The political economy of inequality in developing countries: trajectories from industrialization to inequality

This thesis examines the variation in levels of inequality between late-industrialising countries in Latin America and East Asia from the 1960s. Latin American countries have more advanced welfare states, higher social spending, and more abundant left power resources than their East Asian counterparts. Yet, economic inequalities are much greater in the former than in the latter. This thesis argues that inward-looking industrialisation versus outward-looking industrialisation make a huge difference in levels of inequality by influencing the characteristics of labour market and welfare policies. The main theoretical claims of this thesis have two parts. Firstly, I argue that authoritarian leaders in both countries faced a set of incentives that shaped the probability of their initial adoption of inward-looking versus outward-looking industrialisation. Contrary to the existing literature which considers the choice of openness and closedness as exogenously given, this research argues that the choice of openness is a rational choice of a dictator, under political and economic impasse such as lack of financial resources and a higher office holding cost, in an effort to fulfil his economic and political interests. Secondly, I argue that this choice influences the progressivity of welfare policies and labour market. Inward-looking industrialisation produces social policies that favour small and narrow insider coalitions, which in turn lead to higher levels of inequality, and vice versa for outward-looking industrialisation. By providing clear theoretical mechanisms connecting industrialisation to inequality, this thesis explains the institutional trajectories of different types of industrialisation on inequality. These claims are tested in an unbalanced pooled time-series cross-sectional analysis of sixteen Latin American and East Asian countries from the 1960s to the 2000s. Using a newly constructed original data set, the findings show that countries that adopted outward-looking industrialisation strategies have more flexible and unregulated labour markets and minimal welfare spending. By contrast, countries with inward-looking industrialisation strategies have more bifurcated and highly regulated labour markets, and generous but highly stratified welfare states. As a result, labour market institutions and welfare policies conditionally affect inequality depending on the types of industrialisation. Whereas labour market institutions and welfare spending exacerbate inequalities in countries with inward-looking industrialisation, they are linked to relatively low levels of inequality in countries with outward-looking industrialisation. The causal mechanisms are also explored in qualitative case studies of Latin American and East Asian countries. This thesis makes important theoretical and empirical contributions to the comparative studies of inequality. It broadens the theoretical and empirical scope of comparative studies of inequality by incorporating two regions that have been traditionally under-explored. In addition, this thesis calls for a reconsideration of the existing theories on the relationship between openness, social policies, and inequality.