ABSTRACT

The research aims to find the relationship between income inequality and economic growth in the Brazilian economy. Economic growth and income inequality are defined in the light of academic literature and their varied effect on wellbeing are explored. The research methodology selected is deductive. The data have been collected through secondary sources and a multiple regression model is used to study the relationship between the economic performance and income inequality in Brazil. Contrary to many previous studies, the findings of the research suggest a significant positive relationship between these two variables. Newer and reliable data were used for these estimations. Other findings of the study are that human and physical capital have significant positive effect on growth. It was also concluded that, unlike many recent country and cross-country studies, Brazil’s income inequality does not hinder its growth.

Table of Contents

CHAPTER ONE…………………………………………………………………………………………………………… 4

1. INTRODUCTION………………………………………………………………………………………………………………………………………….. 4
   1. MEASURES OF INEQUALITY…………………………………………………………………………………………………………………….. 7
   1. BRAZIL’S INEQUALITY FACTS AND FIGURES…………………………………………………………………………………….. 7
   1. WHY IS BRAZIL’S INEQUALITY LEVEL SO HIGH?………………………………………………………… 9
   1. ECONOMIC GROWTH, INCOME INEQUALITY, AND POVERTY………………………………………………………… 9

CHAPTER TWO………………………………………………………………………………………………………… 14

• LITERATURE REVIEW……………………………………………………………………………………………………………………………. 14
  • EARLY STUDIES………………………………………………………………………………………………………………………………………. 14
  • NEWER STUDIES……………………………………………………………………………………………………………………………………… 17

CHAPTER THREE…………………………………………………………………………………………………….. 18

• THEORETICAL FRAMEWORK……………………………………………………………………………………………………………….. 18
  • FERTILITY RATE……………………………………………………………………………………………………………………………………… 19
  • GENERAL HEALTH IN A SOCIETY……………………………………………………………………………………………………….. 20
  • CREDIT MARKET IMPERFECTIONS…………………………………………………………………………………………………….. 20
  • REDISTRIBUTION PROGRAMS……………………………………………………………………………………………………………… 21
  • SOCIOPOLITICAL UNREST…………………………………………………………………………………………………………………….. 22
  • SAVINGS RATE…………………………………………………………………………………………………………………………………………. 22
  • OVERALL EFFECT…………………………………………………………………………………………………………………………………… 23

CHAPTER FOUR………………………………………………………………………………………………………. 24

• METHODS AND MATERIALS…………………………………………………………………………………………………………………. 24
  • RESEARCH DESIGN AND POPULATION OF STUDY…………………………………………………………………………… 24
  • DATASET…………………………………………………………………………………………………………………………………………………… 25
  • THE MODEL………………………………………………………………………………………………………………………………………………. 27
  • DATA PROCESSING………………………………………………………………………………………………………………………………….. 28

CHAPTER FIVE………………………………………………………………………………………………………… 29

• RESULTS AND DISCUSSION…………………………………………………………………………………………………………………… 29
  • RESULTS……………………………………………………………………………………………………………………………………………………. 29
  • DISCUSSION……………………………………………………………………………………………………………………………………………… 30
  • TESTING FOR HETEROSKEDASTICITY………………………………………………………………………………………………… 32
  • TESTING FOR SERIAL CORRELATION…………………………………………………………………………………………………. 34

CHAPTER SIX…………………………………………………………………………………………………………… 35

6.0 CONCLUSION…………………………………………………………………………………………………………………………………………….. 35

REFERENCES…………………………………………………… ERROR! BOOKMARK NOT DEFINED.

List of Figures

Figure 1: GDP per capita (PPP) in US Dollars for Brazil 1980 – 2016……………………………………. 4

Figure 2: Annual GDP growth for Brazil 1980 – 2015…………………………………………………………. 5

Figure 3: Brazil’s Gini Index 1970 – 2014………………………………………………………………………….. 8

Figure 4: Poverty and Economic Growth in Brazil…………………………………………………………….. 11

Figure 5: Poverty and Inequality Trend in Brazil……………………………………………………………….. 12

List of Tables

Table 1: Income share of the highest and lowest 20% in Brazil for selected years……………………. 8

Table 2: Data Sources…………………………………………………………………………………………………….. 26

Table 3: Data information……………………………………………………………………………………………….. 26

Table 4: Results…………………………………………………………………………………………………………….. 29

Table 5: White Test for Heteroskedasticity……………………………………………………………………….. 32

Table 6: Breusch-Pagan Test for Heteroskedasticity…………………………………………………………… 33

Table 7: Durbin-Watson Test for Serial Correlation……………………………………………………………. 34

CHAPTER ONE

     Introduction

Brazil is a developing Latin American country. Its political and economic growth over the past three decades, in which annual GDP growth rate averaged 3.2% has spurred research worldwide. Today, Brazil ranks as the 7^th largest economy in the world (by PPP GDP) with a per capita GDP of $15, 390 (World Bank, 2017). Despite the recent economic turndown, the growth rate is expected to increase in the near future and its economic power is likely going to overtake even more countries. Politically, the economy has experienced tremendous success and international recognition. It has hosted some of the world’s biggest events. Among these are the FIFA World Cup in 2014 and most recently, the 2016 Summer Olympic Games. Figure 1 shows Brazil’s GDP per capita trend from 1980 to 2016.

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