Income inequality in South America and the role of trade liberalization between 1990 and 2017

Abstract

Considering the growing concern about the increase in income inequality, this work has the general objective of analyzing the role of trade openness on income inequality in South American countries between 1990 and 2017, admitting the hypotheses that the growth of trade and financial liberalization would be related to an increase in income inequality. A dynamic panel data model of eleven South American countries was applied, with estimates analyzed by the System-GMM method. The main results indicate that greater trade openness is related to increased income inequality, while financial liberalization may be linked to its decrease. In conclusion, it is assumed that despite the importance of commercial globalization for countries, one must consider the unequal impacts of exchange policies on local economies. Accordingly, the design of these policies must adjust to the singularities of the countries, pondering the need to reduce income disparities and combat extreme poverty.