Poverty and Economic Development: evidence for the Brazilian States

Transcription

1 Povery and Economc Developmen: evdence for he Brazlan Sae Lucano Nakabah Profeor of Economc a São Paulo Unvery and Vng Scholar a Unvery of Ilo. Faculy of Economc Bune Admnraon and Accounng of Rberão Preo (FEA-RP/USP). Av. Banderane Mone Alegre CEP: Rberão Preo/SP Brazl. E-mal: lucano.nakabah@gmal.com. Abrac: In he preen udy our man concern o examne he effec of povery on economc developmen acro he Brazlan Sae from 980 o 200. There are many ude aeng he relevance of economc growh and developmen n povery reducon bu here are almo no one ryng o meaure he nfluence of povery on economc developmen. The emprcal reul ndcae ha he ncdence of povery mporan n he Brazlan Sae economc developmen. Poorer Brazlan Sae have lower ncome per worker even when conrolg for nvemen n phycal and human capal and for he effecve deprecaon of capal. The reul pon o he nfluence of he varable meaurng exreme povery on developmen level acro he Brazlan Sae n relaon o he varable quanfyng povery. Some of he effec eem o be drven va producvy. The Brazlan Sae wh hgher proporon of povery populaon are he ame wh lower Toal Facor Producvy (TFP) and h effec hold even when akng no conderaon he revere caualy problem. The preen udy hypohe ha povery nduce o reource mallocaon wh advere effec on TFP. Key Word: Povery; Economc Developmen; Brazlan Sae. JEL: O; O5; R58; C23. Fundng: Th work wa uppored by he São Paulo Reearch Foundaon FAPESP [gran number 205/6539-].

2 . Inroducon Povery a man concern o polcy maker nce ncdence drec relaed o he level of he populaon welfare. In h ene one mporan elemen he abolue and relave povery reducon nce he 990 n he developng counre a regered by Chen and Ravallon (203). Varable commonly hghlghed a relevan o reduce povery are ncome growh and economc developmen bu here no major conenu n h debae. An exemplar cae he dpue ha ook place abou he nfluence of growh on povery n Inda. Deaon and Kozel (2005) hghlghed key feaure of h debae afer he 990 reform. The ource of h debae wa relaed manly o daa collecon from dfferen ample urvey on mean conumpon and he Indan Naonal Accoun. The auhor aed ha Alhough here are almo ceranly error n boh e of emae he vew of wha happenng o povery depend a good deal on how much of he dcrepancy arbued o each e. (p. 80). Neverhele here are everal ude ponng o he mporance of economc growh on povery reducon n he cae of Inda. For example baed on drc level per capa ncome daa Banerjee Bank and Mukhopadhyay (205) found evdence ha growh n dfferen regon and ecor of Inda ha helped o reduce povery rae. The auhor reul eablhed ha ncome growh n agrculure wa mporan o reduce povery n Inda beween and Da Ravallon and Murga (206) found ha he Indan economc growh afer he 990 reform wa mporan o reduce povery. Ther udy wa baed on a new daae on povery from 957 o 202 whch wa compled by hem. Ther reul pon o he followng concluon: Even hough a rend dece n povery emerged around he early 970 he year he benchmark year for economc reform n Inda and ou a he year of he grea dvde There wa a gnfcan pur n economc growh drven by growh n he erary ecor and o a leer exen econdary ecor. The pace of povery reducon alo acceleraed wh a 3-4 fold ncreae n he proporonae rae of dece n he po-9 perod Depe he ncreae n nequaly we fnd greaer po-9 reponvene of povery o growh n he aggregae regardle of wheher growh meaured baed on naonal accoun or urveybaed conumpon. (p. 26). Focung on Sub-Saharan Afrcan counre Fou (205) found reul upporng he vew ha economc growh ha played a crucal role o dmnh povery ncdence. In addon ncome nequaly ha alo been mporan n povery ncdence nce lower ncome nequaly reduce povery holdng conan he counry ncome level. Bede he grea amoun of ude meaurng he conequence of economc growh on povery almo no aenon ha been gven o he effec of povery on developmen meaured a he level of ncome per worker n he preen udy. One of he few ude focung on he effec of povery on economc growh ha of Ravallon (202). H paper` reul ndcae ha counre wh hgher nal ncdence of povery end o expermen lower ubequen rae of 2

3 economc growh. There are a lea hree mporan channel n whch he ncdence of povery can nfluence he level of economc developmen. Fr he populaon lvng n povery are more ucepble o maourhmen and he laer affec chld developmen. Hanon e al. (203) examned change n human bran rucure from brh o he oddler year (from 5 monh o four year of age) baed on wo hundred and hree MRI can n he Uned Sae. Mo of chldren were followed longudnally every half year. By mean of Random Effec Mehod he auhor found ha chldren from poor and near poor ocoeconomc au famle 2 have lower bran oal gray maer volume n relaon o hoe from hgh ocoeconomc au famle. In addon he former group alo expermened reduced oal gray maer growh rajecory. They argue ha bran gran maer crcal for proceng nformaon and o execue acon. Therefore chldren wh le volume of are more nced o have dffcul a chool and conequenly o accumulae le human capal. Moreover he ncdence of povery may be relaed o reource mallocaon whch ncreae neffcency. Even f maourhmen dd no affec chldren bran formaon povery lkely o re reource mallocaon hrough nequaly of opporune. For nance n regon where a grea proporon of he populaon lve n povery ome people wh a hgh poenal of learnng and execung producve acve are never gong o benef from nce hey wll no have he opporuny o frequen good chool o have paren wh good educaon o help hem wh homework and o on. In addon a repored by Har and Rley (995 ced n Hanon e al. 203) low-ncome paren peak le ofen and n le ophcaed way o her young chldren and are le lkely o engage jonly wh her chldren n lerary acve uch a readng aloud or vng he lbrary compared o mddle-ncome paren. (pp. -2). Fnally a reducon n povery may dmnh ferly rae. Sndng (2009) uan: Econom and demographer for he mo par agree ha mporan ngreden of mproved lvng andard uch a urbanzaon nduralzaon and rng opporune for non-agraran employmen mproved educaonal level and beer healh all lead o changed parenal percepon of he co and benef of chldren leadng n urn o lower ferly. In oher word here no longer much debae abou wheher or no mproved economc condon wheher a he famly level or a he oceal level lead o lower ferly. (p. 3023). A dece n ferly rae have a poenal o affec ncome povely n poor regon. For In he preen udy our focu only on he level of ncome per worker and no on he rae of ncome growh nce n he Arellano-Bond emaon we loe wo me perod o nrumen he lagged ncome per worker varable. Snce only four me perod are avalable n he daae for he 26 Brazlan Sae we would have only 26 obervaon o emae he povery effec on ncome per worker growh. In addon n he reaonng gven n he preen paper make more ene o meaure he effec of povery ncdence on economc developmen. 2 Famly ncome below 200% Federal Povery Level. 3

