Does natural resource abundance increase Latin American income inequality ? 1

Why is income inequality higher in Latin America than in East Asia? Is this phenomenon related to the region’s natural resource abundance? Is it a contributor to Latin America’s slow and narrowly focused human capital accumulation? If so, can anything be done to reverse the Latin American trends, or should we think of the region’s fate as unalterable? To help answer these questions, this paper draws upon standard trade theory and cross-sectional empirical analysis to demonstrate that natural-resource-intensive sectors, particularly permanent agriculture, absorb capital that might otherwise flow to manufacturing. This depresses workers’ incentive to accumulate skill and delays industrialization. q 1999 Elsevier Science B.V. All rights reserved. JEL classification: F11; O15