The economies of Latin America have undergone a deep process of change in the last decade as a result of the application of major reforms. The outcome can be fairly described as a New Economic Model. This New Economic Model is distinguished from its predecessor, in force before the 1980s debt crisis, by an emphasis on market forces and export-led growth. This book explores the main features of the New Economic Model in Latin America and, through analysis of the reform process and case studies, examines its impact on income distribution and poverty.

After decades of stagnation, the size of Latin America's middle class recently expanded to the point where, for the first time ever, the number of people in poverty is equal to the size of the middle class. This volume investigates the nature, determinants and possible consequences of this remarkable process of social transformation. We propose an original definition of the middle class, tailor-made for Latin America, centered on the concept of economic security and thus a low probability of falling into poverty. Given our definition of the middle class, there are four, not three, classes in Latin America. Sandwiched between the poor and the middle class there lies a large group of people who appear to make ends meet well enough, but do not enjoy the economic security that would be required for membership of the middle class. We call this group the 'vulnerable'. In an almost mechanical sense, these transformations in Latin America reflect both economic growth and declining inequality in over the period. We adopt a measure of mobility that decomposes the 'gainers' and 'losers' in society by social class of each household. The continent has experienced a large amount of churning over the last 15 years, at least 43% of all Latin Americans changed social classes between the mid 1990s and the end of the 2000s. Despite the upward mobility trend, intergenerational mobility, a better proxy for inequality of opportunity, remains stagnant. Educational achievement and attainment remain to be strongly dependent upon parental education levels. Despite the recent growth in pro-poor programs, the middle class has benefited disproportionally from social security transfers and are increasingly opting out from government services. Central to the region's prospects of continued progress will be its ability to harness the new middle class into a new, more inclusive social contract, where the better-off pay their fair share of taxes, and demand improved public services.

The issue of the pros and cons of free trade from the point of view of developing countries refuses to dissipate, and in Latin America, the debate rages most fiercely. Argentina is still licking its wounds after a catastrophic past five years, and Brazil and others have hardened their line – even going so far as to initiate the influential new G20 group of the most powerful LDCs. Who Gains from Free Trade examines the extent to which trade reforms have been an important source of the slowdown of economic growth, rising inequality and rising poverty as observed in many parts of the region. This volume presents a comprehensive analysis of this important topic, utilizing: research based on sixteen country narratives of policy reform and economic performance rigorous general equilibrium (CGE) modelling of the economy-wide effects of trade reform for all country cases application of an innovative method of microsimulations to assess the employment and factor income distribution impact of policy reforms on poverty and inequality at the household level. This important study, a valuable resource for postgraduate students of development economics and political economy, examines all the current issues and brings together some of the world’s leading experts.

Over the past decades, inequality has risen not just in advanced economies but also in many emerging market and developing economies, becoming one of the key global policy challenges. And throughout the 20th century, Latin America was associated with some of the world’s highest levels of inequality. Yet something interesting happened in the first decade and a half of the 21st century. Latin America was the only region in the World to have experienced significant declines in inequality in that period. Poverty also fell in Latin America, although this was replicated in other regions, and Latin America started from a relatively low base. Starting around 2014, however, and even before the COVID-19 pandemic hit, poverty and inequality gains had already slowed in Latin America and, in some cases, gone into reverse. And the COVID-19 shock, which is still playing out, is likely to dramatically worsen short-term poverty and inequality dynamics. Against this background, this departmental paper investigates the link between commodity prices, and poverty and inequality developments in Latin America.

This book is open access under a CC BY 4.0 license. This book brings together a range of ideas and theories to arrive at a deeper understanding of inequality in Latin America and its complex realities. To so, it addresses questions such as: What are the origins of inequality in Latin America? How can we create societies that are more equal in terms of income distribution, gender equality and opportunities? How can we remedy the social divide that is making Latin America one of the most unequal regions on earth? What are the roles played by market forces, institutions and ideology in terms of inequality? In this book, a group of global experts gathered by the Institute for the Integration of Latin America and the Caribbean (INTAL), part of the Inter-American Development Bank (IDB), show readers how various types of inequality, such as economical, educational, racial and gender inequality have been practiced in countries like Brazil, Bolivia, Chile, Mexico and many others through the centuries. Presenting new ideas, new evidence, and new methods, the book subsequently analyzes how to move forward with second-generation reforms that lay the foundations for more egalitarian societies. As such, it offers a valuable and insightful guide for development economists, historians and Latin American specialists alike, as well as students, educators, policymakers and all citizens with an interest in development, inequality and the Latin American region.

The volume aims to document and explain the sizeable decline of income inequality that has taken place in Latin America during the 2000s. It does so through an exploration of inequality changes in six representative countries, and ten policy chapters dealing with macroeconomics, foreign trade, taxation, labour market, human capital formation, and social assistance, which point to the emergence of a 'new policy model'. The volume addresses a major issue in economic development with profound implications for many developing regions and those OECD countries mired in a long-lasting financial crisis and economic stagnation. For at least the last quarter of the twentieth century, Latin America suffered from low growth, rising inequality, and frequent financial crises. However, since the turn of the century, growth accelerated, inequality declined, poverty fell, and macroeconomic stability improved, all this in parallel to the spread of centre-left political regimes in three quarters of the region. This inequality decline has taken many by surprise as, for a long time, the region has been a symbol of a deeply entrenched unequal distribution of assets, incomes, and opportunities, limited or no state redistribution, and a deeply embedded authoritarianism enforcing an unjust status quo. The recent Latin American experience is particularly valuable as inequality was reduced under open economy conditions and in a period of intensifying global integration, which have often been considered as a source of rising inequality. In this sense, however imperfect, the recent Latin American experience may be of interest to countries completing their transition to the market and liberal democracy (as in the former socialist countries of Europe), facing a political transition (as those affected by the Arab Spring, Myanmar and countries in sub-Saharan Africa), or recording rises in inequality and social tensions in spite of rapid economic growth (as in China and India). Until recently there was not much agreement on the drivers of the inequality decline in the region, which was attributed to changes in the supply/demand of skilled workers, improvements in terms of trade, the spread of social assistance schemes, or 'luck'. In this respect, the volume offers the first scholarly and systematic exploration of this unexpected change. As income inequality has been rising and is currently rising in many parts of the world, a good understanding of the Latin American experience over the 2000s is a topic that will inform and generate a lot of attention.

The authors address the causes and consequences of the recent worsening of income distribution in Latin America.