Colonialism and inequality in Latin America

Jeffrey Williamson has weighed in on the debate about the origins of inequality in Latin America.  His NBER working paper is titled Latin American Inequality: Colonial Origins, Commodity Booms, or a Missed 20th Century Leveling?

He argues that inequality rates were not high in Spanish America and that it wasn’t until the commodity boom of the late 19th century when inequality really began to increase in the region.  Here is the abstract:

Most analysts of the modern Latin American economy have held the pessimistic belief in historical persistence — they believe that Latin America has always had very high levels of inequality, and that it’s the Iberian colonists’ fault. Thus, modern analysts see today a more unequal Latin America compared with Asia and most rich post-industrial nations and assume that this must always have been true. Indeed, some have argued that high inequality appeared very early in the post-conquest Americas, and that this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth performance we observe there even today. The recent leveling of inequality in the region since the 1990s seems to have done little to erode that pessimism. It is important, therefore, to stress that this alleged persistence is based on an historical literature which has made little or no effort to be comparative, and it matters. Compared with the rest of the world, inequality was not high in the century following 1492, and it was not even high in the post-independence decades just prior Latin America’s belle époque and start with industrialization. It only became high during the commodity boom 1870-1913, by the end of which it had joined the rich country unequal club that included the US and the UK. Latin America only became relatively high between 1913 and the 1970s when it missed the Great Egalitarian Leveling which took place almost everywhere else. That Latin American inequality has its roots in its colonial past is a myth.

I’m curious what Daron Acemoglu will have to say about this.  Given his unbelievable productivity, I probably won’t have to wait long!

Good news about Latin American Inequality

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In a new working paper on Latin American inequality called “Deconstructing the Decline in Inequality in Latin America,” Nora Lustig, Luis Lopez-Calva, and Eduardo Ortiz-Juarez find that the weighted average of the Gini coefficient in Latin America fell from .548 in the late 1990s to .488 a decade later.  As you can see from the figure, all countries in the region (except Honduras) experienced a decline in inequality. The authors find that the reductions are both statistically significant and quantitatively important.

Latin America is one of the most unequal regions in the world, and it is heartening to read that the drop in inequality accounts for 1/3 of the decrease in extreme poverty in the past decade.

So what caused this reduction in inequality?  This is the tough part.  The literature has put forth two main potential causes behind the phenomena:  a reduction in hourly wage inequality, and larger more progressive government transfers.  The evidence isn’t conclusive and there doesn’t seem to be a single explanation behind it for the entire region.  This seems totally reasonable to me; given how very different the countries are, it’s hard to believe there is an argument that explains inequality reduction in all of them.  But definitely check out the paper, because they do a really nice job of reviewing the literature and pointing to possible clues for individual countries.

By the way, does anyone know what is going on with Honduran inequality?