Structural Change and the Fall of Income Inequality in Latin America: Agricultural Development, Inter-sectoral Duality, and the Kuznets Curve

Abstract

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). These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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