Growth, poverty, and inequality in Latin America: A causal analysis, 1970-94

Taking advantage of consistent poverty and income inequality data for 12 La tin American countries between 1970 and 1994, we analyze the determinants o f changes in the incidence of urban and rural poverty and in Gini coefficie nts over spells of years, stressing in particular the role of aggregate inc ome growth. We find that income growth reduces urban and rural poverty but not inequality. We also find that income growth is more effective in reduci ng urban poverty if the levels of inequality and poverty are lower, and the levels of secondary education higher. We show that there is an asymmetry i n the impact of growth on poverty and inequality, with recession having str ong negative effects on both poverty and inequality. Since growth does not reduce inequality, economic cycles create ratchet effects on the level of i nequality. However, post-structural adjustment growth is quite effective at reducing poverty, particularly if inequality is low.