DEVELOPING COUNTRIES have had diverse experiences in fighting poverty, characterized by a broad distribution of initial conditions (including initial levels of poverty), the policies adopted, and outcomes for the poor. Many lessons can be learned from these different experiences. Two countries in particular, Brazil and China, deserve particular attention. Both have adopted distinct strategies in fighting poverty and have enough household survey data over time to track progress against poverty with some confidence and compare the results of different policy regimes within each country.
     In 1981, China was one of the poorest countries in the world. A staggering 84 percent of the population lived below the World Bank’s international poverty line of $1.25 per day (in 2005 prices) – a frugal standard for defining “poverty” based on national poverty lines used by the many of world’s poorest countries. (The average poverty line in the US in 2005, for example, was $13 per day.)
     Almost 25 years later, China had made remarkable progress in battling poverty. By 2005, the “poverty rate” (the proportion of the population living in poverty by the $1.25 standard) had fallen to 16 percent – well below the developing world average of 25 percent (Figure 1). Over 600 million Chinese were lifted out of poverty between 1981 and 2005.
Levels of absolute poverty have historically been lower in Brazil than China. Using the same international poverty line for Brazil, the poverty rate fell from about 17 percent to eight percent over 1981-2005, tracking the average rate of progress for the developing world outside China, but slower than China (Figure 1). Using Brazil’s own poverty line, which is well above the $1.25 a day line, the poverty rate fell from 31 percent in 1981 to 29 percent in 2004. The poverty rate peaked at 36 percent in 1993 and then fell sharply after the mid-1990s.
     To fully explain such differences in long-term performance against absolute poverty, one must understand the initial economic, social and political conditions in the two countries and the role played by policies.  Exogenous shocks played a more transient role that do not factor significantly into the discussion about the countries’ two decade-plus fight against poverty.

     An important, but often neglected, factor that is critical in understanding relative rates of poverty reduction is the extent of initial inequality in both income and certain “non-income’ dimensions. In terms of pure income inequality, Brazil has a very unequal distribution of wealth – its Gini index was almost 0.60 in the mid 1990s. China’s Gini index, on the other hand, was about half that figure in the early 1980s making it a low-inequality country at the time it embarked on its economic reforms. High inequality means that the poor not only have a lower share of the economic pie but a smaller share of the increases in the size of the pie. High inequality may also reduce prospects for economic growth, notably by reducing the scope for cooperative action, which is often needed for growth-promoting economic reforms. In combination with credit market failures, high inequality also limits the prospects for productive investment by the poor, leading to both lower growth and less equitable growth.

      Glaeser, Kahn, and Rappaport explore this, and other factors affecting the progress in China and Brazil's fights against poverty over the last 25 years. Their paper discusses the differences in the two countries' approaches to fighting poverty in more detail and makes it clear that, looking forward, each country can learn from the other. The paper is available exclusively available for download at the Yale Economic Review.  Just click on the link below for a full PDF version!