OECD Study on Regional Development in Brazil

Mario MarcelDeputy DirectorPublic Governance and Territorial Development OECD

I. Conceptual Framework

II. Key Facts

III. Key Policies

IV. Key Challenges

V. Conclusions

Brazil is among the most decentralised countries both in revenue and spending allocations

1- OECD Territorial Reviews

• Not limited to public finance and fiscal federalism approach(distribution of spending responsibilities, allocation of revenues, stability, etc.)

How can regional development policy help building a sustainable growth process in all regions?

• 17 National Reviews:

Canada (2002) Chile (2009) Czech Republic (2004)

Finland (2005) France (2006) Hungary (2001)

Italy (2001) Japan (2005) Korea (2001)

Luxembourg (2007) Mexico (2003) Norway (2007)

Poland (2008) Portugal (2008) Switzerland (2002, 2011)

Sweden (2010) Slovenia (2011)

3- Paradigm shift in regional policies

Traditional Regional Policies New Paradigm

ObjectivesBalancing economic

performances by temporary compensating for disparities

Tapping under-utilised regional potential for competitiveness

Strategies Sectoral approachIntegrated development

projects

Tools Subsidies and state aid Soft and hard infrastructures

Actors Central government Different levels of government

Unit of analysis

Administrative regions Functional regions

Redistributing from leading to lagging regions

Building competitive regions bringing together actors and

targeting key local assets

62.052.252.0

47.647.1

44.442.6

41.140.9

39.137.937.6

36.933.333.233.0

31.530.5

26.924.124.023.6

22.822.221.921.420.820.4

16.416.3

11.1

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

IcelandSweden

BrazilCanada

AustraliaUnited States

FinlandMexicoKoreaJapanSpain

NorwayPortugalGreece

New ZealandOECD average

United KingdomTurkeyFrance

DenmarkGermany

AustriaBelgium

NetherlandsSwitzerland

HungaryIreland

ItalyCzech Republic

PolandSlovak Republic

Index of geographic concentration of population (TL2)

1- Concentration of population and of GDP are above OECD levels

Geographic concentration index of GDP and population (TL2), 2007

61.754.2

49.547.247.247.046.546.0

45.044.443.943.4

41.841.140.5

39.738.5

35.834.734.5

31.931.3

29.929.7

27.927.6

26.125.825.7

24.1

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

BrazilSwedenIcelandCanadaFinlandGreece

United StatesAustralia

MexicoTurkeyJapanSpain

NorwayKorea

PortugalHungary

OECD averageNew Zealand

United KingdomFrance

BelgiumDenmark

AustriaIreland

GermanyCzech Republic

ItalyNetherlands

Slovak RepublicPoland

Index of geographic concentration of GDP (TL2)

Source: Calculations based on OECD Regional Database (2010) and data provided by IBGE.

2- Territorial disparities have decreased but remain high

0.36

0.33

0.30

0.26

0.25

0.25

0.22

0.19

0.18

0.17

0.16

0.15

0.14

0.14

0.13

0.13

0.12

0.12

0.120.12

0.11

0.11

0.10

0.08

0.07

0.07

0.07

0.07

0.06

0.00 0.10 0.20 0.30 0.40

Slovak RepublicBelgium

BrazilMexicoTurkeyIreland

HungaryCzech Republic

GreeceCanada

OECD averageGermany

United StatesItaly

PortugalPolandFinland

United KingdomAustria

NorwaySpain

DenmarkAustralia

New ZealandJapan

SwedenKorea

FranceNetherlands

Gini index of inequality of GDP per capita (TL2)

1995 2007

In catching-up economies inequality is high and it tends to rise due to the presence of growth poles…

0.25

0.26

0.27

0.28

0.29

0.3

0.31

0.32

0.33

1980

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Brazil (TL2)

… Brazil is an exception…

Territorial disparities have decreased since 1995 but remain high compared with OECD countries

Territorial disparities in GDP per capita within countries, (TL2), 2007

Gini index of inequality of GDP per capita across TL2 regions, 1980-2007

3- Most unsatisfied needs are concentrated in lagging regions

GDP per capita, access to health establishments and human development index, Brazilian TL2 regions

1. The Human Development Index (HDI) is a comparative measure of life expectancy, literacy, education and standards of living for countries worldwide . Note: This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map. 2. This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map.Source: Calculations based on data provided by (1) IBGE, (2) Ministério do Planejamento, Orçamento e Gestão. Estados and (3) CEPAL/ PNUD/OIT (2008) Emprego, desenvolvimento humano e trabalho decente: a experiencia brasileira recente.