4 example Ahraf Wel and Wlde (203) found ha hfng Ngera from he Uned Naon medum-ferly o he low-ferly populaon projecon would ncreae ncome per capa by 5.6 percen a a horzon of 20 year and by.9 percen a a horzon of 50 year. Thee emaon were baed on a demographc-economc mulaon model n whch ferly can be exogenouly alered. Tha relaonhp beween ferly and ncome explaned n her model manly by four channel: The mple dependency effec (fewer dependen chldren relave o workng adul) he domnan channel for he fr everal decade. A longer horzon he effec of congeon of fxed reource (à la Malhu) and capal hallowng (à la Solow) become more gnfcan han dependency alhough he laer reman mporan. The fourh mo mporan channel n he long run he ncreae n human capal ha follow from reduced ferly. (p. 3). Wh h background he preen paper objecve o analye he mpac of people lvng below povery e on he Brazlan Sae ncome per worker beween 980 and 200. The laer varable he meaure of each ae level of economc developmen. To he auhor knowledge here no uch knd of udy wh aggregae daae. Four meaure of povery were ued n he emprcal analy. Two of hem are o evaluae exreme povery (proporon of ndvdual lvng n exreme povery PIEP and proporon of houehold lvng n exreme povery PHEP) and he oher wo are meaure of povery n he Brazlan Sae (proporon of ndvdual lvng n povery PIP and proporon of houehold lvng n povery PHP). The ue of wo meaure of povery - proporon of povery and proporon of exreme povery - o check f he degree of povery mporan on ncome per worker deermnaon. The Fxed Effec (FE) emae wh robu andard error ndcae ha an ncreae n he proporon of povery n 0% ha a negave mpac on he level of ncome per worker from.7% o 2.5% n he Brazlan Sae dependng on he povery ndcaor ued a a regreor even afer conderng for human capal ock nvemen n phycal capal and effecve deprecaon of capal. All meaure of povery have a negave effec on he economc developmen of he Brazlan Sae and her coeffcen are acally dfferen from zero. In he Arellano-Bond emae he exreme povery ndcaor eem o be more mporan nce her coeffcen are gnfcan a he 5% level whle hoe of he povery ndcaor are no gnfcan. The exreme povery emaed coeffcen ugge ha a 0% ncreae n ncdence would lead o a negave mpac on per capa ncome from 6.2% o 6.7%. Conderng he effec of exreme povery on Toal Facor Producvy (TFP) a 0% nenfcaon n he former relaed o a 5% decreae n he laer. Therefore he prmary way n whch povery reduce ncome 4

5 per worker appear o be hrough TFP. Becaue povery hur economc developmen publc polce degned o reduce he ncdence of povery n he Brazlan Sae have he poenal o promoe developmen n addon of her pove effec on he welfare of hoe who need he mo. In addon ome ude uppor he dea ha povery ncdence generae negave exernale a n Galer Cunger and Malega (2008). Bede h nroducon and he concluon he preen paper rucured n fve econ. In he econd expoed he heorecal model ha he bae for he pecfcaon o be eed emprcally. In he hrd he emaon mehod are preened wh a bref explanaon of her adequacy o he curren udy. In he followng econ he daae and ource are preened. In he nex one ome prelmnary reul are preened baed on graphcal analy. Fnally he emprcal reul are preened and analyed. 2. The heorecal model In h econ we are heavly baed on Mankw Romer and Wel (992) heorecal model o e he relaonhp among he varable of nere. Nakabah and Salvao (2007) have ued a mlar framework o emae he effec of human capal qualy on he Brazlan Sae ncome per worker. The producon funcon he followng one: () Y K H A L where K H e L are he level of phycal capal human capal and labor employed n he producon proce a me whle and are human capal phycal capal and labor parcpaon on ncome repecvely. Dvdng boh de of equaon () by effecve un of labor: (2) y k h In he above equaon y Y AL k K AL and h H AL. Ung he ame aumpon a Solow (956) he evoluon of hee wo producon facor can be hown a: k k (3a) y n g k 5

6 6 (3b) h h g n y h In equaon (3a) and (3b) k and h are he fracon of ncome nveed n phycal and human capal he do correpond o me dfferenal. The growh rae of workng age populaon meaured by n; whle g repreen he rae of echnologcal progre. Phycal and human capal deprecaon rae are aumed o be he ame and hey are repreened by a n Mankw Romer and Wel (992 or MRW). In he eady ae equaon (3a) and (3b) are equal o zero wh he followng oluon: (4a) * g n k h k (4b) * g n h h k The upercrp * denoe ha he varable under conderaon n he eady ae. Subung boh equaon no (2) and akng naural logarhm we have: (5) g n y h k * Or n erm of oupu per un of labor (remember ha ( y ) = y A) (6) g n A y h k * Oupu per un of labor y = Y/L and he eady ae oupu per un of labor repreened by y *. I aumed ha g and are conan acro he Brazlan Sae. A doe no and only for echnology alo repreen reource endowmen clmae nuon neffcency and o on. Followng MRW (992) bu conderng ha povery wa n he error erm poble o repreen producvy a:

7 7 (7) p a A where a a pecfc and conan Sae effec p he ae ncdence of povery and and for counre pecfce. The proporon of povery ncreae neffcency nce foer reource mallocaon among oher channel a argued prevouly. Therefore expeced o be negave (λ < 0). Ung equaon (7) no (6): (8) h k p g n a y * Th equaon employed by MRW (992) n he emprcal analy. However our meaure of human capal more cloely relaed o ock raher han nvemen. In h cae we can ue equaon (4b) o fnd: (9) g n h k h Inerng (9) and no (8) and conderng ha p a h h : (0) ' * * k p g n h a y where = ( )/( ) and =. 3. Emaon Mehod Followng Ilam (995) he panel daa mehod beer han Ordnary Lea Square (OLS): panel daa framework provde a beer and more naural eng o conrol for h echnology hf erm (995 pp ). Th mehodology provde a beer ool o deal wh dfference n preference and echnology acro regon whch are dffcul o meaure and becaue he pecfcaon of hee un of analy no longer n he error erm le lkely o be correlaed wh ome of he ndependen varable (ISLAM 995). In panel daa framework one hould decde beween Fxed and Random Effec. Baed on

8 equaon (0) a a dummy varable deanng he pecfcy of each Brazlan Sae. Therefore h model aume ha dfference acro un can be capured n a conan ha dffer acro un and h dmlary can be emaed by Fxed Effec (FE). If we ue Random Effec (RE) mehod baed on (0) we would have * * ' () y a h n g p u k The erm u he beween error erm.e. he random durbance characerzng he h obervaon. The man drawback of h approach he aumpon ha ndvdual effec are uncorrelaed wh he oher regreor. Becaue our man movaon o ue panel-daa emaon mehod ha hee ndvdual effec can be correlaed wh he oher regreor FE eem he mo approprae mehod. However he FE emaor doe no deal wh he caualy problem. Snce he ncdence of povery n he Brazlan Sae are lkely o be affec by her ncome per worker level a dcued n he nroducon he revere caualy problem a major ue ha mu be condered n he emprcal analy. The Dynamc Panel Daa (DPD) model were developed o deal wh he dynamc of he varable n dfferen perod of me wh he ncluon of he lagged dependen varable a a regreor and alo adequae o deal wh unoberved heerogeney. In addon h mehod adequae o deal wh he revere caualy problem nce ue he lag of he rgh-hand varable a nrumen. Becaue he lagged dependen varable end o be endogenou deeper lag of he dependen varable can be ued a nrumen for dfferenced lag of he dependen varable. In addon poble o nclude rc exogenou nrumen whn h mehod. Addng one lagged dependen varable no equaon (): (2) * * ' y a h n g p u k The Arellano-Bond (99) emaor ue he varable n dfference and he Generalzed Mehod Momen (GMM) o emae he parameer of he model. They how ha an effcen emaor can be obaned wh all lagged value of he regreand and he regreor a nrumen. 8

