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The ‘local economy’ effect of social transfers: A municipality-level analysis of the local growth impact of the Bolsa Familia Programme in the Brazilian Nordeste

Eric Rougier (), François Combarnous () and Yves-André Faure

Cahiers du GREThA from Groupe de Recherche en Economie Théorique et Appliquée(GREThA)

Abstract: This paper analyses the various impacts of Conditional social transfers (CCTs) on the structure of production and economic growth at municipal level. CCTs impacts on local productive structures have seldom been analysed, although they condition prospects of future economic growth and income generation. We first develop a simple illustrative demand multiplier model with two types of municipalities to illustrate that social transfers’ local growth impact may vary with the pattern of local productive structure change, some patterns eventually driving the formation of a redistribution trap for the least productive local economies which could well threaten the economic inclusion long-term outlook of the programme. By using an original dataset mixing up information on productive structures, growth determinants and Bolsa Familia (BFP) transfers for the 184 municipalities of the Brazilian state of Ceará between 2003 and 2010, we then find that although transfers had an overall positive effect on municipalities’ local economic growth, they also exerted a negative indirect growth impact by orienting local production toward services and informality. Although we could not find support for the hypothesis of a redistribution trap, since we find a positive effect of transfers on the development of transformation industries in municipalities with limited initial industrial capacities, our estimations indicate that, on average, the growth impact of the Bolsa Familia programme could have been two times bigger, absent the adverse impact of social transfers on structural transformation. In addition, we explain that, by promoting services and informal occupations, including in light manufacturing industries, the BFP might cause a possible problem of quality of jobs in the future if additional policies promoting local productive development are not associated to social transfers.

Keywords: Conditional Cash Transfers; Bolsa Familia Programme; Productive structure; Municipalities; Local economic growth; Brazil (search for similar items in EconPapers)
JEL-codes: H55 J46 O14 O17 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lma and nep-ure
Date: 2017
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