HUMAN DEVELOPMENT PROBLEMS
IN LATIN AMERICA: A REVIEW OF THE
TENDENCIES IN THE NINETIES
Javier Villanueva
Note: The present is a reduced version of the paper presented last year
at the Universita Sacro Cuore in Milano, Italy
HUMAN DEVELOPMENT PROBLEMS
IN LATIN AMERICA: A REVIEW OF THE
TENDENCIES IN THE NINETIES
Javier Villanueva
1. INTRODUCTION
In the last twenty years, Latin American countries -even though with frequent differences
among them-have gone through two important economic stages. In the eighties, volatility and
stagnation were generalizad. In the nineties, particularly in the first part of the decade, some
recoveries were experienced and advances were made towards more stable macro economic
sceneries. lt is true that the existing differences among countries do not permit to adopt a
generalizad point of view on the economic orientations on the nineties, but on the whole this
stage clearly offered more opportunities than in the previous one.
The general expectation of many of the economists was that once the 'Iost decade' and the
sharp increase in poverty of the eighties was overcome, the better conditions of the nineties
would bring with ¡t a betterment of the poverty conditions and inequality problems in the
region. However, contrary to the expectations, ¡t was clear --as a result of many studies on the
subject-- that although the 1 990's have been a period of recovery and some stabiiity. Poverty
and inequality still did not show signs of a general decline in the region.
In this way, the discussions of inequality and distribution have notably stepped up to the front,
accompanied by numerous empirical studies, many of which were based on the newly
available time series of household surveys in developing countries.
Frequently, the new contributions to the field have gone, beneath the surface of the overail
Gini coefficient, to explore the micro structure of the inequality situations.
In the following sections, we will: first, examine some of the more important contributions to
the field, and later we will concentrate our review on the existing data related to the lndex of
Human Development published by the United Nations Development Program (2000).
2. SOME DATA ON INEQUALITY IN LA
In Table 1, Section A, we can see a comparison of averages of inequality indexes of world
regions (K.Deininger and L.Squire, 1 996). From these figures, the following observations
may be made:
a)
Latin America and the Caribbean appear -according to these calculations- in the top of the
lnequality lndexes in the 70's, 80's and 90's.
b) The LA lndex went up in the 80's and was slightly reduced in the 90's.
c)
The highest jump in the lndex, from the 80's to the 90's was experienced by the SubSaharan Africa.
In Section B, of the same Table, Londoño and Szekely (1 997) show what they call the
"income polarization' of Latin American countries. In the Table they show that in 1 970 the
poorest and the richest 1 % in Latin America and the Caribbean earned, on the average, $ 11 2
and $ 40.71 1 (PPP adjusted 1 985 US dollars) per capita per year, respectively. The gap
between these two groups was reduced during the 1 970's, 'but in the 1 980's the income of the
poorest 1 % remained stable in real terms while the income of the richest 1 % increased by
almost 50%'. During the nineties, the gap extended and by 1 995 the richest 1 % registered an
average income of $ 66, 363 while that of the poorest was of $ 1 59.
Naturally, the previousiy mentioned data are the result of aggregations of the available
statistical materials, however they show the general directions of the problems of poverty in
LA countries. Further examinations, and the new materias made available by different authors
and lnstitutions permit, however, a more detailed analysis that ciarify the possible differences
between the countries of the Latin American region. There are authors that insist in saying
that one of the basic questions in connection with the topics we are here examining is why are
outcomes so different in countries that have similar structures and are subject to similar global
forces.
Perhaps, the answer to the fact that iríequaiity among countries has been rising (Sec. Figure
VIII in the Appendix) is that the size of income is the result of a number of complex forces
which sometimes may move in the same direction, but some other times may countervail each
other, even to the point that their effects cancel each other out. These forces may be:
distribution and evaluation of endowments and their market returns; family formation and the
number of children; taxes and transfer policies and other problems.
TABLE 1
- Section A) -Decadal Averages of lnequaiity lndexes, by Region
Gini coefficients
Regions
Overal Average
The latin america and Caribbean
49.78
Sub-Saharan Africa
46.05
Middle East and North Africa
40.49
East Asia and the Pacific
38.75
South Asia
35.08
1970s
49.00
48.19
41.93
39.88
33.95
1980s
49.75
43.46
40.45
38.70
35.01
1990s
49.31
46.95
38.03
38.09
31.88
Note: Figures reported are unweighted averages of Gini coefficients of economies in each
region. Changes within regions may be caused by the fact that not all economies have
observations for all decades.
Source: K. Deininger and L. Squire; 1996.
- Section B) Averages incomes of poor and richest (Yearly PPP Adjusted GDP Per
Capita)
Subgroup
Pooret 1%
Richest 1%
Source:
1970
$ 112
$ 40.711
1985
$ 193
$ 54.929
1995
$ 159
$ 66.36
J. L. Londoño and M. Székeiy, 1997.
3. FACTORS THAT CONTRIBUTE TO INEGUALITY IN LA AND THE
CARIBBEAN
Even though it does not exist Vet a wide convergence among the studies and methods
employed in the analysis, and determination, of which are the more important factors that may
be used to explain inequality and poverty in Latin America, ¡t is today clear that the subject
has been growing in importance in the economic literature.
In the following paragraphs we will try to summarize some of the recent contributions to the
field, particularly those that are related to the LA experience.
a)
Economic cycles: Some authors emphasize the fact that the problems of poverty and
inequality have been the result of a repetition of economic cycles:
the difficulties go
up in times of recession and tend to be reduced in times of recovery (Altimir, 1 995;
Psacharopoulos et. a, 1995).
In such cases the advice is to apply 'anti-poverty'
measures of polítical economy.
b) lnequality, poverty and economic growth: There are many -some times contradictory-contributions to this topic. Some examples are:

