Inequality is a central concept in economics, particularly in the case of development economics. Brazil is one of the world’s largest countries, but also has one of the highest levels of inequality, which is reflected on both the macro-economic and micro-economic scales (Ferreira, 2010). As such, there is a huge amount of research being conducted to highlight some of the economic causes of inequality in Brazil, including information about market access and wage differentials. The purpose of this paper is to explore the work of Fally, Paillacar & Terra (2010) to highlight the importance of economic geography. This paper gives a brief overview of the information in the article, then follow this by an analysis of the information presented. A discussion of what can be learned from the article will then be presented.
Overview
The purpose of the research presented by Fally et al. (2010) is to show how the impact of access to the market and suppliers has an impact on the wage disparities that are present in Brazil. To do this, the researchers took into account individual characteristics such as education and location and put this into a theoretical framework based on the theories of economic geography. The measurement of access to markets was also split into three main groups – access to local, national, and international markets. This approach is based on the theory that inequality in access to markets (and thus the ability to buy and sell components and produce) has a direct impact on wages, which in turn impacts inequality in the country (Lustig et al., 2014). Fally et al. (2010) hypothesize that the reason that each of the states of Brazil are so unequal economically both within themselves and between states is that geographical access to markets is unequal.
The results suggest, firstly, that wages are highly unequal between geographical areas of Brazil, even when controlling for differences in education systems. Access to markets and supplier access are mediating factors in this inequality, in that higher levels of access have a positive impact on the average wage of the area (Fally et al., 2010). One of the main ideas presented in this research is that a potential solution to these issues is migration within the country, which can help to increase market access through the provision of new services to certain areas, which in turn has a positive impact on wages. It is also suggested that there is a need for further research in the field of economic geography which can help to highlight whether there are more complex phenomena present in Brazil, including labor market frictions and migration dynamics (Fally et al., 2010).
Analysis
This research presents a huge amount of different information and is highly replicable due to the presentation of the statistical analysis which Fally et al. (2010) conducted as part of their research. It is also interesting to put the research into context – newer research finds that inequality in Brazil is on the decline (Lustig et al., 2014). This suggests that the prediction made by Fally et al. (2010) that inequality would fall as a result of the high migration rate in Brazil was strong. There are a number of issues with the research, particularly the fact that a true estimation of market access would need to rely on gravity equations of trade flows, something which is not presented by Fally et al. (2010). Additionally, a number of estimations are made based on trade costs, which may be made on false assumptions and thus need to be integrated in further research.
What Can Be Learnt?
This research presents a huge amount of interesting information about the economics of the Global South as well as the inequality in Brazil in particular. It highlights the fact that market access is an important part of understanding the economic situation for both individuals and on a municipal level. It is made clear that there are a number of economic reasons (rather than social) that are linked to the idea of inequality, which means that there may be economic solutions for the issue of inequality in Brazil – and maybe in other countries. It also presents a number of different mathematical ways of approaching regressions in terms of linking together the phenomena of wage inequality and market access, something which may be transferrable to other areas of economic geography. The research is also useful for understanding how best to present complex economic data (Ferreira, 2010).
Conclusions
In conclusion, Fally et al. (2010) present an interesting piece of research that highlights the correlation between wage disparity and market access. This presents a useful source of information on possible economic causes of wage disparity in Brazil, a country with one of the highest rates of inequality in the world. It also highlights the use of regression in economic geography, as well as how geographic information can be used in order to understand economic problems on a macro scale. The research has some highlighted issues, including the lack of data for some equations, but overall presents a strong case for the link between wage inequality and market access. Further research is needed to assess whether this information can be used to create economic solutions to wage inequality, as well as if the statistical approach can be used to highlight some of the other reasons for wage disparity in Brazil.
- Fally, T., Paillacar, R., & Terra, C. (2010). Economic geography and wages in Brazil: Evidence from micro-data. Journal of Development Economics, 91(1), 155–168.
- Ferreira, F. H. (2010). Distributions in motion: economic growth, inequality, and poverty dynamics. World Bank Policy Research Working Paper Series, Vol. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1678354
- Lustig, N., Pessino, C., & Scott, J. (2014). The impact of taxes and social spending on inequality and poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: An overview. Retrieved from http://lacer.lacea.org/handle/123456789/48666
