Territorial income differences and dynamics within Latin American countries

We document territorial disparities in labor income and location premiums and their evolution in 14 countries in Latin America, using millions of observations from harmonized household surveys and censuses. Our findings suggest that between the early 2000s and the late 2010s real labor incomes and location premiums converged at the first and second administrative levels in most countries in the region as growth in affluent predominantly urban municipalities decelerated and that in relatively poor, predominantly rural municipalities accelerated. Absolute convergence narrowed the labor income gaps with leading metropolitan areas, including the disparities exploitable through migration, especially among the bottom 40% of households. Yet, on the eve of the COVID-19 pandemic, income disparities with leading metropolitan areas remained large in nearly all countries, largely due to differences in educational attainment, but in a few countries, large differences in returns to endowments indicate potentially significant returns to migration to the leading metropolitan areas, especially for residents of relatively poor, remote regions. Rather than a clear rural–urban–metropolitan divide, we document substantial overlap between the location premium distributions of different types of second-level administrative areas and small differences between the average urban and rural location premiums in most countries in the region.