Connecting Patterns of Technical Change and Income Inequality

Abstract

:This paper studies the empirical relationship between patterns of technical change and income inequality from historical and political economy perspectives. Growth distribution schedules are constructed to determine the type of technical change undergone in a sample of Latin American countries from 1963 to 2008. Such patterns of technical change can be grouped into redistributive and nonredistributive. The expected theoretical relation under redistributive patterns of technical change is that income inequality should decrease when this type of pattern emerges. The study empirically verifies that this relationship emerges in several periods, but this outcome is only one of the possible results of the complex interaction between patterns of technical change and historical economic and political events. Combining our study of patterns of technical change with economic history reveals that the role of political and economic coalitions needs to be incorporated to understand the complex forces that determine changes in income distribution. The study concludes with provisions of a framework for understanding changes in income distribution during different episodes in our period of analysis, ranging from the era of military dictatorship to the most recent period. We highlight some policy implications that can be drawn from this framework.