Economic Integration, Inequality and Growth: Latin America Versus the European Economies in Transition

The paper first summarizes the theoretical and empirical literature on the growth and inequality impact of the liberalization of trade, FDI, portfolio flows, and migration. It then compares the inequality and growth performance of Latin America over 2000-2008 with that recorded during the same period in the fast liberalizing European economies in transition. The paper argues that the latter recorded growth rates of GDP slightly higher than those of Latin America, but that they experienced also greater instability and a rise in income inequality which instead declined in most of Latin America. The paper suggests that such divergent performance is mostly explained by differences in policies.