Has Latin American Inequality Changed Direction?

In this chapter, we present evidence on the relationship between inequality and long-term development using data on different Brazilian regions. Our empirical approach is developed within a constant de jure institutional environment—Brazil—accounting for possible differences in the de facto institutional environments (Brazilian states) rooted in distinct colonial experiences. New inequality indicators are constructed from scratch for Brazilian municipalities in 1920. Our econometric analysis indicates a positive robust relationship between economic inequality and long-term development indicators for Southeastern states (São Paulo, the center of coffee production in the nineteenth and twentieth centuries and a state with a large influx of European immigrants, which became the most dynamic Brazilian state; and Minas Gerais, the center of the gold cycle, shaped also by cattle farming and coffee production); no significant relationship for Pernambuco (a Northeastern state, representative of the old agrarian structure of colonial sugar plantations); and a positive relationship for Rio Grande do Sul (a Southern state, with a colonial experience more similar to that of the USA and Canada). We found no evidence of a robust relationship between the percentage of eligible voters and long-term development, a surprising result in light of the evidence provided in development literature, but likely consistent with a politically captured system with very low levels of enfranchisement.

The labour market experienced in the last four decades a great change in its composition through the increasing of female labour force. In most of the Latin American countries during this period a huge increase of women participation in the urban labour market took place (Historical patterns of gender inequality in Latin America: New evidence, 16th World Economic History Congress, 2012). The female labour force participation began to increase in the 1970s, and continued into the 1980s, and in the 1990s the region saw a significant improvement. From the 1960s Argentine, Brazil, Uruguay, Mexico and Chile passed of a female participation rate of around 20 % to 40–50 % in 2000.

In Latina America the more recent studies of income distribution show heterogeneity between the countries (The microeconomics of income distribution dynamics in East Asia and Latin America, World Bank, Washington, DC, 2004). We think that this topic highlighted the necessity of decomposition of inequality to understand the driving forces behind inequality over time.

One oft-noted observation of the twentieth-century economic history of Latin America in general and of the import-substitution industrialization strategy (ISI) in particular is the neglect of agriculture and the related structural heterogeneity (Baer 1972; Kay 2002; Bertola and Ocampo 2012). In Latin America, the transformation of agriculture has not been regarded as a centerpiece of the adopted development strategies and, despite some attempts at rural reform, seldom promoted. It might be fair to say that biases against the rural sector have been a defining characteristic of Latin American economic development (Lipton 1977; Griffin et al. 2002; Johnston and Kilby 1975; Reynolds 1996). The dual structure remained even after the ISI period and the switch to the new economic model. A stylized fact is that the continent, even beyond the so-called lost decade of the 1980s, has been in a state of stagnation: weak structural transformation, slow growth, and consistently unequal distribution of income (Bulmer-Thomas 2005). Since the early 2000s, however, many economic indicators, as reported from Economic Outlooks and Reports by the World Bank, IMF or OECD, have been pointing in another direction: steady and relatively high income growth per capita, advances on the commodity export markets, and increasing inflows of foreign direct investments. In terms of social indicators, improvements have also been made: the number of people classified as middle class now surpasses the number of poor; poverty declined from 152 million people living below 2.5 dollars a day in 2000 to around 83 million people in 2010 (World Bank 2015); and income inequality in the last decade declined in 15 out of 16 countries with comparable data at a rate of 1.1 % per year (Lustig et al. 2013).