Integrated Overview, Case-Studies and Analysis: Income Inequality in Latin America, Post-1980

This thesis presents an integrated overview of the historical and contemporary literature dedicated to the study of within-country income inequality in Latin America. As a sub-field of Developmental Economics, income inequality has been subject to increased interest in recent years due to its intrinsic link with poverty and its various policy-implications. The central hypothesis of this report is that there are underlying factors that drive the persistent levels of high within-country inequality, and that through analysis of the labor markets we can determine their link to inequality in specific cases. Using macroeconomic indicators, statistics, empirical evidence and the wealth of knowledge compiled since the early 1980s, this study identifies driving factors and trends in income inequality. Focusing on periods of recession and post-stabilization growth in South American countries with unequal distributions of wealth, this report employs case-study methodology (see Chapters 5 and 6) based on supply-and-demand dynamics in the labor markets. This thesis’ main findings are that the political and economic reforms during the post-1980s contributed to worsening income disparity in Latin America. Further analysis suggests that FDI and debt crises, cultural norms, market liberalization policies, ethnic and urban-rural disparities, and poor educational institutions are highly correlated factors as well. The limitations of this research are, firstly, that regression analysis is inconclusive. No strong correlation between growth and inequality can be observed, even in highly unequal regions of Latin America. Further, tax data, which provides the basis for measurements of income inequality, varies from country to country, making statistical analysis difficult. Lastly, data was not collectible until the early 1980s, and has frequent missing observations, further complicating this task. Thus, this report bases its findings on macroeconomic indicators, empirical research, and economic theory in explaining the factors and causes of inequality.