The structural constraints of income inequality in Latin America

TL;DR

This paper analyzes how the productive structures of Latin American countries constrain income inequality, comparing them with Asian economies, and introduces a new metric to measure these structural constraints.

Contribution

It introduces the Xgini coefficient to quantify structural constraints on income inequality based on product composition.

Findings

HPAE countries diversify into low-inequality products

LAC economies depend on high-inequality related products

The Xgini captures the impact of product mix on inequality

Abstract

Recent work has shown that a country's productive structure constrains its level of economic growth and income inequality. Here, we compare the productive structure of countries in Latin America and the Caribbean (LAC) with that of China and other High-Performing Asian Economies (HPAE) to expose the increasing gap in their productive capabilities. Moreover, we use the product space and the Product Gini Index to reveal the structural constraints on income inequality. Our network maps reveal that HPAE have managed to diversify into products typically produced by countries with low levels of income inequality, while LAC economies have remained dependent on products related to high levels of income inequality. We also introduce the Xgini, a coefficient that captures the constraints on income inequality imposed by the mix of products a country makes. Finally, we argue that LAC countries need to emphasize a smart combination of social and economic policies to overcome the structural constraints for inclusive growth.