The proportion of the Latin America and the Caribbean (LAC) region’s 600 million people living in extreme poverty, defined in the region as life on less than $2.50 a day, was cut in half between 2003 and 2012 to 12.3 percent. Reflecting the upward mobility out of poverty, households vulnerable to falling back into poverty became the largest group in LAC in 2005, and represent almost 38 percent of the population.
However, in the last two years, the share of vulnerable households has started to decline. The middle class is growing rapidly and is projected to replace the vulnerable as the largest economic group in LAC by 2016. The Southern Cone region (including Brazil) continued to be the most dynamic region and the main driver of poverty reduction in LAC, while poverty in Central America and Mexico proved more stubborn. Overall, equality of access to basic childhood goods and services has improved in recent years.
Yet access can be further improved, and serious issues remain concerning the quality of those goods and services, particularly in education and housing infrastructure. Moreover, access increases with parental education and income or assets, reflecting low intergenerational mobility in many countries in the region. As with poverty reduction, most of the progress in equality of access since 2000 has come in the Southern Cone and the Andean regions, while many of Central America’s countries managed only small improvements. There are also severe differences at the subnational level and between urban and rural areas, highlighting the need to strengthen the capacity of local governments to deliver high quality basic services to all their citizens.
Because recent trends suggest that the decline in inequality may have halted, promoting more inclusive growth will be central. Recalibrating fiscal policy and providing better basic goods and services are two important instruments for inclusive growth. The findings of this brief, while highlighting significant gains especially in service delivery, underscore that these instruments in LAC are not fully achieving their potential in reducing inequality and delivering on the World Bank’s twin goals of eradicating extreme poverty and promoting shared prosperity.