Economic Growth and Inequality: Evidence from the Young Democracies of South America

Abstract

Purpose

We investigate in this paper whether income growth has played any role on inequality in all nine young South American democracies during the 1970–2007 period.

Methodology

Given the nature of our dataset, the methodology is based on dynamic panel time-series analysis.

Findings

The results suggest that income growth has played a progressive role in reducing inequality during the period. Moreover, the results suggest that this negative relationship is stronger in the 1990s and early 2000s, a period in which the continent achieved macroeconomic stabilization, political consolidation, and much improved economic performance. On the contrary, during the 1980s (the so-called “lost decade”), the negative income growth experienced by the continent at the time has hit the poor the hardest (the poor usually are the ones to lose their jobs first in recessions), which has consequently led to an increase in inequality.

Practical implications

All in all, we suggest that consistent growth, and all that it encompasses, is an important equalizer that affects the poorer progressively and it should not be discarded as a plausible option by policy makers interested in a more equal income distribution.

Citation

Bittencourt, M. (2014), "Economic Growth and Inequality: Evidence from the Young Democracies of South America", Macroeconomic Analysis and International Finance (International Symposia in Economic Theory and Econometrics, Vol. 23), Emerald Group Publishing Limited, Leeds, pp. 37-58. https://doi.org/10.1108/S1571-038620140000023002