global South with recent and direct experiences of radically reducing poverty. This edition of Policy in Focus is essential reading for anyone grappling with how to reduce poverty and inequality while promoting sustainable and inclusive growth.

Download the full Policy in Focus report.

 

The SDGs in Pictures

We’re counting down to the UN summit to ratify the 17 Sustainable Development Goals. Over on Twitter and Facebook, we’re sharing an SDG a day along with a morsel of research from our academic staff and students. Below are a selection of this images, showing the breadth of The University of Manchester’s research on Development.

Ralitza Dimova's research: http://bit.ly/ralitzadimova

Ralitza Dimova’s research: http://bit.ly/ralitzadimova

Our research and its impact on social protection http://bit.ly/socprotection

Our research and its impact on social protection http://bit.ly/socprotection

Sharon Morgan's research: http://bit.ly/sharonmorgan

Sharon Morgan’s research: http://bit.ly/sharonmorgan

Diana Mitlin's research: http://bit.ly/dianamitlin

Diana Mitlin’s research: http://bit.ly/dianamitlin

The impact of our research: http://bit.ly/cocoaresearch

The impact of our research: http://bit.ly/cocoaresearch

The links between employment and development

By Ralitza Dimova

Approximately 200 million people around the world are actively looking for work; if they formed their own country, it would be the fifth largest in the world.[i] [ii] Developing countries account for more than half of these people. The number of those who neither work nor look for work in these countries is in the hundred millions, while among those working, the majority hold occupations in farming, small household enterprises or in casual or seasonal day labour. Their labour productivity is between 10 and 40% of that in advanced economies.

Productive employment is key to growth and poverty alleviation, but there is no consensus on whether migration of labourers from the rural/agricultural sector to the urban/industrial or service sector is the answer, or if instead it is better to focus on agriculture as a growth engine. There is even less clarity on self-employment and informal employment in the urban and/or industrial sector. Are these forms of hidden unemployment or dynamic entrepreneurship? The 2013 World Development Report placed labour in the spotlight of development policy making, but there are few systematic analyses of the multifaceted nature of the link between labour and economic development, largely due to conceptual gaps and data limitations.

The Special Issue on Understanding the Links between Labour and Development in the 26th volume of the European Journal of Development Research, co-edited by Ralitza Dimova and Christophe Nordman, provides some more definite answers to key questions in the academic literature and policy debate. The Special Issue highlights new paradigms and offers new interpretations of phenomena in the interrelated areas of labour informality, self-employment, agricultural employment and its link to rural-urban migration and labour market discouragement. It uses stylized secondary data sources and unique primary surveys spanning developing countries from a number of continents in search of generalizable messages and policy recommendations.

Much of the focus of the Special Issue is on providing better understanding of self-employment and informal employment in developing countries. Contrary to views highlighting the dynamic entrepreneurship nature of these labour dimensions, the evidence presented suggests that less than 40% of the self-employed people in low-to-medium income countries can be characterised as “high potential” employers and less than half of them are even able to cross the poverty threshold of $2 a day.[iii] Indeed, as countries move up the development path, one observes a steady reduction in self-employment and increase in wage employment (Figure 1).

employment trends

Source: Guindling and Newhouse (2012), cited in Margolis (2014).

This evidence appears to be consistent with the hidden unemployment view of entrepreneurship in a dual labour market. Yet, detailed analysis of the nature and dynamics of the links of informal labour with the formal sector in the modern environment of global production networks and exchange highlights its complexity as a concept and reality, transcending the simplistic dichotomy of dual economy versus dynamic entrepreneurship.[iv] [v] In particular, the evidence presented in the Special Issue suggests that informal (typically unregistered) firms perform much better if their links to the formal sector and related institutions are stronger. Informal firms with low levels of capital are, in turn, less likely to have strong links with the formal sector. In sum, enhancing the links of (informal) firms with the formal economy is desirable, while increase in wage employment is highly correlated with higher level of economic development.