ECLAC, 2000: In the 1990's higher per capita income was linked to relatively greater
reduction in the incidence of poverty; (Figure l).

No systematic empirical relation between inequality and growth. There is a complex
pattern of forces beneath the surface that makes for differences between countries
(Figure VIII).

Equality is positively related to growth (M. Partridge, 1 997).

No evidence of a linear relationship between inequality and growth; (R. Barro, 1999).

There is evidence of a short run positive effect of inequaiity on growth, which is
reversed in the long run; (F.Rodriguez, 2000).

No systematic relation between growth of aggregate income and changes in inequality as
measured by the Gini coefficient. lnteractions between the economic and política¡
systems must be considered (K. Deininger and L. Squire, 1 996).

Unequal societies are less likely to carry out the adjustments necessary to respond to
negative macroeconomic shocks: high inequaiity economic instability and poor
institutions that cannot manage conflicts are factors that interact to produce growth
collapses. Thus, inequality can be harmfui to the long run growth by making economic
reforms less plausible; (D.Rodrik, 1998; P. Aghion, 1 998).
a) Agriculture and inequaiity: In many instances, authors find that growth biased towards
agricultural activities as opposed to services (Figures IV and VI) bring with it inequaiity,
due to the fact of unequal patterns of land ownership; (A.Janvry and E. Sadoulet (1 996».
These authors find (also ECLAC, 2000):

Very high concentration of land property: Mexico, Chile, Paraguay.

Middle concentration: Colombia, Costa Rica, Venezuela, Brazil, Argentina.

Low concentration: Uruguay, Rep. Dominicana, Puerto Rico, Jamaica, Honduras.

Natural resources (Land, metais, minerais) are associated with slow growth and a more
inequal distribution of income, (M.Gavin and R. Hausmann, 1998).

Demographic growth, low educational leveis, enviroment degradation, inapropiate
technologies are also factors that make rural conditions of poverty and inequality.

Rural-urban migration tend to make the situations more difficult, since the migratory
waves that leave rural activities are generally composed of people whith higher skilis and
educational leveis: (A Janvry and E. Sadoulet, 1996).

J. Sachs and A.Warner (1 995) consider that a 1 5% point increase in the ratio of natural
resources exports to GDP reduces the predicted growth by over a percentage point, per
year.

