Graduation Year

Fall 2010

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

David Bjerk

Abstract

This thesis provides an integrated overview on the historical and contemporary literature dedicated to the study of within-country income inequality in Latin America.

The central hypothesis of this report is that there are underlying factors that drive the persistent levels of high within-country inequality experienced by Latin American countries. We study two countries, Brazil and Bolivia, through the process of reform and growth, and note the effects on the labor markets.

Using all available statistics and the wealth of knowledge compiled since the early 1980s, this study identifies those trends, and the factors that cause them to reappear in numerous cases across South America. Focusing on periods of recession and post-stabilization growth in countries with rising or consistently unequal distributions of wealth, this report identifies viable trends in unemployment, linking them to external events and the social climate of Latin America. Employing case-study methodology (see Chapters 6 and 7) this thesis builds a framework with which to study national and regional inequality, then applies it to two cases: Brazil and Bolivia. This thesis’ main findings are that the political and economic reforms and restructurings during the crisis in the 1980s, and the post-1980 era of stabilization and growth, generally perpetuated or worsened the levels of income inequality for countries in Latin America. Further analysis concludes that unsustainable external debt, boom-and-bust cycles, more deeper-seated cultural factors cannot be overlooked. Low government spending on social and educational development is the unfortunate consequence of copious external debt and public interest payments in Latin America; instead of promoting long-term growth, Latin American regimes are instead forced to focus on high interest rates and protecting wildly volatile currencies. Ethnic composition, entrenched class-structure, and cultural norms each play significant roles in income disparity, the extent of which varies by case.

The limitations of this research are firstly, that regression analysis is inconclusive; no strong correlation between growth and inequality can be observed, even within the highly unequal region of Latin America.. Further, tax data, which provides the basis for measurements of income inequality, varies from country to country, making cross-country statistical meta-analysis difficult. Lastly, data was not collectible until the early 1980s, and has missing observations, further complicating the task of statistical analysis. Thus, this study bases its findings on empirical evidence, data, and basic economic theory, in explaining the factors and causes of inequality.

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