Escaping the Poverty Trap

Even if Latin America's policy makers were successful in creating an environment that better promotes rapid economic growth, widespread poverty would persist. Given the high level of income inequality requires, the region requires redistribution, particularly through programs aimed at improving education and health care.

The elimination of poverty must remain at the top of the policy agenda in Latin America and the Caribbean, where inequality is higher than in any other region and one in five people survive on little more than two dollars per day (as measured by the 1993 purchasing power parity (PPP) exchange rate).

Poverty is an intrinsically dynamic phenomenon. Poor people are locked into a low-level asset (or capability) trap. Hence, poverty reduction efforts must seek to provide incentives that will encourage the poor to acquire assets and capabilities that will enable them to escape poverty in the future.

Of course, it is impossible to make serious inroads against poverty without generating persistent economic growth. But, based on the continent’s economic performance over the past last 15 years, growth alone is unlikely to reduce poverty by more than 25% in the next ten years. Even if policymakers were successful in creating an environment that better rewards investment and thus promotes faster growth, Latin America’s ills would not be solved. The high level of income inequality requires specific poverty reduction efforts.

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