9 4. The varable and ource The perod of udy compoed by he year for he 26 Brazlan Sae 3. Snce he daa avalable for all year and Brazlan Sae we have a balanced panel. The oupu (Y) he ae GDP a 2000 conan prce (R$ houand) from he Geography and Sac Brazlan Bureau (IBGE). Employed worker were ued for he calculaon of GDP per worker (y ) whch wa elaboraed by he Inue of Appled Economc Reearch (IPEA) baed on he IBGE demographc cenue 4. Th varable our meaure he Brazlan Sae developmen level. The proxy for quany of human capal (h) baed on average year of choog of he populaon over 25 from IPEA. Followng Mncer (974) he human capal per worker a funcon of he educaonal reurn average rae () and year of choog () a n he followng equaon: (3) h = e () The educaonal reurn average rae wa e o 5% per addonal year (φ = 0.5) baed on everal ude for he Brazlan labor marke. For example Reende and Wylle (2006) found ha he reurn of educaon beween 5.9% and 7.4% for men and 2.6% and 3.5% for women baed on he Reearch on Lvng Sandard daae (PPV-IBGE ). Sachda Lourero and Mendonça (2004) found evdence ha he reurn of an addonal year of choog wa beween 2.9% and 6% hrough dfferen mehod employed o mgae he emaon ba for he perod. Baed on he 998 Naonal Sample Houehold Survey (PNAD/IBGE) Lourero and Carnero (200) emaed ha he educaonal reurn for urban man wa 8.58% whle for rural one wa.35%. For women he repecve value were 23.32% and 8.06%. A n Fgueredo and Nakabah (206) we have ued a econd meaure of human capal o capure qualave apec (h2). Th econd proxy a mulplcave erm beween h n equaon (2) and he Bac Educaon Developmen Index (IDEB) mean core n 2005 (mple average of he ffh nnh year and welfh year of chool) 5. In oher word he Brazlan Sae educaonal yem qualy wa meaured a he ae IDEB mean core. IDEB wa creaed n 2005 by Anío Texera Naonal Inue of Educaonal Sude and Reearch (INEP) o evaluae uden e performance n Brazl. A a fr approxmaon eem reaonable o aume ome form of neracon beween human capal qualave and quanave 3 The Brazlan Federal Drc wa no ncluded n he analy nce ncome hghly nfluenced by he governmen ecor. Therefore ncome mgh have a dfferen dynamc n relaon o he Brazlan Sae. 4 In he cenu wa condered a occuped or employed he peron who worked n he la 2 monh precedng he cenu reference dae or par of. 5 For example f z a Brazlan ae average IDEB core hen human capal z h where h = e (. ) and u he average chool year of populaon wh 25 year or more. 9

10 apec n a way ha we have one varable capurng boh apec. Th aumpon aken from Luca (988) growh model. Anoher aumpon for he conrucon of he proxy ha he qualy gap acro ae doe no change over me whch neceary nce he e evaluang uden performance are recen. We conder o be a reaonable aumpon nce ake a long me o change he chool yem of a whole Brazlan Sae n relaon o oher Sae and even more me for he chldren under he new chool yem ener n he labor force n a way o have a relevan nfluence on qualy. In addon Fgueredo and Nakabah (206) how he hgh correlaon beween quanave and qualave apec of human capal and he ably n he relave quanave apec of human capal among he Brazlan ae whch gve emprcal uppor o ha aumpon. In he emprcal analy mporance o dnguh he human capal qualave apec nce one poenal channel n whch povery affec ncome per worker va human capal qualave apec a ndcaed n he nroducon. If h rue povery hould decreae he qualy of human capal and when condered n he emae he povery effec hould become le mporan. In relaon o he parameer of capal parcpaon n ncome aumed α = 0.4 n e wh prevou ude for he Brazlan economy uch a Perera (202) Barboa Flho e al. (200) Coelho and Fgueredo (2007) and Gome Peôa and Veloo (2003). Capal meaured accordng o each Brazlan Sae oal phycal capal (prvae capal - machnery equpmen and non-redenal capal plu redenal capal - KT ) from Re e al. (2005) for year 970 and 980 and updaed by Fgueredo and Nakabah (206) by mean of Coelho (2006) mehodology. The redenal energy conumpon (REC ) wa condered a a proxy for redenal capal. Th varable and oal phycal capal (KT ) of each Brazlan Sae are avalable from IPEA and hey were ued o calculae K. The rao among hee capal ock (KT REC ) aumed o be conan and equal o ha of 985. For and 200 only redenal energy conumpon avalable for he Brazlan Sae. If he rao reman conan poble o recover each ae phycal capal ock K for and 200 va he followng equaon: (4) K = REC KT REC The aumpon ha underle h proxy ha n he long run redenal capal a conan hare of oal capal whch a reaonable one becaue of he arbrage proce.e. hrough he ex and/or enry of frm n and acro marke. 0

11 Four varable were ued o meaure each Brazlan Sae he ncdence of povery: ) proporon of ndvdual lvng n exreme povery (PIEP) accordng o he level of ncome requred o buy a conumpon bundle ha provde he mnmum calore o nourh a peron baed on he recommendaon of he Food and Agrculure Organzaon (FAO) and of he World Healh Organzaon (WHO); 2) proporon of ndvdual lvng n povery (PIP) accordng o requred calore (double of calore n relaon o PIEP); 3) proporon of houehold lvng n exremely povery (PHEP) accordng o he houehold level of ncome per capa requred o buy a conumpon bundle ha provde he mnmum calore o nourh he houehold member baed on he recommendaon of he Food and Agrculure Organzaon (FAO) and of he World Healh Organzaon (WHO); and 4) proporon of houehold lvng n povery (PHP) and he double of he PHEP ncome. All he ndcaor were elaboraed by IPEA. The proporon of Afrcan Brazlan n he Sae were ued a nrumen of povery nce n Brazl here a hgh correlaon beween povery and proporon of Afrcan Amercan. Proporon of black people n each Brazlan Sae from he IBGE cenue. Brazlan economc horan argue ha afer lavery he Brazlan ocey wa no able or wlg o negraed he black populaon n he economy and gve hem acce o land and he ame job opporune n relaon o whe populaon (GRADÍN 2009; ARAÚJO 2000). Fernande (968 ced n Lma 2002) 6 preened evdence from São Paulo muncpaly ha n 893 (fve year afer abolon) he good job opporune were flled bacally by whe people from he former domnan economc and ocal group and by European mmgran. The wor and le klled job were relegaed o he Afrcan Brazlan communy and her ocal and economc ranon o upper clae wa an unuual even. Wh he nera of he nuon ha margnalzed he Afrcan Brazlan communy he povery hgher among hem even nowaday. Baed on 2005 Pnad/IBGE daae Gradín (2009) offered evdence ponng ha whle he Afrcan Brazlan accouned for almo half of he populaon abou 33% of hem lved n poor houehold (whoe ncome were below 50% of he medan Brazlan ncome) whle 4% of whe were n he ame uaon. The auhor pon o dcrmnaon n he labor marke and o he lower qualy of educaon faced by he Afrcan Brazlan a mporan elemen o underand h uaon. To calculae Toal Facor Producvy (TFP) for he Brazlan Sae we have ued Hall and Jone (999) mehodology. Th accounng mehod decompoe dfference n oupu per worker no dfference n capal-oupu rao raher han n capal-labor rao. Followng he Solow Model (heorecal reference of h developmen accoun exerce) capal-oupu nenfcaon 6 FERNANDES Florean (968) Relaçõe de Raça no Bral: Realdade e Mo. In: Celo Furado: Bral: Tempo Moderno. Pp.:37. Ro de janero: Paz e erra.

