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Inequality, Well-being and Institutions in Latin America and the Caribbean

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  • Jaideep Oberoi
  • Syed Ahsan

Abstract

This paper focuses on the role of “institutions” in the fight against poverty and inequality. Our view of institutions encompasses formal rules designed by polity (including those in the legal and economics sphere such as rules of property rights, contracts and liabilities) as well as informal rules (usually labelled social capital) that have emerged over the history of one’s civilisation. The inclusion of health, nutrition, and literacy indicators in defining well-being (or, non-income poverty à la capability approach of Amartya Sen) allows a rich discussion of policy interventions. While both orientations as to the concepts of poverty, inequality and institutions are expounded on a priori reasoning, empirical analysis with LAC data prove rewarding. Quality of institutions (measured by a composite variable called institutional capital, IC) turns out to be a key factor explaining well-being. Further where the level of income is also important to the explanation, the quantitative role of the institutional factor dominates that of the income variable. Within IC, political stability (or lack of violence) appeared to provide the more precise estimates in every case. Consequently we argue that the foremost policy interventions ought to be in the areas of building both adequate formal institutions, as well as creating an enabling environment for the informal institutions (such as social capital) to flourish and find their own roots. The principal focus of the policy debate must centre on the mutual interaction of market as well as non-market institutions in reducing poverty broadly speaking

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 846.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_846

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  1. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
  2. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
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  17. Ravallion, Martin, 2001. "Growth, Inequality and Poverty: Looking Beyond Averages," World Development, Elsevier, vol. 29(11), pages 1803-1815, November.
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Cited by:
  1. Baltzer, Markus & Baten, Jörg, 2008. "Height, trade, and inequality in the Latin American periphery, 1950-2000," Economics & Human Biology, Elsevier, vol. 6(2), pages 191-203, July.
  2. Bird, Richard M. & Zolt, Eric M., 2005. "The limited role of the personal income tax in developing countries," Journal of Asian Economics, Elsevier, vol. 16(6), pages 928-946, December.

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