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
CHAPTER TWO………………………………………………………………………………………………………… 14
CHAPTER THREE…………………………………………………………………………………………………….. 18
CHAPTER FOUR………………………………………………………………………………………………………. 24
CHAPTER FIVE………………………………………………………………………………………………………… 29
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 7th 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.
Figure 1: GDP per capita (PPP) in US Dollars for Brazil 1980-2016 Source: (World Data Atlas, 2017)
Brazil has one of the highest income inequalities in the world despite its impressive growth rates. This is evident in its Gini coefficient. The United Nations Department of Economic and Social
Affairs (2015) defines Economic or income inequality as “how economic variables are distributed among individuals in a group, among groups in a population, or among countries”. The Gini coefficient measures the extent to which household or individual income in a country deviates from perfectly equal distribution (World Bank, 2017). This coefficient lies between 0 and 1; with 1 meaning perfectly unequal income distribution and 0 meaning perfectly equal distribution of income. The Gini index is the Gini coefficient expressed as a percentage. Brazil has a Gini index of 51.48% as of 2014. This makes it one of the highest in the world and ranks it the highest among the twenty biggest world economies in GDP terms. Patterns in the data show that the economy has had a relatively stable income inequality for a long time and this only started to drop slightly in the last decade. Other inequality metrics like the income share of the highest and lowest 20% in the economy supports the fact that Brazil has very high income inequality. As of 2014, the bottom 20% (the poor) held 3.62% of total income compared to a 56.25% held by the top 20% (World Bank, 2017).
