Experts Discussed Origins of Inequality in Latin America and the Caribbean
On May 7, the Georgetown Americas Institute hosted Felipe Valencia, assistant professor in the Vancouver School of Economics at the University of British Columbia, and Francisco Ferreira, Amartya Sen Professor of Inequality Studies at the London School of Economics (LSE), for a discussion on the origins of inequality in Latin America and the Caribbean. The session was moderated by Professor Jenny Guardado of Georgetown University.
Latin America and the Caribbean (LAC) is one of the most unequal regions in the world, along with the Middle East and Sub-Saharan Africa. Experts in this panel discussed the historical factors that led to LAC’s socioeconomic inequities and the persistent transmission of socioeconomic status across generations. Valencia and Ferreira explored the roots of Latin America’s economic inequalities and the prevalence of intergenerational economic inequality in the region.
Origins of Inequality through Institutions
In their forthcoming paper, Valencia and his co-author Francisco Eslava examined slavery and inequality in Brazil utilizing a macro framework by Engerman and Sokoloff's theory, which argues that the varying endowments in British and Spanish America led to the development of different institutions. These institutions, in turn, shaped economic performance and later contributed to greater inequality. One key aspect of this framework is the role of different types of endowments in the emergence of slavery as an institution.
Valencia used previous work on colonial institutions at a micro level, particularly examining the mita system in Peru and Bolivia, and analyzed the impact of haciendas and encomiendas on income inequality to draw similarities observed in Brazil. By studying these specific institutions and their effects, Valencia seeks to understand the mechanisms through which colonial institutions influenced economic inequality in the region and made connections to Brazil
Valencia and Eslava explored the theme of land and land reform through cases of land redistribution in Mexico, cooperative property rights in El Salvador, and the effects of land reform on human capital formation in Peru and reduced conflict in Peru to highlight inequality in Brazil and general trends in the region. Valencia noted that in times of autocracy there is greater land redistribution in Latin America. Lastly, education is the third component of the paper. The data shows that areas that invested early on in education are also areas that are less unequal, such as Canada.
Intergenerational Inequality in the Region
Ferreira presented the results of his study on inequality of opportunity and intergenerational persistence in Latin America which focused on five broad themes: levels and trends of inequality, inequality of opportunity, markets, taxation and redistribution, and political power. The study examined the transmission of socio-economic status across generations, particularly highlighting lower mobility in underdeveloped countries.
Ferreira's approach goes beyond considering only parental income and explores the extent to which inherited personal circumstances predict life outcomes. He found that factors such as income and education are powerful determinants of intergenerational socio-economic status transmission.
Policy Recommendations
Valencia suggested that policymakers need to adopt a multi-dimensional approach to address areas of inequality. He highlighted that inequality is a complex issue influenced by factors such as race, ethnicity, and gender, which require a corresponding multi-dimensional policy response. Valencia highlights that policy makers need to be conscious of the roles institutions play within inequality. Making an emphasis that human capital is tackled through education and health and the particularly affected populations such as indigenous and afro-descendant populations.
Ferreira emphasized the importance of policy targeting to ensure that those with the least access to opportunities are supported. He also stressed the need for more research into the mechanisms through which socio-economic status is inherited, particularly focusing on the role of schools and childhood experiences in perpetuating or mitigating inequality. Ferreira highlighted that the coefficient of inequality is significant in regions such as the Middle East and North Africa (MENA), Africa, and Latin America. He suggested that higher inequality today leads to inequality of opportunity in the future. This concept is often illustrated using a version of the "Great Gatsby Curve," which shows a negative relationship between income inequality and intergenerational mobility.
Valencia concluded that economic growth is a key factor in reducing inequality, although the example of the United States shows this isn't always the case. To further reduce inequality, policies can focus on redistributing income. Increasing fiscal policies and utilizing the resulting revenues for a multi-dimensional approach could be effective. Ferreira concluded that the sectors driving inequality and its dynamics are complex. However, policymakers and change-makers can still positively impact society, and this progress is likely to continue.