12 aocaed o ranonal perod.e. hoe n whch he economy produc grow a hgher rae han producvy. In he long erm capal-oupu rao ably expeced nce boh varable grow a he ame pace. Hall and Jone (999) hghlgh wo reaon for workng wh he capal-oupu rao decompoon: ) nce n he eady ae K and Y grow a he ame rae we can nfer ha he economy n eady ae when growh rae are due o echnologcal and labor evoluon; and ) f here an exogenou growh n producvy whou changng he nvemen rae he K/L rao wll grow over me becaue of a producvy ncreae. In h cae par of he capal-labor rao growh reflec producvy progre whch would be arbued o phycal capal accumulaon whle n Hall and Jone (999) decompoon h effec capured only n he TFP erm. The developmen decompoon depar from he followng pecfcaon of he Cobb- Dougla producon funcon wh conan reurn o cale: (5) Y K A H n whch Y A K H denoe repecvely oupu Harrod-Neural producvy phycal capal ock and human capal ock. Dvdng boh de of equaon (5) by (L -α Y α ) he producon funcon expreed n erm of oupu per worker: (6) K y A h Y n whch Y y ; L K k ; L H h. Thu L y (7) A h n whch K Y. Equaon (7) he bae o calculae he Brazlan Sae TFP. The emaed TFP of he Brazlan Sae (Sao Paulo PTF n 200 = ) wh h a he human capal proxy preened n Fgure. In almo all cae TFP ha dropped from 980 o 990 and from 990 o Thee wo decade (from 980 o 2000) wa a very dffcul perod n 2

13 he Brazlan economy and he TFP behavor reflec. Wh a beer dynamm from 2000 o 200 almo all he Brazlan ae have expermened an mprovemen n TFP. However for many ae wa ju enough o reurn o he 990 level whch ll wa well below n relaon o he 980 level. Sao Paulo Sae had he lead n 980 TFP rankng and wa n he ame poon n 200 even wh a decreae n TFP of 42.5% n h me pan. The emaed TFP decreae from 980 o 2000 n e wh oher ude meaurng he evoluon of he TFP n he naonal level a n Ferrera Ellery and Gome (2008) Bacha and Bonell (2005) Gome Peôa and Veloo (2003). Neverhele ome of hem fnd a lghly mprovemen n TFP from 990 o 2000 manly afer 994 a Ferrera Ellery and Gome (2008) and Bacha and Bonell (2005). Bonell and Levy (200) emaed he TFP growh rae for he Brazlan Sae from 970 o 2005 bu her reul are drven by he gnfcan re n TFP from 970 o 980. Fgure Toal Facor Producvy n he Brazlan Sae AC AL AM AP BA CE ES GO MA MG MS MT PA PB PE PI PR RJ RN RO RR RS SC SE SP TO Source: own elaboraon baed on IPEA and IBGE daa. 5. Prelmnary Reul In Fgure 2 each caer plo relae he naural logarhm (log) of ncome per worker (horzonal ax) and he naural logarhm (log) of he povery ndcaor (vercal ax) n he Brazlan Sae for all he year ha he daa avalable: 980; 99; 2000; and 200. In he caer plo poble o denfy he rong and negave relaonhp beween hem. I eem o be ronger n he cae of he exreme povery ndexe wh he mple OLS emaed coeffcen of deermnaon beng cloe o

14 Fgure 2 Relaonhp beween log ncome per worker (vercal ax) and log povery (horzonal ax) n he Brazlan Sae: and 200. Source: own elaboraon baed on daa from IPEA and IBGE. Noe: PIP Proporon of ndvdual n povery- requred calore (%); PIEP Proporon of ndvdual n exreme povery - requred calore (%); PHP - Proporon of houehold n povery (%); PHEP Proporon of houehold n exreme povery (%). In Fgure 3 he relaonhp are beween TFP and he povery ndexe. The Brazlan Sae wh hgher proporon of povery are he ame wh lower TFP and he correlaon are hgher wh he exreme povery ndexe. Here he correlaon are no o rong a wh ncome per worker bu hey ll are negave. The mple OLS emaed coeffcen of deermnaon are nex o Therefore par of he negave effec of povery on ncome appear o be drven by producvy reducon wh n e wh he hypohe ha povery ncreae reource mallocaon and n h way o a dece n producvy. However he caer plo n Fgure 2 and 3 pon o mple correlaon beween he varable whou any ndcaon of cauaon or omed varable leadng o he correlaon beween hem. In he nex econ we emae equaon (0) wh dfferen mehod and we alo addre he caualy problem va Dynamc Panel Model and he ue of nrumenal varable. 4

15 Fgure 3 Relaonhp beween log TFP (vercal ax) and log povery (horzonal ax) n he Brazlan Sae: and 200. Source: own elaboraon baed on daa from IPEA and IBGE. Noe: PIP Proporon of ndvdual n povery- requred calore (%); PIEP Proporon of ndvdual n exreme povery - requred calore (%); PHP - Proporon of houehold n povery (%); PHEP Proporon of houehold n exreme povery (%). In Fgure 4 poble o perceve he pove relaonhp beween he log proporon of black people and he log povery n he Brazlan Sae. However clearly pove only for he ae wh hgher proporon of black populaon: upper o 3.5 whch correpond o a black populaon of 35% or more. Below h hrehold he relaonhp no clear due o he Souhern Sae of Brazl ha had low proporon of black people wh relavely hgh povery rae n and In Fgure 4 caer plo he relaonhp beween he log proporon of black people and log povery n he Brazlan Sae doe no look ear. I cloer o a quadrac relaonhp han a ear one. Therefore we have alo ncluded he quare of he log proporon of black people a an nrumen for he povery ndcaor n he Dynamc Panel emaon. 5

16 Fgure 4 Relaonhp beween log proporon of povery (vercal ax) and log proporon of black people (horzonal ax) n he Brazlan Sae: and 200. Source: own elaboraon baed on daa from IPEA and IBGE. Noe: PIP Proporon of ndvdual n povery- requred calore (%); PIEP Proporon of ndvdual n exreme povery - requred calore (%); PHP - Proporon of houehold n povery (%); PHEP Proporon of houehold n exreme povery (%). 6. Emaon Reul 6.. Fxed Effec and Random Effec A uggeed by he pecfcaon n equaon (0) all varable have been ranformed no her naural logarhmc. Therefore he emaed coeffcen hould be nerpreed a elace. In Table are he emaon reul baed on equaon (0) and () wh he povery ndcaor PHEP and PHP a regreor. The regreon mehod are Fxed Effec (FE) and Random Effec (RE). There are four emaon reul for each povery ndcaor nce here are wo emaon mehod (FE and RE) and wo dfferen human capal proxe. The fr one (h) conder only human capal quanave apec whle he econd one (h2) ncorporae qualave apec a explaned prevouly. In Table he reul ndcae he mporance of povery no he deermnaon of ncome per worker. Even conrolg for human capal nvemen n phycal capal and for he effecve deprecaon of capal a 0% ncreae n povery ha a negave mpac on ncome per worker from.7% o 3.3% dependng on he emaon mehod and he povery ndcaor. In all pecfcaon he emaed povery coeffcen are gnfcan dfferen from zero a he % level. 6

