Brazil - Public Expenditures for Poverty Alleviation in Northeast Brazil : Promoting Growth and Improving Services

This report addresses the role public
expenditure can play in the alleviation of poverty in the
Brazilian northeast, involving both regional growth, and
social services. Notwithstanding relatively high growth in
the past two years, the northeast lags behind the rest of
the country, with a per capita GDP just under sixty percent
of the country's GDP, with no significant variations
since 1965. Based on national statistical data, the study
identifies private investment as a principal determinant of
regional growth, and, although public investments do not
appear to effect growth directly, it does indirectly in so
far private investment can be stimulated. The analysis
further indicates that certain type of infrastructure
investments, that lower local cost of production in the
region (i.e., electric power, and water supply) are
associated with increased private investment. However,
public infrastructure investments (i.e., transportation, and
communication) that increase regional integration with the
rest of the country, have mixed effects. Results largely
confirm that public investment should be complementary to
private investment, by providing goods, or overcoming other
market failures, rather than substituting for private
activities. And also, results point to a possible
interregional externality, i.e., that the returns to state
investments in education may well accrue to other states. It
is suggested that infrastructure supporting the creation of
off-farm employment is necessary, that guiding urban
development is a high priority, while in the short-run,
agriculture will remain a prominent feature of the northeast economy.