Canning House Research Forum

Inequality and Trade Diversification

How can Income Inequality in Latin America be reduced beyond Commodity Booms?

Welcome to the first report from the Canning House Research Forum at the LSE.

The Canning House Research Forum is hosted by the LSE Latin America and Caribbean Centre (LACC) and is a multi-year rolling programme of research and policy engagement around the overarching theme of “The Future of Trade in Latin America and the Caribbean”.

Dr Amir Lebdioui is the Canning House Research Fellow based at the LSE LACC. His research lies at the crossroads between industrial policy, natural resource management and the sustainable development agenda. He tweets at @amirlbd and can be contacted at [email protected].

Spanish and Portuguese versions of this report will be available shortly.

In this report:

Following a decade in which inequality had fallen in Latin America, inequality started to rise once more since 2014, motivating waves of protests and political instability across the region. In 2019, the top 10% of income-earners in Latin America accounted for over one-half of national income, making it by some accounts the most unequal region in the world. The COVID-19 pandemic has further exacerbated existing inequalities affecting both the health outcomes and livelihoods of the poorest segments of the population.

High inequality rates have also created high developmental ‘costs’ terms of productivity gains, market dynamism, financial stability and access to financial services. In public policy terms, maintaining the status quo is unlikely to be desirable and may further hinder political and economic stability in the region. Against this backdrop, rethinking income inequality reduction programmes in Post-COVID Latin America is timely and urgent.

This report addresses several essential questions that arise when considering the future of inequality reduction in Latin America.

• Why has income inequality reduction proved to be so challenging in the region?
• Why was the progress in income distribution during the 2000s not sustained?
• Might redistributive taxation suffice to sustainably reduce income inequality in the region?
• What are the public policies that can best sustain inequality reduction?
• Can inequality reduction be promoted independently of industrial and innovation policies?

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