This thesis examines the role of high levels of inequality and how the narrowing of income disparities in Mexico and Brazil has affected their respective economic performance.
The diminishing economic inequalities in Brazil and Mexico will be analysed from a perspective of how human capital creation and redistributive programs have played a role.
Both countries have had same kind of cash transfer programmes and both expanded educational efforts significantly but these have been implemented in very different macroeconomic environments. Where Mexico is a country very open to trade, Brazil has had a more domestically focussed strategy, which have led to different overall outcomes.
The results of in-depth analyses for Brazil and Mexico have revealed two main underlying factors: a fall in the skill premium and more progressive government transfers as the primary causes. In both countries, income taxes are small and changes in income before and after taxes have had very small impacts on the redistribution.
With regards to growth performance, Brazil has kept comparatively high rates throughout the period, whereas the Mexican rates have been more sluggish and were hit harder by the financial crisis than Brazil, which mainly seems to be due to its exposure to the global market and its close trade links to the United States, where the crisis slowed down imports significantly.
The impact of the changes in skill-premium and government transfers on poverty have been positive in both countries from 1996 and onwards until 2006 where it started to have a negative effect again in Mexico.
In general it has been found that Brazil has been more focused on an inward growth strategy, whereas Mexico has pursued a more outwards one, which in the case of Mexico has cast doubt on its inclusiveness, because most jobs now are created in the informal or traditional economy, which some authors have attributed to a dual-economy.