Regional economic Integration and income inequality in Latin America: the case of the Andean Community of Nations

Abstract

Countries in Latin America have created many regional integration groups in order to boost economic growth, trade, and sustainable development. Income inequality has reduced in Latin America and especially in Andean region, one of the oldest regional group on the continent. There is a need to verify whether this decline is imputable to an intensified regional integration.

Using the data for the Andean Community of Nations (CAN) from 2000 to 2013, we carry a panel analysis to inquire about the effect of regional economic integration on income inequality.

We found that, regional trade has influenced the decline of income inequality in the region. The results discovered that intraregional trade increases income and, later, decreases it as countries become fully integrated; as predicted by the inverted U-shape theory.

Our results do not provide evidence to support that economic growth affects income inequality. It, however, provides evidence of a higher degree of integration among the countries.

Keywords: Regional integration, income inequality, Andean region