17 Invemen n phycal capal ha a pove nfluence on ncome per worker bu emaed coeffcen are no gnfcan wh he FE mehod and PHEP a he povery ndcaor. Wh he RE mehod coeffcen are pove and gnfcan bu he Hauman pecfcaon e ndcae ha h mehod nconen n he curren emaon. Wh he FE emaed coeffcen a 0% ncreae n phycal capal nvemen would have a pove mpac on ncome per worker from 0.36% o 0.57%. The human capal proxe have a pove and mporan conequence on ncome per worker and her coeffcen are acally dfferen from zero n all emaon. Conderng qualy lghly change he reul wh an evdence ha he effec of povery on ncome per worker are no drven by human capal qualy. A 0% upurn n human capal would have a pove mpac on he regreand of abou 2.2% wh he FE mehod and of abou 3.5% wh he RE mehod. The effecve deprecaon of capal ha he expeced gn bu emaed coeffcen are no acally dfferen from zero. The R 2 ndcae ha he four regreor explan more han 60% of he ncome per worker acro Brazlan Sae and ha manly due o he R 2 beween. The F (4 74) e alo pon oward he mporance of he regreor whle he F (25 74) ndcae ha a lea one emaed coeffcen of he dumme ha capure each ae me conan ngulare acally dfferen from zero wh gve uppor o he ue of he FE mehod nead of OLS. The nracla correlaon emae (rho) 7 how ha more han 80% of he varance due o dfference acro panel n he FE emaon. The modfed Wald e for groupwe heerocedacy and he Wooldrdge e for auocorrelaon n panel daa ndcae he preence of boh problem and ha heerocedacy more evere a expeced nce he number of obervaon n each perod larger han he number of perod. Therefore we hould ake care of hem when emang he effec of he regreor on ncome per worker. 7 Rho = (_) (_) (_) 7

18 Table Panel Daa Emaon PHEP and PHP a he ndcaor for povery Dependen Varable GDP per worker Povery Indcaor PHEP and PHP () (2) (3) (4) (5) (6) (7) (8) PHEP PHP FE RE FE RE FE RE FE RE Povery Indcaor (0.0359)*** (0.0373)*** (0.0359)*** (0.0366)*** (0.0538)*** (0.0562)*** (0.0538)*** (0.0542)*** (0.0359) (0.0387)** (0.0359) (0.0340)*** (0.0387) (0.045)*** (0.0387) (0.0362)*** h (0.28)** (0.232)*** (0.78)* (0.3)*** h (0.25)** (0.056)*** (0.75)* (0.09)*** n (0.0490) (0.0504) (0.049) (0.0477) (0.0499) (0.0520) (0.0500) (0.0483) c (0.203)*** (0.2326)*** (0.3368)*** (0.329)*** (0.2693)*** (0.3034)*** (0.3936)*** (0.3955)*** Ober R 2w R 2b R 2o F(474) 3.4*** 3.5***.27***.29*** F(25 74).09***.*** 2.37*** 2.20*** g_u g_e Rho Wald *** 99.67*** 83.67*** 8.09*** Haum *** 6.94*** 30.89*** 3.77*** Wald He *** *** 273.7*** *** Auocorr 8.548*** 8.40*** 6.223** 6.54** Noe: andard devaon are n parenhee. * Sgnfcan a 0%; ** gnfcan a 5%; *** gnfcan a %. The dependen varable ncome per worker he average growh rae of phycal capal per worker h year of choog h2 year of choog me IDEB n each Sae populaon growh rae c a conan erm. PHEP he proporon of houehold lvng n exreme povery and PHP he proporon of houehold lvng n povery. Oberv. he ample ze R 2w he whn effec of he regreor R 2b he beween effec of he regreor and R 2o overall effec of he regreor. F (474) he e o check wheher all he coeffcen n he model are equal o zero F (2574) o e he hypohe ha he dummy coeffcen are all equal o zero and rho he nracla correlaon. Wald 2 o e f all he coeffcen n he model are equal o zero n he Random Effec emae and Haum 2 Hauman e for Fxed v. Random Effec. Wald He. he Modfed Wald e for groupwe heerocedacy and Auocorr he Wooldrdge e for auocorrelaon n panel daa. In Table 2 he pecfcaon and mehod are he ame. The only dfference are he povery ndcaor. Inead of PHEP and PHP a he povery ndcaor we have ued PIEP and PIP o check f he reul are robu wh meaure of povery for ndvdual raher han for houehold. Comparng boh able reul he mpac of povery on ncome per worker hardly change. Wh he ndcaor of exreme povery he effec are eenally he ame whle wh PIP he povery effec on ncome per worker ncreae lghly n relaon o he reul wh PHP. The human and phycal capal emaed coeffcen re omewha. The e pon o FE mehod a beng he mo approprae n relaon o he RE and OLS mehod. The modfed Wald e for groupwe heerocedacy and he Wooldrdge e for 8

19 auocorrelaon n panel daa alo ndcae he preence of boh problem. A n he prevou e heerocedacy a cenral concern. Table 2 Panel Daa Emaon PIEP and PIP a he ndcaor for povery Dependen Varable ncome per worker Povery Indcaor PIEP and PIP () (2) (3) (4) (5) (6) (7) (8) PIEP PIP FE RE FE RE FE RE FE RE Povery Indcaor h h2 n (0.0367)*** (0.0376)*** (0.0367)*** (0.0369)*** (0.0599)*** (0.064)*** (0.0600)*** (0.0594)*** (0.0369) (0.0392)*** (0.0369)* (0.0345)** (0.0396)* (0.048)*** (0.0396)* (0.0365)*** (0.25)** (0.226)*** (0.68)** (0.290)*** c (0.204)*** (0.2332)*** (0.3359)*** (0.3277)*** (0.2867)*** (0.3204)*** (0.4045)*** (0.4080)*** N R 2w R 2b R 2o F(474) 2.86*** 2.88***.08***.0*** F(25 74).0***.07*** 2.27*** 2.6*** g_u g_e Rho Wald 99.8*** 98.8*** 84.44*** 8.07*** Hauam *** 5.92*** 30.2*** 2.49*** Wald He *** *** 2870.*** 32.*** Auocorr 6.959** 6.808** 5.579** 5.505** Noe: andard devaon are n parenhee. * Sgnfcan a 0%; ** gnfcan a 5%; *** gnfcan a %. The dependen varable ncome per worker he average growh rae of phycal capal per worker h year of choog h2 year of choog me IDEB n each Sae populaon growh rae c a conan erm. PIEP he proporon of ndvdual lvng n exreme povery and PIP he proporon of ndvdual lvng n povery. N he ample ze R 2w he whn effec of he regreor R 2b he beween effec of he regreor and R 2o overall effec of he regreor. F (474) he e o check wheher all he coeffcen n he model are equal o zero F (2574) o e he hypohe ha he dummy coeffcen are all equal o zero and rho he nracla correlaon. Wald 2 o e f all he coeffcen n he model are equal o zero n he Random Effec emae and Haum 2 Hauman e for Fxed v. Random Effec. Wald He. he Modfed Wald e for groupwe heerocedacy and Auocorr he Wooldrdge e for auocorrelaon n panel daa. In Table 3 he emaed reul are hoe wh robu andard error o cro-econal heerokedacy and whn-panel eral correlaon. Wh he robu andard error here a re n he emaed andard error. Even hough all he povery ndcaor emaed coeffcen are ll acally dfferen from zero a he % level. The coeffcen of phycal capal loe her acal gnfcance n all emaon. Human capal coeffcen connue gnfcan excep wh PHP a he povery ndcaor. (0.22)** (0.047)*** (0.64)** (0.092)*** (0.0489) (0.0503) (0.0490) (0.0475) (0.0498) (0.058) (0.0499) (0.048) 9