Despite this compelling evidence, small informal firms are the norm in developing countries.[vi] Moreover, employment is generated to a larger extent through the creation of new (typically informal) businesses than through a larger intake of hired labour by either newly created or existing businesses, especially during economic crises.[vii] Indeed, even in high growth periods of relatively fast growing emerging markets, the number of jobless people who are ready to work, but are not even searching for work is rather high, highlighting the presence of structural stagnation of productive employment in developing countries.[viii]

Stagnation in the urban labour market of developing countries is typically explained with institutional constraints and mismatch between the skill levels of available employees and the skills demanded by potential employers. Unfortunately, productive employment generation through agricultural growth poles does not appear to be a panacea either. For instance, the Special Issue highlights theoretical and empirical evidence that when farm incomes increase in the context of imperfect rural markets in developing countries, thus stimulating investment of credit constrained farmers in their children’s education, better educated children migrate to other sectors in search of better paid jobs instead of becoming farmers themselves.

In sum, the Special Issue argues that the mobility of labour from low productivity towards higher productivity and better remunerated jobs geographically and across sectors and enterprises is a crucial ingredient in ensuring sustainable growth and poverty alleviation. Contrary to prevailing arguments, it highlights (formal) wage employment in the context of enhanced employment and firm formalisation and firm growth as key elements in these dynamics. The policy implication is that government and international policy effort should focus on dismantling institutional and (correspondingly) skill generation constraints to this successful transition, while factoring in context specific peculiarities, social norms and household and firm level dynamics.

[i] The World Bank (2013). World Development Report 2013. http://siteresources.worldbank.org/EXTNWDR2013/Resources/8258024-1320950747192/8260293-1322665883147/WDR_2013_Report.pdf

[ii]               IMF Direct (2014). Are jobs and growth still linked? http://blog-imfdirect.imf.org/2014/02/07/are-jobs-and-growth-still-linked/

[iii] Margolis, Davis (2014). By choice and by necessity: entrepreneurship and self-employment in the developing world, The European Journal of Development Research, 26(4), 419-436.

[iv] Chen, Martha (2014). Informal employment and development: patterns of inclusion and exclusion, The European Journal of Development Research, 26(4), 397-418.

[v] Böhme, Marcus and Thiele, Reiner (2014). Informal-formal linkages and informal enterprise performance in urban West Africa, The European Journal of Development Research, 26(4), 473-489.

[vi] Goyette, Jonathan (2014). The determinants of the size distribution of firms in Uganda, The European Journal of Development Research, 26(4), 456-472.

[vii] Vaillant, Julia, Grimm, Michael, Lay, Jann and François Roubaud (2014). Informal sector dynamics in times of fragile growth: The case of Madagascar. The European Journal of Development Research, 26(4), 437-454.

[viii] Gürbüz, Akançay, Ayça, Polat Sezgin and Ulus, Mustafa (2014). In Limbo: Exploring transition to discouragement, The European Journal of Development Research, 26(4), 527-551.

Paths to development: Is there a Bangladesh surprise?

By and

Mobile tea stall Paths to development: Is there a Bangladesh surprise?

Bangladesh’s economy has recorded remarkable economic performance in the new millennium, though its per capita income has remained low. Even more spectacular has been the steady improvement in its levels of many social development outcomes. Popular commentaries have drawn comparisons with India and Pakistan in highlighting the significance of Bangladesh’s development achievements. This phenomenon has been termed as the “Bangladesh conundrum,” and has received extensive coverage in international media outlets, such as the New York Times, the Economist and the Wall Street Journal.

But is Bangladesh’s social progress surprising, and if so, then in what respect and to what extent? To answer this question, we must systematically investigate the country’s path to development. Bangladesh’s achievements in several dimensions of social development are indeed surprising when compared to other economies at similar levels of economic development. In a research paper published last month in World Development (Asadullah, Savoia, and Mahmud 2014), we present these findings by drawing upon data on Bangladesh and over 100 other developing countries for the past 4 decades (1971–2010).

Exceptional in many ways

Using regression analysis, we document that Bangladesh has performed better compared to other countries at the same level of per capita income on a number of social development dimensions: female education, child health, and fertility.

Starting with fertility indicators, Bangladesh has, since the 1970s, managed to reverse its abnormally high record of average total births per woman—and since the 1980s, it has even outperformed countries with similar levels of income. Between 1980 and 2010, Bangladesh’s ranking for fertility data within the developing world improved rapidly compared to only modest improvements by Pakistan and India. Fertility also declined progressively because it was paralleled by an exceptional increase in contraception prevalence and we estimate that over 2006–2010, women in Bangladesh were giving birth to an average of two fewer children than in other economies at the same level of income. Between 1980 and 2010, the share of women using contraception jumped from 10% to nearly 60%, while the 2005 figures for Pakistan and India were 30% and 53%, respectively.