4- There has been a process of convergence

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 9 000 10 000 11 000 12 000 13 000 14 000

GD

P p

er c

ap

ita

gro

wth

in

PP

P 1

98

0-2

00

7

Initial GDP per capita in constant PPP 1980

Acre

Roraima

Mato Grosso do Sul

Pará

GoiásParaná

Mato Grosso

Minas Gerais

Amapá

Tocantins

Espírito Santo

Brazilian averageSanta Catarina

Rio Grande do SulSão Paulo

Amazonas

Distrito Federal

Rio de Janeiro

Pernambuco

Sergipe

Bahia

Ceará

Paraíba

Alagoas

Piauí

Maranhão

Rondônia

Level and growth of GDP per capita in TL2 Brazilian regions, 1980-2007

Source: Calculations based on data provided by IBGE.

20

60

100

140

180

220

260

300

340

20 60 100 140 180 220 260 300 340

2007 G

DP

pc (100=avera

ge o

f re

gio

ns)

1993 GDP pc (average of regions)

Brazil (TL2)

Rio de Janeiro

Distrito Federal

Rio Grande do Sul

Amazonas

São Paulo

Espirito Santo

Mato Grosso

Pará

A decline in disparities can be good or bad…

Shifting a policy based on disparities as a goal to one

fomenting growth potential in all regions…

5- Catching up has been driven mainly by advances in resource-intensive regions

GDP per capita growth and specialisation in agriculture and mining, Brazilian TL2 regions

Note: This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map.Source: Calculations based on data provided by IBGE.

1- A combination of policies is necessary

• Sustainable poverty reduction requires creating local jobs and growth

• Complementarities across policies are not sufficiently exploited– Improve co-ordination of policies– Target the relevant scale

• Regional development policy could reinforce the impact of social policies such as Bolsa Família

2- Resources for regional development are soaring, but target mainly private firms

Source: Sistema de Informações Geranciais dos Fundos Constitucionais de Financiamento (2000-09); IRPJ e IOF-Coordenação-Geral de Estudos Econômicos-Tributários – COGET/Receita Federal; Relatório de Execução Territórios da Cidadania Matriz 2008 and Relatório de Execução Plano de Execução 2009 Territories of Citizenship.

3- Public investment and BNDES funds still face difficulties reaching lagging regions

Regional allocation of PAC investments (2007-2010, per capita)

Source: Relatórios Estaduais. Totals for four years, 2007-10.

Regional allocation of lending by BNDES system (2007, per capita)

Source: BNDES website, www.bndes.gov.br.

1- Brazil faces multilevel governance challenges

• Overcoming multi-dimensional fragmentation of policies– “Contracts” are the most frequently used instruments in OECD countries– Ministerial Committee for Regional Policy in Denmark; Ministries of

Regional Development in Chile, Czech Republic, Poland, Slovenia or Slovak Republic

• Dealing with subnational governments financial and political autonomy– COAG in Australia

• Building institutional and administrative capacity at subnational level and increasing civil society participation– “Civic coalitions” in the USA

• Reducing information asymmetries, improving monitoring and evaluation– KOSTRA in Norway

2- Examples of existing tools for co-ordination in Brazil

• Laws– Fiscal Responsibility law

• Co-ordinating institutions– Committee for the Management of the PAC

• Convenios (agreements) and pacts– Pact to reduce mother and infant mortality

• Regional development agencies– Sudene

• Single Registry, national census, etc.

Key conditions for effective regional development

• Give high visibility and long term commitment

• Develop efficient vertical and horizontal co-ordination mechanisms

• Promote place-based policies

• Involve local actors