Inequality, growth and economic development in Latin America

Abstract

Considering the above context, the objective of the article is to identify the causal relationships between income inequality, levels of democracy and economic growth in Latin America from 1996 to 2014. With this objective in mind, fixed and random effects models are estimated with a periodicity of growth episodes of two, five and ten years to analyze the impact of the variables of interest in different time horizons. The countries in the sample are Argentina, Bolivia, Brazil, Chile, Colombia, Dominican Republic, Ecuador, El Salvador, Jamaica, Mexico, Panama, Peru, and Venezuela. The results indicate that increments in the levels of democracy have a negative effect on the growth of GDP per capita in the two-year growth episodes, to later become positive in the fifth year and reach its maximum effect ten years later. This highlights the importance of the stability of political regimes for a country to reach a state of stationary growth. The results of the Gini variable show that higher levels of income inequality lead to lower economic growth. Its negative impact reaches its maximum five years after the shock that triggered the increase in inequality.