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NUMERO 15 - 29/07/2009

 Poverty reduction in Latin America: the role of growth, income distribution, social spending and demographic change

The recent socio-economic development of Latin America presents a puzzle. This is that while economic growth in the region in the past 25 years has been very slow, falling behind past performance and behind most of the rest of the world, poverty rates have continued to fall significantly and social indicators have continued to improve. This paper assesses the role of various factors — income distribution, social spending and demographic changes — in explaining the paradox. The main finding, rather disturbingly, is that with few exceptions (Chile in particular) the major factor contributing to the reduction of poverty has been the demographic dividend brought about by the demographic transition that the region recorded over the period. 
The recent socio-economic development of Latin America presents a puzzle. This is that while economic growth in the region in the past 25 years has been very slow, falling behind past performance and behind most of the rest of the world, poverty rates have continued to fall significantly and social indicators have continued to improve. In some countries, progress in social indicators appears even to have accelerated compared to past trends. This paper assesses the role of various factors — income distribution, social spending and demographic changes — in explaining the paradox. Have changes in income distribution contributed to the reduction in poverty rates? Has the increase in social spending and more targeted poverty reduction programs made possible the decline in poverty despite a sluggish process of economic growth? What has been the role of the demographic transition and the associated demographic bonus in the reduction of poverty?

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