In terms of health outcomes, Bangladesh was among the losers in child mortality reduction in the 1970s and 1980s, but reversed this record in the 1990s and 2000s. Excess infant and under-five mortality disappeared before the 1990s, well before the country saw a large-scale reduction in poverty. The immunization rate increased from 1% in the early 1980s to over 70% within 10 years, a development described by the United Nations Children’s Fund (UNICEF) as a near miracle. Also according to our estimates, during 2006–2010, Bangladesh was immunizing 17% more children against measles than other economies at the same level of income. Similarly, gender disadvantage in primary and secondary education disappeared by the mid-1990s. Since the late 1990s, Bangladesh has outperformed other countries at a similar level of economic development in terms of female primary and secondary schooling, although it still lags behind at the tertiary level. Our estimates show that between 2006 and 2010, Bangladesh was enrolling over 7% more girls in primary education than other economies at the same level of income.

Overall, the empirical evidence shows a clear trend: that Bangladesh has steadily progressed over the past 4 decades, transforming itself from a laggard into a leader. Today, the country outperforms on multiple social development indicators, given its level of economic development. Considering its unfavorable initial conditions (e.g., devastation caused by the 1971 war and the famine of 1974) and the existing challenges of poor public governance and political instability, Bangladesh’s achievements in social development are truly surprising.

Where does the exceptionality come from?

Further econometric investigation of Bangladesh in comparison with other developing countries over a long period of time (1970–2010) helps understand why its development progress is superior to other economies at similar levels of national income.

Our results find limited evidence that such progress simply came as a result of economic growth, i.e., through income-mediated channels. We also find no evidence that development was led by public expenditure channels (i.e., driven by foreign aid or government health and education spending). On the contrary, Bangladesh’s progress is exceptional because it was achieved despite low budgetary allocations, low levels of physical inputs, and widespread poverty, and in some cases, within very short time periods. Our research rather highlights three concurrent factors that may have simultaneously been the cause of Bangladesh’s exceptional development progress.

First, development policy exploited the complementarities between public policies and nongovernment organization (NGO) initiatives. Including various nongovernment stakeholders (including religious bodies, in the case of secondary education) as part of the development strategy was instrumental to the social progress achieved, as it complemented public education and health interventions. In partnership with the government and with the support from international development and aid agencies, NGOs played a significant role in reducing fertility and child mortality through the simultaneous use of low-cost solutions and social awareness campaigns.

Second, the development strategy benefited from the synergies among the dimensions of social development. Health and education indicators improved at varying paces and different intervals creating virtuous interaction effects between different social indicators. The fertility decline began during the 1980s, when income and schooling levels were very low. This set the foundation for later progress in education and health. Equally, gender parity in schooling was triggered by the introduction of demand-side incentive schemes.

Third, long-term factors, such as geography as well as historical and cultural heritage, might have favorably affected the context of development policy in Bangladesh. Regarding the role of geography, the proximity of settlements, for instance, facilitated the easy adoption of low-cost solutions and the quick spread of good practices. Historical and cultural heritage also played a role in shaping and consolidating the elite’s political commitment to social development. Such a role has been reflected in policy sequencing, which has seen consistency across various political regimes over time. Since independence, successive governments in Bangladesh have recognized the need for controlling population growth, the importance of female education, and the role of child and maternal immunization. Similarly, the prioritizing of women and gender balance, scaling up of innovation, and focus on resilience to natural disasters have also been significant.

Moving forward

A country that was once famously dubbed “the test case for development” is today an important example for others within the developing world. The progress achieved over the last 3 decades could place Bangladesh on a path of sustained growth, eventually starting a virtuous cycle whereby higher human and social development is followed by higher growth, igniting a positive feedback loop.

