The surprising reduction of inequality during a commodity boom: what do we learn from Latin America?

Past experience and both orthodox and heterodox economic theories lead us to expect a positive relationship between income inequality and commodity booms. Yet Latin America’s recent improvement in income distribution coincided with a rapid growth in commodity exports. How was this positive outcome possible? Did income distribution improve because of higher commodity revenues or despite them? This paper answers these questions—seldom explored in the recent literature—using a combination of sources. The paper shows that the reduction of inequality took place among the bottom 90 percent of the population only, while the income share of the wealthy remained stable when properly measured. The reduction in the Gini coefficients had a lot to do with (re) distributive policies that enlarged the impact of labour market outcomes. The paper concludes that political pressures forced most Latin American governments to manage the commodity boom better than in the past in the short run but did not lead to significant transformations in the region’s elitedriven development model