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Copenhagen Consensus Center

Copenhagen Consensus Latin America: Poverty and Inequality

Assessment Paper

By Sebastian Galiani

The working paper used by the Expert Panel is available for download here, the finalized paper has been published in the Latin American Development Priorities: Cost and Benefits book by Cambridge University Press. 

Short Summary

Poverty  still  is  one  of  the  central  problems  in  Latin  America  and  the  Caribbean.  As measured  by  international poverty  lines,  approximately  one  out  of  every  five  people  in  the region  is  poor.  Consequently,  the  elimination  of poverty  continues  to  be  one  of  the  main challenges facing the region and remains at the top of its policy agenda.  

Clearly, one way to reduce absolute poverty is by stimulating economic growth. In reality, it is unlikely that poverty can be reduced by any significant degree without persistent economic growth. Ultimately, an economy that grows on a sustained basis is an economy in which wages will  be  rising,  thereby  lifting  households  out  of  poverty.  Even  though  growth  is fundamental  in  the  battle  against  poverty,  it  is  unlikely  to  be enough, even when growth is very rapid.

Thus, at the micro level, the author favors interventions that, via redistribution, increase the current consumption of the poor, alleviating poverty. In fact, redistribution is a critical component of an effective welfare state that is missed in LAC. He also favors interventions that also cause investments in human capital that in the future would help poor households to pull out of the actual asset trap they are immersed. These interventions, by improving the current and future consumption of the poorest members of society, will also reduce inequality in the region.