Globalization and Liberalization in Social Policy Expansion: Testing the Compensation and Efficiency Hypotheses in Brazil

Abstract

This article examines four potential strategies of the Brazilian welfare system in the face of increasing liberalization and globalization since the 1970s. We test whether liberalization and economic globalization hurt the expansion of social expenditure (the efficiency hypothesis or race to the bottom hypothesis) or whether the welfare system expands as a response to the volatility caused by liberalization and globalization (compensation hypothesis). We employ time-series regression analysis to panel data from 1970 to 2015. We controlled for economic (wealth and GDP growth) and political factors (strength of the left and effective competition of parties in the lower house). We identify different strategies followed by the welfare system through the period analyzed. However, two strategies are dominant in the long run: A neoliberal strategy when the impact of globalization is considered (efficiency hypothesis) and an embedded neoliberal strategy when the effect of liberalization is pondered (compensation hypothesis).