Poverty and dualistic growth in Paraguay

Samuel Morley, Rob Vos

Research output: Working paperAcademic

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Abstract

Almost unnoticed among the violent economic upheavals of its neighbors, Paraguay's economy over the last twenty-five years has produced a quite remarkable period of relatively rapid, debt free growth. There has been little pressure to implement structural adjustment policies and only a modest start with economic reforms has been made in the mid-1990s. Economic growth seems to have brought substantial benefits to the poor. Growth was pro-poor, one of the very few cases in Latin America where that is true. However, as analyzed in this paper, the 'trickling down' has benefitted the population in urban areas. In rural areas, the story is completely different. Agriculture has been a mainstay of Paraguayan growth. It grew rapidly during the 1980's, suffered several years of drought during the 1991-92 crop years and is now recovering. Yet benefits of agricultural growth have acrued to a small sector of large landowners producing for export markets. Rising poverty is observed among the vast majority of small landholders.

In this paper we look first at the sectoral and macroeconomic characteristics of growth in Paraguay since 1980, then we present a detailed analysis of urban and rural poverty over the same period. The analysis confirms the dualistic trend of falling urban poverty and rising rural poverty. However, Paraguay's challenge ahead seems to be enormous. The shift towards a democratic government after more than thirty years of military dictatorship has brought the challenges of modernizing the economy and institutions to operate within a democratic framework, to mobilize investment resources to adjust the economy to take advantage of growth opportunities in the context of Mercosur, to invest more in education and to improve living standards, particularly in rural areas.

The paper argues that such reforms are likely to hurt Paraguay's growth performance in the short run and hence will slow-down or even reverse the downward trend in urban poverty. This is explained by the fact that traditionally a large share of economic activity is taking place informally and outside the legal framework, including illegal border trade and a majority of enterprises not paying taxes or complying with government regulations. Firms and investors hence sense the absence of benefits from formality and the deeply rooted informal practices are unlike changed overnight. Mercosur and intents toward modernization have already affected growth and urban incomes since 1995. More sustainable and equitable growth in the medium run will require a substantial increase in productivity. This will require large investments in infrastructure and education as well as far-reaching reforms in agriculture. This will require huge economic and political sacrifice in the short run, but without it prospects for growth and poverty reduction are gloomy.
Original languageEnglish
Place of PublicationDen Haag
PublisherInternational Institute of Social Studies (ISS)
Number of pages58
Publication statusPublished - Oct 1997

Publication series

SeriesISS working papers. General series
Number261
ISSN0921-0210

Series

  • ISS Working Paper-General Series

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