With the profound political and economic changes of the 1970s and 1980s behind it, and regardless of its trade patterns, Chile's income distribution is, for the moment, calm. Education may be the most important variable affecting the structure of, and changes in, inequality in Chile.
After rising in the 1960s, falling in the early 1970s, and rising again from the mid-1970s to the mid-1980s, income inequality seems to have stabilized in Chile since about 1987.
With the stormy period of economic and political reform of the 1970s and 1980s well over, no statistically significant Lorenz dominance results could be detected after 1987. Scalar measures of inequality confirm this picture of stability but suggest a slight change in the shape of the density function—with some compression at the bottom compensated for by a stretching at the top.
As inequality remained broadly stable, sustained economic growth led to substantial poverty reduction, according to a range of measures and with respect to three different poverty lines. Poverty mixed stochastic dominance tests confirm this result.
All of these findings are robust to different choices of equivalence scales.
An examination of the factors underlying these trends suggests that an equilibrium has (for the moment) been reached between rising demand for and supply of skills—the demand for skills associated with technological progress and the supply of skills associated with expansion of education. Chile's trading pattern might well be tangential to its recent distributional dynamics.
This paper—a product of the Poverty Reduction Group, Poverty Reduction and Economic Management Network—is part of a larger effort in the network to understand income distribution dynamics in developing countries. The study was funded by the Bank's Research Support Budget under the research project "Poverty and Income Distribution Dynamics in a High Growth Economy: The Case of Chile, 1987–94" (RPO 681-59). Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Grace Ilogon, room MC4-644, telephone 202-473-3732, fax 202-522-3283, Internet address gilogon@worldbank.org. Francisco H. G. Ferreira may be contacted at fferreira@worldbank.org. August 1998. (50 pages)
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