The impact of economic and demographic factors on income inequality: a comparative study of Southeast Asian and Latin American countries

Abstract

Despite rapid economic growth, Southeast Asia and Latin America continue to have significant income inequality. This study applies fixed-effects regression estimation with the dynamic panel model with lagged independent variables and the fixed-effects analysis with endogenous covariates to examine the impact of economic and demographic factors on income inequality in 6 Southeast Asian and 15 Latin American countries from 1994 to 2017. Empirical results indicate that emissions, trade openness, old-age dependency ratio, human capital, and female population reduce income inequality, whereas industrialization, unemployment, young-age dependency ratio, and urban population increase income inequality in Southeast Asian countries. This study also finds evidence of the Kuznets curve hypothesis. In addition, industrialization, trade openness, population growth, and human capital reduce income inequality, whereas unemployment, young-age dependency ratio, old-age dependency ratio, and foreign direct investment increase income inequality in Latin American countries. This study also finds evidence of the U-shaped curve hypothesis. This study provides a more comprehensive theoretical framework to investigate income inequality from economic and demographic perspectives, where population growth, urban population, population structure, human capital, and the female population are essential components.