However, ineffective public governance, dysfunctional institutions, and limited budgetary allocations could prove to be obstacles. As Bangladesh’s gains from low-cost solutions are reaped, further progress will increasingly depend on higher public social spending and improvement in service delivery systems. Further reductions in child and maternal mortality will require more expensive interventions and the provision of relatively costly health services. While good progress has been made in improving the school participation rate, there are now serious concerns about the quality of education. At the same time, improvements in public services delivery across social sectors will be necessary, requiring governance reforms aimed at improving mechanisms for public sector efficiency, transparency, and accountability.

To consolidate the gains made in social development so far and to make further improvements, the challenge for Bangladesh lies in addressing governance failures.
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References:

Asadullah, M. N., A. Savoia, and M. Wahiduddin. 2014. Paths to Development: Is there a Bangladesh Surprise? World Development 62 (October): 138–154.

Photo: “Mobile tea stall“. Licensed under Creative Commons Attribution 2.5 via Wikimedia Commons

This blog was originally posted at: http://www.asiapathways-adbi.org/2014/12/paths-to-development-is-there-a-bangladesh-surprise/#sthash.eXjaCZtq.dpuf

The effects of antipoverty programmes on economic growth

We can use innovative data and methods to explore how human development policies effect economic growth. Juan M. Villa finds significant change from conditional cash transfer programmes on economic growth in Colombia using satellite data.

The study of planned development has largely been shaped by the division between a focus on economic growth on one hand and on human development on the other.  This division has arguably influenced and continues to influence approaches and priorities in international development. To illustrate, if one analyses the emphasis of the World Bank and the International Monetary Fund, most of the policy recommendations are aimed at boosting economic growth as a means of reaching prosperity. The emphasis of the United Nations Development Programme in contrast, tends to be more focused on human development issues, such as literacy, life expectation and some others reflected on the Millennium Development Goals. However, the divergences of these two perspectives of development can be potentially bridged by generating evidence on the effects of human development policies on economic growth. In this regard, recent research, which I conducted during a PhD internship at UNU-WIDER in Helsinki, found that certain policies seeking to enhance human development can also boost economic growth. One such policy is the conditional cash transfer programme (CCT).

CCTs have been part of a growing trend in antipoverty policy in Latin America since the mid-1990s. They deliver income subsidies in cash to households identified as poor and vulnerable, upon complying with two main conditions: school attendance and regular health check-ups of participating children. The objective of the CCTs is focused on the future welfare of current children. It is assumed that their parents will keep them at school and that the higher human capital that results will prevent children becoming poor when adults. One particular significant dimension of this antipoverty programme is the effect that the cash transfers generate not at the household level, but rather in the villages where they are delivered. Adult household members comply with the conditions of the programme but, at the same time, they invest the transfers in their own business, to the extent that they are able to spur local economic activity. Beyond the beneficiaries, non-beneficiaries also obtain the benefits from the CCTs. Prof. Armando Barrientos, from Brooks World Poverty Institute, refers to this phenomenon as a ‘local economy effect’.

Ideally, the impact assessment of antipoverty transfers on growth would require reliable information on local gross domestic product. Most areas where CCTs operate are often very poor with limited information on community-level economic activity. I tackle this limitation by employing luminosity data captured at night by satellites orbiting the earth, which record night lights since 1992. The US-based National Oceanic and Atmospheric Administration stores this information and makes it available on its webpage. The iconic image of these data is the striking Korean peninsula, where the north stands out for its darkness while the south for its brightness. Several authors have validated the use of these data as a good proxy for economic growth. I employ this proxy for economic growth and estimate the effects of the Colombian CCT known as Familias en Accion (Families in Action, in English) programme. Using these data I was able to attribute a positive effect of the CCTs on growth and per capita growth rates of the programme between 2000 and 2004.

This study demonstrates that the objectives of human development policies can be twofold. On one hand, they can contribute to higher human capital accumulation of children. On the other, they can also generate economic growth in the medium and long-run. More research is needed in this field, especially in other types of antipoverty programmes.

Reference:

Villa, J.M., 2014. Social transfers and growth: The missing evidence from luminosity data (Working Paper No. 2014/090), UNU-WIDER Working Paper Series. United Nations University – World Institute for Development Economics Research.

Available at: http://www.wider.unu.edu/publications/working-papers/2014/en_GB/wp2014-090/

Juan M. Villa is an economist and currently a third year PhD student at the Brooks World Poverty Institute.