At the beginning of this new millennium, regional economies are confronting momentous changes. The globalisation of trade and economic activity is increasingly testing their ability to adapt and maintain their competitive edge. There is a tendency for income and performance gaps to widen between and within regions, and the cost of maintaining social cohesion is increasing. Rapid technological change and greater use of knowledge are offering new opportunities for local and regional development but demand further investment from enterprises, reorganisation of labour and production, more advanced skills and environmental improvements.

The OECD Secretariat would like to thank the Brazilian authorities at the national and sub-national levels for their co-operation and support during the review process. The Secretariat is particularly grateful to the European Commission Directorate General for Regional Policy (DG Regio) for its financial support.

This chapter examines the regional dimension in Brazil, measuring sub-national trends, benchmarking the performance of Brazilian regions with that of other OECD regions, examining links between the regional and aggregate dimension, and finally, assessing the key factors for growth in Brazilian regions. Some key findings reveal that the recent decline in inequality is mainly driven by advances in resource-intensive regions, while progress has not arrived in many lagging regions, particularly in the Northeast. The process of urbanisation in Brazil has been slower than in other emerging economies. Brazil’s predominantly rural regions have performed above OECD standards, while a number of its intermediate and predominantly urban regions have underperformed. Finally, regions with the lowest socio-economic outcomes have important gaps in key drivers for growth, such as human capital and infrastructure, and are unlikely to make progress in the medium and long term unless improvements are made in these critical areas.

This chapter describes the different policies in place in Brazil that have an implicit or explicit impact on the territories. The first section describes the analytical framework of this review. The second section describes two policies with direct territorial impact: the National Policy for Regional Development and the Territories of Citizenship. The third section describes the growth acceleration plans (PAC 1 and 2). The fourth section aims to identify potential synergies between regional development policy and sectoral policies, such as social policies and industrial and innovation policies. It analyses three examples: the Bolsa Família Programme, the strategy for delivering health care services in lagging regions, and innovation and competitiveness policies.

Brazil currently faces a window of opportunity to implement its agenda of economic growth with social inclusion. Such a strategy requires, among others things, identifying potential complementarities between policies and creating the multi-level governance tools to co-ordinate policies in territories. Brazil’s institutional structure and multi-level governance framework are highly complex. Given its size, heterogeneity and constitutional framework, Brazil faces important multi-level governance challenges. This chapter explains how regional development policy could help to reach the national goal of growth with social inclusion. Then it will analyse these specific challenges for policy co-ordination, and highlight tools used in Brazil or in OECD countries that could be useful for overcoming these challenges.