20 Table 3 Panel Daa Emaon Fxed Effec wh Robu Sandard Error Dependen Varable ncome per worker All povery ndcaor Fxed Effec wh Robu Sandard Error () (2) (3) (4) (5) (6) (7) (8) PHEP PHP PIEP PIP Povery Indcaor h h2 n (0.032)*** (0.032)*** (0.0657)*** (0.0658)*** (0.0340)*** (0.0340)*** (0.0780)*** (0.078)*** (0.0370) (0.0364) (0.0402) (0.0398) (0.0386) (0.0380) (0.048) (0.044) (0.247)* (0.337) (0.9)** (0.300)* c (0.924)*** (0.3244)*** (0.2829)*** (0.4034)*** (0.796)*** (0.3022)*** (0.3082)*** (0.4094)*** N R 2w R 2b R 2o F(425) 9.02*** 8.98*** 5.37*** 5.37*** 8.4*** 8.2*** 5.2*** 5.2*** g_u g_e Rho Noe: robu andard devaon are n parenhee. * Sgnfcan a 0%; ** gnfcan a 5%; *** gnfcan a %. The dependen varable ncome per worker he average growh rae of phycal capal per worker h year of choog h2 year of choog me IDEB n each Sae populaon growh rae c a conan erm. PHEP he proporon of houehold lvng n exreme povery PHP he proporon of houehold lvng n povery PIEP he proporon of ndvdual lvng n exreme povery and PIP he proporon of ndvdual lvng n povery. N. he ample ze R 2w he whn effec of he regreor R 2b he beween effec of he regreor and R 2o overall effec of he regreor. F (425) he e o check wheher all he coeffcen n he model are equal o zero and rho he nracla correlaon. In general he reul ndcae ha he proporon of povery mporan o underand he dfference n ncome per worker acro he Brazlan Sae. The reul of Table 3 are more relable nce hey are emaed wh he mo approprae mehod FE and hey are correced for heerocedacy and auocorrelaon. The emaed reul ndcae ha an ncreae n he proporon of povery n 0% ha a negave mpac on he level of ncome per worker from 7% o 25% n he Brazlan Sae even afer conrolg for human capal nvemen n phycal capal e for he effecve deprecaon of capal. The problem of h emaon mehod ha doe no conder he revere caualy problem. Snce povery lkely o be reduced wh an mprovemen n ncome per worker a argued n he nroducon he prevou emae may be baed. The Dynamc Panel Model one way o crcumven h problem. (0.226)* (0.39) (0.69)** (0.280)* (0.0424) (0.0423) (0.0457) (0.0456) (0.0403) (0.0402) (0.0442) (0.0440) 20

21 6.2. Dynamc Panel Daa In Table 4 are preened he Arellano-Bond emaor reul wh PHEP and PHP a he povery ndcaor. The emaon are baed on he one-ep Arellano-Bond emaor nce he wo-ep baed downward 8. By mean of he Mone Carlo mulaon Judon and Owen (999) how ha he one-ep GMM emaor ouperform he wo-ep emaor. For each povery ndcaor he fr wo column convey he Arellano-Bond emaor (AB) reul and n he followng wo column he emaed andard error are correc for heerocedacy (AB - R). In Table 4 and 5 only he povery ndcaor were condered a endogenou regreor. The proporon of black people n each Brazlan Sae and quare were ncluded n he emaon a exogenou nrumen for povery. The reul n Table 4 pon oward he mporance of one perod lagged povery ndcaor n ncome per worker deermnaon. Wh PHEP ndcaor a 0% ncreae n he proporon of exremely poor houehold would have a 6.2% negave nfluence on ncome per worker whch a conderable effec. All he emaed coeffcen are gnfcan a he 5% level. When PHP condered a he povery ndcaor negave mpac even larger bu emaed coeffcen are no gnfcan. In Table 4 he nvemen n phycal capal have a larger mpac n relaon o he FE emae bu coeffcen are acally dfferen from zero only wh PHEP a a regreor and wh robu andard error. In h la cae a 0% upurn n phycal nvemen rae lead o a.5% ncreae n ncome per worker. Conderng he human capal proxe depe he ncreae n her coeffcen n relaon o he FE emae hey are no acally dfferen from zero n any pecfcaon. The negave lagged effec of ncome per worker wa no he expeced one. Addonally wh robu andard error he emaed coeffcen are gnfcan a 5% level. In Table 4 he Wald e pon o he mporance of he regreor excep wh PHP and h2 a regreor and when no correced for heerocedacy. The Sargan e ndcae ha he nrumen are good (no correlaed wh he redual) and he Wooldrdge e for auocorrelaon do no rejec he null of no fr order auocorrelaon. 8 The wo ep reul are n Annex. 2