ECLAC (2000) inciudes the following data, in connection with rural poverty:
Poor
Urban
Rural
Urban
Rural
25
35
30
54
58
54
9
12
10
28
34
31
% of households
1980
1990
1997
d)
Indigent
Regional and geographical approach: D.Brigman and H. Fofak (2000) understand that
an 'índividualist' analysis of the causes of poverty and inequaiity may not aiways ciarify
the real tendencias.
There are, they say, pockets of poverty that my be ciarified
employing a wider "regional' analysis. ¡t is always heipfui, in this context, to consider
the following factors: low quality of public services, poor conditions of rural
infraestructura, slow diffusion of new farm technologies, distances from the urban
centers.
e)
Other sources of inequality and poverty are, ¡t is said: prices of mass consumption
products, specially foodstuffs (ECLAC, 2000), hyperinflation (Janvry and Sadoulet, 1
996), empioyment in the “informal” sector (“during the 90's a majority of the new jobs
that were created were in the informal sector... This sector employs 47% of the working
population in LA urban areas... with wages substantially lower...” ECLAC, 2000). A.
Atkins (1 997) finds that the poverty and inequality situations must be studied
understanding that the problem is very complex (see Table 11 ) and must take into
consideration things as earnings (skilis , collective bargaining), public and private
transfers, etc.
f)
Education: Almost al¡ the authors, here examined, coincide in pointing out that the
more important factor behind the problems we are examining is the availability, or not, of
human capital. Szekeiy and Londoño, 1 997, say that “the availability and distribution of
latinamerican inequeility are the roots of the high level of Latinamerican inequality” (Figure
II).
Education may bring with it more productivity, better wages, better jobs, an increase in the
possibilities of social mobiiity. The problem remains to be how to open the doors to those
possibilities to the poorest sectors of the society.
4. DIFFERENCES AMONG COUNTRIES
As we have mentioned in severa¡ places in the previous sections, one of the questions that
should not be left aside, when examining the problems of inequaiity and poverty in Latin
America and the Caribbe, is that those countries ofteniy present remarkable differences among
them. In general, they do not have the same economic structures, resources and production
systems or economic history. Neither are they equally influenced by the same currents of
ideas, customs or cultural orientations.
Looking, for example, to the changes in urban poverty, in the years 1 9001997 (ECLAC,
Equity Gap, 2000), ¡t may be pointed out that at least three groups of countries may be formed
in relation to the problems of poverty and indigence: a) Group 1. Lower tendencias: Chile,
Costa Rica, Argentina and Uruguay (decreasing in that order); b) Group II, lntermediate:
Venezuela, Colombia, El Salvador, Dominican Republic, Mexico, Brazil, Peru and Panama;
c) Group lii, Higher leveis of poverty and indigence: Honduras, Nicaragua, Ecuador,
Guatemala, Bolivia and Paraguay.
In Table2, we present parts of the data on human development and poverty (1 998) published
by the United Nations's Human Developmenr Report, 2000. Looking at these figures there are
severa¡ relevant points that can be made. For example:
a)
Countries of the region could be classified according to the IHD (index of Human
Development in three groups (Canada appears in the first world position with an IHD of
0.902):
- Group of the eighties (0.837 down to 0.825): Argentina, Chile, and Uruguay.
- Group of the seventies (0.797 down to 0.722): Costa Rica, Mexico, Venezuela,
Colombia, Brazil; Peru and Ecuador.
- Group of the sixties (0.653 down to 0.631): Honduras, Bolivia and Nicaragua.
b) From the 1 970's to 1 998 all countries of the region inciuded in the Table, have
experienced a positive evolution in the IHD.
- Those countries that were in lower IHD positions in 1 998, were also countries with a
large proportion of people living in rural areas (with the exception of Costa Rica).
Conversely, those countries that figure in the first IHD places had a larger percentage
of the population located in urban areas.
TABLE 2
Latin America: Principal data on human development and poverty
Notes:
a) Order of countries of L.A: according to the leveis of IHD (1 998); Data of UNDP: Human
Development Report; 2000. Canada is number 1 in the list of countries.
b) IHD as % of the largest value attained by the Latin American and Caribean group; (Data UNDP,
1998)
c)
Populabon urban-rural distdbution in % (1995); United Nations, 1998.
Sources: ECLAC; 2000; UN; Report on Human Development, 1999; UNDP, 2000.
TABLE3
Index of Human Development:
Eleven Latin American Countries.
(1960 -1998)
1) Argentina
2) Chile
3) Uruguay
4) México
5) Venezuela
6) Colombia
7) Brazil
8) Perú
9) Paraguay
10) Ecuador
11) Bolivia
1998
0.837
0.826
0.825
0.784
0.770
0.764
0.747
0.737
0.736
0.722
0.643
1960
0.667
0.584
0.737
0.517
0.600
0.469
0.394
0.420
0.474
0.422
0.308
Source: UNDP: Report on the Human Development, 1998

From Brazil, down to Nicaragua (with the exception of Paraguay and Ecuador) the
index of adult literacy rate is lower than in the rest of the countries.

GDP per capita is larger in the countries with a higher IHD.

With the exception of Paraguay, from Colombia down to Nicaragua, ¡¡fe expectancy is
lower than the rest of the countries. Higher leveis of households below the poverty
line appear in countries from Mexico down to Nicaragua.
5. CONCLUSIONS
As we have seen, in the nineties an important flow of new ideas and studies on the problems
of poverty and inequality took place. In most of the cases, the purpose of the studies was to
go deeper in the analysis of these topics -empirically and theoretically-trying to understand the
complexities that characterize the subject.
We have tried to summarize some of the more important recent contributions to the field,
particularly those related to the case of Latin America and the Caribbean area. A region in
which inequality indicators apparently are the highest in the world.
The new studies emphasize the need to go 'deeper' into the analysis of poverty problems. The
ideas tend to converge in the need to examine the impact of factors such as: educational
levels; "polarization" of income distribution; low wages and the 'informal sector' activities;
concentration of land property; migrations (inter-country and rural urban); social, polítical and
economic problems that bring with them instabilities, hyperinflations and 'volatility'.
.
APPENDIX 1
Bibilography
BIBLIOGRAPHY
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lnvestigation Using Latin American Data'; lnteramerican Development Bank, Research
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Factors to be considered in a Well-Being lndex
Consumption Flows 0.4
Market Consumption
Per Capita ( 1992$)
Government Spending
Per Capita (1992$)
Variation in work
Hours (1992$)
Wealth Stocks 0.1
Capital Stock Per Capita (1992$)
R & D Per Capita (1992$)
Natural Resources Per Capita (1992$)
Human Capital (1992$)
1ess: Net Foreing Debt Per Capita (1992$)
1ess: Social Cost of Environmental
Degradation (1992$)
Equality 0.25
Poverty Intensity 0.1875
Giny Coefficient 0.0625
(Income after taxes)
Economic Security 0.25
Risk of Unemployment 0.0694
Risk of illnes 0.104
Risk of Single Parent Poverty 0.0540
Risk of Old Age 0.0226
Index of
Well-Being
Source: L. Orsberg and A. Sharpe; 2000.