Income Inequality, Poverty, and the Rule of Law: Latin America vs the Rest of the World1

Sonora, Robert (2019): Income Inequality, Poverty, and the Rule of Law: Latin America vs the Rest of the World1.

Abstract

This paper investigates the relationship between the rule of law and income inequality and poverty in twenty Latin American countries using an unbalanced panel over the period 1995 - 2014. These results are then compared to estimates for non-Latin American counties. Using feasible GLS panel methods, we finnd that in many cases, improvements to legal systems reduce inequality and poverty in Latin America while having the opposite effect in the rest of the world. Results are robust to different definitions of inequality and rule of law. Protection of property rights is the most significant rule of law indicator for Latin America economies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Income Inequality, Poverty Growth, Rule of law, Panel data, Institutions
• Subjects: D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I32 - Measurement and Analysis of Poverty; K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O54 - Latin America ; Caribbean

References

Acemmoglu, D., S. Johnson, and J. A. Robinson (2005): Institutions as a fundamental cause of long run economic growth," in P. Aghion and S. N. Durlauf, eds., Handbook of Economic Growth, Volume 1A, the Netherlands: Elsevier, 385-472.

Acemoglu, D. and S. Johnson (2005): Unbundling institutions," Journal of Political Economy, 113, 949=995.

Acemoglu, D., S. Johnson, and J. Robinson (2001): The colonial origins of comparative development: An empirical investigation," American Economic Review, 5, 1369-1401.

Alesina, A. and R. Perotti (1996): Income distribution, political instability, and investment," European Economic Review, 40, 1203-1228.

Anand, S. and P. Segal (2008): What do we know about global income inequality?" Journal of Economic Literature, 46, 57-94.

Ayers, R. (1998): Crime and violence as development issues in latin america and the caribbean," World Bank Latin America and Caribbean Studies Viewpoints, World Bank.

Barro, R. J. (1996): Democracy and growth," Journal of Economic Growth, 1, 1-27

Barro, R. J. (2000): Inequality and growth in a panel of countries," Journal of Economic Growth, 5, 5-32. Benabou, R. (1996): Inequality and growth," in B. S. Bernanke and J. J. Rotemberg, eds., NBER macroeconomics annual 1996, MIT Press, 1174.

Bennett, D. L. and R. K. Vedder (2013): A dynamic analysis of economic freedom and income inequality in the 50 U.S. states: Empirical evidence of a parabolic relationship," Journal of Regional Analysis and Policy, 43, 42-55.

Berry, A. (1997): The income distribution threat in Latin America," Latin American Research Review, 32, 3-40.

Daly, M. C. and D. J. Wilson (2013): Inequality and mortality: New evidence from U.S. county panel data," Technical report, Federal Reserve Bank of San Francisco.

de Janvry, A. and E. Sadoulet (2000): Growth, poverty, and inequality in latin america: A causal analysis, 197094," Review of Income and Wealth, 46, 267-287.

Deininger, K. and L. Squire (1998): New ways of looking at old issues: inequality and growth," Journal of Development Economics, 57, 259-287.

Dimick, M. (2016): Should the law do anything about economic inequality?" Cornell Journal of Law and Public Policy, 26, 1-69.

Enamoradoa, T., L. F. Lopez-Calva, and C. Rodriguez-Castelan (2014): Crime and growth convergence: Evidence from Mexico," Economics Letters, 125, 9-13.

Esfahania, H. S. and M. T. Ramirez (2003): Institutions, infrastructure, and economic growth," Journal of Development Economics, 70, 443- 477.

Forbes, K. J. (2000): Relationship between inequality and growth," American Economic Review, 90, 869-887.

Gasparini, L. and N. Lustig (2012): The rise and fall of income inequality in latin america, in J. A. Ocampo and J. Ros, eds., The Oxford Handbook of Latin American Economics, Oxford University Press.

Gottschalk, P. and T. M. Smeeding (2000): Empirical evidence on income inequality in industrialized countries, in A. B. Atkinson and F. Bourguignon, eds., Handbook of Income Distribution: Volume 1, the Netherlands: Elsevier, 261-307.

Gupta, S., H. Davoodi, and R. Alonso-Terme (2002): Does corruption affect income inequality and poverty, Economics of Governance, 3, 23-45.

Gwartney, J., R. Lawson, and J. Hall (2016): 2016 economic freedom dataset, in Economic Freedom of the World: 2016 Annual Report, Fraser Institute, URL http://www.freetheworld.comdatasets_efw.html.

Haggard, S. and L. Tiede (2011): The rule of law and economic growth: Where are we? World Development, 39, 673-685.

Hellman, J. and D. Kaufman (2004): The inequality of infuence, in J. Kornai and S. Rose-Ackerman, eds., Building a Trustworthy State in Post-Socialist Transition. Political Evolution and Institutional Change, Palgrave Macmillan, 100-118.

Kuznets, S. (1955): Economic growth and income inequality, American Economic Review, 45, 128.

Kydland, F. E. and E. C. Prescott (1977): Rules rather than discretion: The inconsistency of optimal plans, The Journal of Political Economy, 85, 473-492.

Leamer, E. E., H. Maul, S. Rodriguez, and P. K. Schott (1999): Does natural resource abundance increase latin american income inequality? Journal of Development Economics, 59, 342.

Liscow, Z. (2014): Reducing inequality on the cheap: When legal rule design should incorporate equity as well as effciency, Yale Law Journal, 123, 2478-2510.

Murphy, K. M., A. Shleifer, and R. W. Vishny (1991): The allocation of talent: Implications for growth, The Quarterly Journal of Economics, 106, 503-530.

North, D. C. (1981): Structure and Change in Economic History, NYC, NY: Norton.

North, D. C. (1989): Institutions and economic growth: An historical introduction, World Development, 17, 1319-32.

North, D. C. and R. Thomas (1973): The Rise of the Western World: A New Economic History, Cambridge, MA: Cambridge UP.

Nuxoll, D. A. (1994): Differences in relative prices and international differences in growth rates, American Economic Review, 84, 1423-1436.

OECD (2014): Does income inequality hurt economic growth? Focus on Inequality and Growth.

Podobnik, B., J. Shao, D. Njavro, P. C. Ivanov, and H. Stanley (2008): Influence of corruption on economic growth rate and foreign investment, European Physical Journal B, 63, 547-550.

Robinson, J. and K. Sokolo (2004): Historical roots of latin american inequality, in Inequality in Latin America and the Caribbean: Breaking with History?, World Bank.

Sacchetti, M. (2018): Going home after half a lifetime, The Washington Post.

Samuels, K. (2006): Rule of law reform in post-conflict countries, Social Development Papers: Conflict Prevention and Reconstruction, 1-2.

WEF (2017): in K. Schwab, ed., The Global Competitiveness Report: 2017-2018, World Economic Forum, URL https://www.weforum.org/reports/the-global-competitiveness-report-2017-2018. 16