Diarrhoeal diseases remain a major cause of morbidity and mortality in Brazilian children. However, from 1992 to 2001 there was a significant decline in hospitalizations for acute diarrhoea in children below 1 year of age in Brazil. A significant improvement in child health was also observed in the state of Rio Grande do Norte (RN), with a decrease in child mortality from 70 to 40 deaths per 1000. Using distributed lag analysis we analysed a number of factors possibly connected with decreased hospitalization in RN and found that hospitalization was correlated up to lag 3 with poverty (P<0.001) and inflation (P<0.001). Improvements in public health infrastructure such as better waste collection, presence of city water supply and increased sanitation, socio-economic variables such as education and literacy, and increased investment in health services were all important in reducing severe early childhood diarrhoeas and thus directly associated with the decrease in hospitalization. We also observed a positive seasonal correlation between rainfall and hospitalizations with an increased in rainfall impacting positively on hospitalization in all lags. The data suggests that increased buying power and reductions in poverty played a crucial role in reducing hospitalizations for acute diarrhoea in infants in RN.