By Rajeev Kumar.
Brazil has long been characterized by extreme regional disparities, with the richer south and southeast regions displaying much better socioeconomic indicators than the poorer north and northeast. A decade since Brazil’s economic growth took off, the northern part of the country continues to lag economically behind those in the south. However, the significant improvement in socioeconomic indicators made by these regions in the last ten years proves not only that economic progress has been widespread but also that it has even led to a gradual convergence in living standards.
The perception of a strong north-south gap is justified by the facts. According to the latest data from Brazil’s statistical agency (IBGE), the south and southeast regions – which together comprise seven out of 26 Brazilian states – concentrate most of the country’s economic activity, generating roughly 72% of the country’s GDP. On the other hand, the northeast region, the country’s poorest area – which accounts for 28% of Brazil’s population – accounts for only 13% of total GDP (Chart 1). The economic prominence of the south is also reflected in higher per capita earnings. While the southeastern city of Sao Paulo – Brazil’s industrial powerhouse – reported the highest average wages amongst the major urban areas at BRL1802 (USD888) per month in 2011, northeastern Recife recorded the lowest average at BRL1140 per month.
Chart 1: The southeast accounts for lion’s share of GDP (2009)
Source: Haver, Timetric
While disparities persist, there are signs of convergence across regions. Between 2003 and 2009, real income growth in the northeastern states of Maranhao and Piaui averaged 5.3% and 5.6%, respectively. This was almost twice as fast as the average growth in the richer southeastern states of Sao Paulo (3.7%) and Rio de Janeiro (2.7%).
Two factors are helping the north and northeast regions catch up with the prosperous south. First, the government has placed much emphasis on social programs in the last ten years which has played a major role in bringing down major imbalances and reducing poverty levels. Brazil’s flagship programme, Bolsa Familia, embarked upon by former president Luiz Lula da Silva in late 2003, is one of the most important anti-poverty schemes ever implemented in Brazil, providing cash assistance and aid to 12 million poor families, mostly from the north. In order to be entitled to the programme, families need to provide proof of children’s school attendance and vaccination, which helps to raise social standards.
Large public investments, particularly in infrastructure, are a second factor explaining regional convergence. Incentives provided by the federal government and the states, primarily through tax exemptions and subsidised credit, also have bolstered private investment. This has helped create jobs and reduce unemployment in the region. Average unemployment rates in the northeast metropolitan areas of Recife and Salvador almost halved from 13.8% and 16.7% in 2003 to 6.5% and 9.6%, respectively, in 2011, closer to the national average of 6.0% (Chart 2). Other social indicators also suggest that the north and northeast regions are slowly catching up with the south. Infant mortality (the number of deaths of children under one year of age) recorded a major decrease in the northeast, from 10.7% in 1999 to 5.6% in 2008, although this region still has the highest infant mortality indicator in the country.
Chart 2: Unemployment rates drop sharply
Source: Haver, Timetric