Headwinds for all

The ongoing economic slowdown has lowered growth across all segments of the income distribution in Latin America, leaving behind the much different story of the mid-2000s. Back then economic growth was not just high; it also benefited the poor more than the rest of the population. In fact, between 2006 and 2011, Latin America and the Caribbean had the highest growth rate in the world for the incomes of the poorest 40 percent of the population. Since then, however, growth rates have continued to decelerate.
 

This slowdown has had an impact across the board, both in terms of sub-regions as well as across the income distribution. The figure above illustrates this trend by showing a comparison of the overall income growth (on the horizontal axis) and the growth of incomes of the bottom 40 percent for different sub-regions in two different periods.
 
The figure illustrates two main findings. First, the latter period shows lower income growth rates. Second, growth rates of the bottom 40 percent have fallen more in relative terms. The chart shows that for the most recent years, points in the chart are closer to the dotted 45-degree line, where the average growth and the growth of the bottom 40 percent are the same. In other words, growth is no longer as beneficial to the poor (indicated by being to the left of the dotted line) as they were in the earlier years. And in Mexico’s case, the growth observed for the most recent period is to the right of this line, indicating that the growth for the bottom 40 was lower than that of the rest of the population.

Such a slowdown will make further reductions of poverty more challenging. It is worth remembering that over the last decade around 70 percent of the poverty reduction observed in the region was driven by overall income growth as opposed to redistribution of income. As a result, it will be crucial to cushion the impact of the slowdown on the poor and vulnerable by ensuring that access to basic services and opportunities is not compromised, while at the same time reigniting growth in order to further the impressive social gains that the region achieved in the last decade.

Note: This blog is part of the 'lacfeaturegraph' series from the LAC Equity Lab team. To look at past posts, please visit here.