22 Table 4 Dynamc Panel Arellano and Bond: PHEP and PHP Dependen Varable GDP per worker Povery Indcaor PHEP and PHP () (2) (3) (4) (5) (6) (7) (8) PHEP PHP AB AB R AB AB R Lagged IW Povery Indcaor Lagged Povery Indcaor h h2 n (0.9594) (0.9622) (0.5535)** (0.5538)** (.2687) (.233) (0.6545)** (0.6278)** (0.23) (0.237) (0.2355) (0.2376) (0.3486) (0.3339) (0.3446) (0.3383) (0.2990)** (0.2989)** ( )** (0.2860)** (0.7493) (0.7096) (0.7823) (0.7632) (0.89) (0.9) (0.0707)** (0.0704)** (0.603) (0.55) (0.0975) (0.0940) (0.5826) (0.7034) (0.5974) (0.6933) (0.5829) (0.7049) (0.5695) (0.6687) (0.645) (0.647) (0.40) (0.392) (0.2036) (0.973) (0.754) (0.675) c (2.3976)*** (2.782)** (.4463)*** (.6279)*** ( )** (4.565)** ( 2.936)*** (2.5442)*** N N In N Group Wald 5.06** 5.08** 25.68*** 25.45*** ** 3.96** Sargan P-Value ( ) (0.5990) (0.3535) (0.338) Auocorr P-Value (0.540) (0.554) (0.26) (0.33) Noe: andard devaon are n parenhee. * Sgnfcan a 0%; ** gnfcan a 5%; *** gnfcan a %. The dependen varable ncome per worker he average growh rae of phycal capal per worker h year of choog h2 year of choog me IDEB n each Sae populaon growh rae c a conan erm. PHEP he proporon of houehold lvng n exreme povery and PHP he proporon of houehold lvng n povery. N he ample ze N In he number of nrumen n he fr age and N Group he number of group or ene. Wald o e f all he coeffcen n he model are equal o zero Sargan he Sargan e of overdenfyng rercon derved by Arellano and Bond (99) and Auocorr he Wooldrdge e for auocorrelaon n panel daa. Wh he povery ndcaor for ndvdual wh he reul n Table 5 he povery effec are omewha larger n he cae of one perod lagged exreme povery (PIEP). In h cae a 0% re n exreme povery ha a negave mpac on ncome per worker of nearly 6.7%. Conderng he povery ndcaor (PIP) he emaed coeffcen are larger n abolue value bu hey are no gnfcan. Therefore he reul ndcae ha exreme povery more mporan on ncome per worker deermnaon han povery wh alo uppored by he Wald e o check f all he coeffcen n he model are equal o zero. The oher reul n Table 5 are very mlar o hoe n Table 4. Invemen n phycal capal ha a pove mpac on he regreand bu coeffcen are gnfcan only wh he exreme povery ndcaor and robu andard error. Human capal no gnfcan due o he large andard error. The Sargan and he Wooldrdge e are favourable. 22

23 Table 5 - Dynamc Panel Arellano and Bond: PIEP and PIP Dependen Varable ncome per worker Povery Indcaor PIEP and PIP () (2) (3) (4) (5) (6) (7) (8) PIEP PIP AB AB (R) AB AB (R) Lagged IW Povery Indcaor Lagged Povery Indcaor h h2 n Noe: andard devaon are n parenhee. * Sgnfcan a 0%; ** gnfcan a 5%; *** gnfcan a %. The dependen varable ncome per worker he average growh rae of phycal capal per worker h year of choog h2 year of choog me IDEB n each Sae populaon growh rae c a conan erm. PIEP he proporon of ndvdual lvng n exreme povery and PIP he proporon of ndvdual lvng n povery. N he ample ze N In he number of nrumen n he fr age and N Group he number of group or ene. Wald o e f all he coeffcen n he model are equal o zero Sargan he Sargan e of overdenfyng rercon derved by Arellano and Bond (99) and Auocorr he Wooldrdge e for auocorrelaon n panel daa. In general he prevou reul pon o he mporance of he proporon of povery on ncome per worker. When akng no conderaon he dynamc of he varable and conrolg for revere caualy by mean of Arellano-Bond emaor he reul ndcae ha exreme povery a cenral varable o underand ncome per worker dfferenal n he Brazlan Sae. Addonally he effec are relevan: a 0% ncreae n exreme povery lead o a decreae n ncome per worker from 6.2% o 6.7% (0.966) (0.9630) (0.5246)** (0.5238)** (.540) (.380) (0.8944)* (0.842)* (0.2500) (0.2492) (0.2570) (0.2593) (0.4899) (0.4398) (0.4982) (0.4638) (0.346)** (0.3388)** (0.2958)** (0.2993)** (.0876) (0.9593) (.492) (.062) (0.26) (0.257) (0.0678)** (0.067)** (0.622) (0.506) (0.0825) (0.0768) (0.6577) (0.7609) (0.6595) (0.7970) (0.6527) (0.7604) (0.5890) (0.7249) (0.754) (0.749) (0.653) (0.635) (0.274) (0.2009) (0.859) (0.692) c (2.4393)*** (2.95)** (.3355)*** (.549)*** (5.960)* (5.0282)* (4.357)** (3.388)** N N In N Group Wald 3.5** 3.65** 29.9*** 28.64*** * 2.28* Sargan P-Value (0.5883) (0.582) (0.308) (0.2279) Auocorr P-Value (0.797) (0.84) (0.080) (0.20) 6.3. Povery and producvy A dcued prevouly one of he channel n whch povery nfluence ncome per worker va producvy. Equaon (0) replcaed below gve one way o k boh varable. The aumpon n equaon (7) ha he effec of povery ncdence on ncome per worker wa 23

24 beng capured by he error erm n he MRW (992) exended Solow model: (7) A = a + p + ε In h econ he emaon are baed on equaon (7) o check f povery a relevan varable o underand TFP dfference acro he Brazlan Sae. Emaon baed on equaon (7) are alo relevan becaue nvolve only one regreor wha make eaer o crcumven he revere caualy problem. For example when emang equaon () all he regreor may be endogenou wha make more challengng o deal wh revere caualy even n he Dynamc Panel Daa framework nce more nrumen are needed and he lagged endogenou regreor may no alway be approprae. The nera of he varable hrough me may make dffcul o elmnae he caualy problem only wh he lagged value a nrumen. In Table 6 he FE emaon 9 wh robu andard error ndcae ha exreme povery ha a negave and gnfcan mpac on he Brazlan Sae TFP a he 5% and % level. A 0% nenfcaon n he proporon of exreme povery would have a.8% (or.7% wh PIEP) negave nfluence on TFP. The proporon of povery alo ha a negave nfluence on TFP bu emaed coeffcen are no acally dfferen from zero. In addon he F e do no rejec he null ha povery no an mporan regreor whch expeced nce he F and e lead o he ame concluon wh only one regreor. Table 6 Panel Daa Fxed Effec: Toal Facor Producvy Dependen Varable Toal Facor Producvy All povery ndcaor Fxed Effec Emaor wh and whou robu andard error () (2) (3) (4) (5) (6) (7) (8) PHEP PHP PIEP PIP FE FE (Rob) FE FE (Rob) FE FE (Rob) FE FE (Rob) Povery Indcaor (0.0806)** (0.0649)*** (0.028) (0.0866) (0.0787)** (0.0600)*** (0.3) (0.0933) Conan (0.925)*** (0.520)*** (0.3483)*** (0.299)*** (0.2052)*** (0.538)*** (0.4034)*** (0.336)*** N R 2w R 2b R 2o F(77) 5.49** 8.48*** ** 8.25**.4.67 F(25 77) 3.48*** 3.72*** 3.50*** 3.72*** g_u g_e rho Noe: robu andard devaon are n parenhee. * Sgnfcan a 0%; ** gnfcan a 5%; *** gnfcan a %. 9 We preen only he Fxed Effec reul n Table 6 nce he Hauman e ndcae ha h mehod more approprae han Random Effec. The RE emae are n Annex. 24

