Income convergence : an analysis for the Brazilian States between 1994 - 2010

Income inequality is a phenomenon that occurs in different proportions in many countries of the world. In Brazil, the problem seems particularly worrisome, as is worldly known as one of the most unequal countries in the world. This paper investigates the hypothesis of absolute and conditional convergence of income among the Brazilian states from 1994 to 2010. The methodology is divided in two steps. The first step we uses the Exploratory Spatial Data Analysis (ESDA) to verify the existence of spatial auto-correlation by Moran's I statistic. Our preliminary results have indicated the presence of spatial auto-correlation through years analyzed. Thus, it can be stated that the presence of low levels of income in a given state directly influence this occurrence in the neighboring units. This results is to somewhat expected since that in Brazil there is a clear North-South duality. If North and Northeast regions are found to be the poorest regions, South and Southeast regions are the richest. In the second step we test the convergence hypothesis to corroborate the existence of absolute and conditional convergence among Brazilian regions. The speed of convergence is estimated by neoclassical model. The model of absolute convergence verifies the reduction of inequalities in the periods (1994 to 2010) without considering structural differences between the states. Moreover, the conditional convergence model also implies on using variables that capture these differences. Our variable of interest is the well known Human Development Index, which captures different dimensions of quality of life from indicators such as levels of education, health conditions and wealth. The association of regional inequality with national income growth produced interesting results. The analysis of absolute and conditional convergence showed that there is indeed the existence of convergence in the period. If absolute convergence rate was 1.04 % per year, the number of years necessary to allow the half life of convergence is 67 years. Thus, our findings suggest that even if a country with high inequality such Brazil, recent public policies such as the universalization of education access and cash transfers programs, for instance, contributed significantly to the reduction of inequalities in the Brazil.