Income Distribution and the 2008–2012 Economic Crisis: The Latin American Experience

Abstract

This paper analyses the financial and economic crises that had a differentiated impact in the Latin-American region, depending on the ability of some countries to keep up an aggregate demand—i.e., through redistribution devices like the degree of integration held within the foreign financial sector. Based on a sample of regional economies, and working over a period spanning from 2000 to 2013, we found that countries with a relatively better income distribution and domestic financial systems connected with credit programs supporting consumption and investment, had had a better economic performance than those countries with a strong linkage to the international financial system, given that the crisis was ignited at the banking system and accelerated by the same mechanism over-spreading negative shock effects on their capacity to offset them and, in doing so, try an economic recovery. Finally, the authors raise some hints to devise correct policy changes to deal in the still aftermath of the crises in Latin America from a post Keynesian perspective.