25 The dependen varable ncome per worker he average growh rae of phycal capal per worker h year of choog h2 year of choog me IDEB n each Sae populaon growh rae c a conan erm. PHEP he proporon of houehold lvng n exreme povery PHP he proporon of houehold lvng n povery PIEP he proporon of ndvdual lvng n exreme povery and PIP he proporon of ndvdual lvng n povery. N. he ample ze R 2w he whn effec of he regreor R 2b he beween effec of he regreor and R 2o overall effec of he regreor. F (425) he e o check wheher all he coeffcen n he model are equal o zero and rho he nracla correlaon. A he boom of Table 6 he F ac o e f all he dumme coeffcen are zero are rejeced. Therefore he FE mehod more approprae han OLS. The nracla correlaon emave how ha abou half of he varance due o dfference acro panel. Inroducng he dynamc among varable hrough he Arellano-Bond emaor and conrolg for he revere caualy problem wh lagged endogenou varable and proporon of black n each Brazlan Sae and quare a nrumen n he fr age he reul n Table 7 how he mporance of conemporaneou and lagged povery ndcaor on TFP deermnaon. In almo all emaon he povery conemporaneou coeffcen are gnfcan a 5% or 0% of gnfcance excep for PHP. In Table 7 he dfference beween fr and econd column reul for each povery ndcaor ha n he laer he Arellano-Bond reul are correced for heerocedacy. Wh PHEP a he regreor a 0% re n a Brazlan Sae proporon of houehold n exreme povery would reduce TFP n 5% whch a conderable amoun. Includng he effec of he lagged povery ndcaor he reducon n PTF would be wofold.e. 0%. Bu coeffcen gnfcan only whou he robu andard error emae. Wh PIEP he exreme povery conemporaneou effec mlar n relaon o he regreon wh PHEP bu omewha maller. PIP coeffcen are gnfcan and her curren effec que large. In all emaon ummng up he conemporary and lagged emaed coeffcen a 0% ncreae n povery would lead o nearly 0% reducon n TPF. However n almo all emaon he lagged coeffcen are no acally dfferen from zero. The Sargan e ndcae a overdenfyng problem a he 0% level of gnfcance bu no a 5% when he exreme povery ndcaor (PHEP and PIEP) are he regreor. Wh he povery ndcaor (PHP and PIP) a regreor a problem even wh he % level of gnfcance cang doub no he emaed reul. Auocorrelaon alo eem o be a major problem wh he povery ndcaor (PHP and PIP). 25

26 Table 7 - Dynamc Panel Arellano and Bond: Toal Facor Producvy Dependen Varable Toal Facor Producvy All povery ndcaor Arellano and Bond Emaor wh and whou robu andard error () (2) (3) (4) (5) (6) (7) (8) PHEP PHP PIEP PIP AB AB (Rob) AB AB (Rob) AB AB (Rob) AB AB (Rob) Lagged TFP (0.3450) (0.284)* (0.3380)* (0.346)* (0.3984) (0.3537) (0.2837)** (0.2744)*** Povery Index Lagged Povery Index Conan (0.2392)** (0.2485)** (0.3566) (0.4408) (0.2599)* (0.2678)* (0.3402)** (0.3823)** (0.3094)* (0.3679) (0.6248) (0.8658) (0.3867) (0.4345) (0.643) (0.8223) (.235)*** (.270)*** (.9299)** ( 2.525)* (.4422)*** (.4805)*** (.9783)** (2.4547) N N Inrumen N Group Wald 27.48*** 42.36*** 7.55*** 5.8*** 25.47*** 50.42*** 22.77*** 4.34*** Sargan P-Value (0.0748)* (0.0046)*** (0.054)* (0.0004)*** Auocor P-Value (0.073)* (0.0054)*** ( 0.023) (0.005)*** Noe: andard devaon are n parenhee. * Sgnfcan a 0%; ** gnfcan a 5%; *** gnfcan a %. The dependen varable oal facor producvy. PHEP he proporon of houehold lvng n exreme povery PHP he proporon of houehold lvng n povery PIEP he proporon of ndvdual lvng n exreme povery and PIP he proporon of ndvdual lvng n povery. N he ample ze N In he number of nrumen n he fr age and N Group he number of group or ene. Wald o e f all he coeffcen n he model are equal o zero Sargan he Sargan e of overdenfyng rercon derved by Arellano and Bond (99) and Auocorr he Wooldrdge e for auocorrelaon n panel daa. The reul n he la wo able ndcae ha an mporan par of povery effec on ncome per worker va TFP. In addon he emprcal reul ugge ha exreme povery ncdence he relevan meaure of povery o underand he k beween povery ncdence and developmen level n he Brazlan Sae. 26

27 7. Concluon In he preen udy our man concern wa o examne he effec of povery on developmen level of he Brazlan Sae. There are many ude aeng he relevance of economc growh and developmen n povery reducon bu here are almo no one ryng o meaure he mpac of povery on economc developmen. The emprcal reul ndcae ha he ncdence of povery mporan n he economc developmen of he Brazlan Sae. Poorer Brazlan Sae alo have lower ncome per worker even when conrolg for nvemen n phycal capal human capal ock and effecve deprecaon of capal. The reul pon o he varable meaurng exreme povery (PHEP and PIEP) on he developmen level acro he Brazlan Sae n relaon o he varable quanfyng povery (PHP and PIP). In he Fxed Effec (FE) emae wh robu andard error all povery ndcaor have an advere nfluence on ncome per worker and her coeffcen are acally dfferen from zero a % level. Wh he Arellano-Bond emaor all povery ndcaor mpac negavely he economc developmen level of he Brazlan Sae bu only he exreme povery ndcaor are acally gnfcan (5% level). A 0% ncreae n exreme povery lead o a decreae on ncome per worker from 6.2% o 6.7% conrolg for human capal ock nvemen n phycal capal and effecve deprecaon of capal. Some of he effec eem o be drven va producvy. The Brazlan Sae wh hgher ncdence of povery are he ame wh lower Toal Facor Producvy (TFP) and h effec hold even when akng no conderaon he revere caualy problem. In he FE emae wh robu andard error all povery ndcaor have a deleerou effec on TFP bu only he exreme povery ncdence ndcaor had a gnfcan effec on TFP (% level). Wh hee emae a 0% ncreae n exreme povery would lead o a reducon on TFP from.7% o.9%. In he Arellano-Bond emae he exreme povery ndcaor have a negave and acally gnfcan effec on TFP wh he ame reul holdng for he proporon of ndvdual lvng n povery (PIP) a he regreor. However he Sargan e ndcae ha he nrumen are no adequae for he povery ncdence ndcaor (PIP and PHP). Wh he exreme povery ndcaor (PIEP and PHEP) he Sargan e ndcae ha he nrumen are adequae a 5% level of gnfcance bu no a 0%. Summarzng he reul pon o he mporance of exreme povery ncdence ndcaor n helpng o underand he developmen level dfferenal acro he Brazlan Sae. Wh he preen udy we hope o foer ome aenon o ude focung on he mporan relaonhp beween povery and economc developmen. 27

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31 Annex A relaonhp beween povery ndcaor wh ncome oal facor producvy and black populaon varable n level (no n log). Fgure A. Relaonhp beween ncome per worker and povery n he Brazlan Sae: and 200. Source: own elaboraon baed on daa from IPEA and IBGE. Noe: PIP Proporon of ndvdual n povery- requred calore (%); PIEP Proporon of ndvdual n exreme povery - requred calore (%); PHP - Proporon of houehold n povery (%); PHEP Proporon of houehold n exreme povery (%). 3

32 Fgure A.2 Relaonhp beween black people and povery n he Brazlan Sae: and 200 Source: own elaboraon baed on daa from IPEA and IBGE. Noe: PIP Proporon of ndvdual n povery- requred calore (%); PIEP Proporon of ndvdual n exreme povery - requred calore (%); PHP - Proporon of houehold n povery (%); PHEP Proporon of houehold n exreme povery (%). 32