Factor Shares and Resource Booms: Accounting for the Evolution of Venezuelan Inequality

Francisco RodrÍguez

in Inequality Growth and Poverty in an Era of Liberalization and Globalization

Published in print March 2004 | ISBN: 9780199271412
Published online August 2004 | e-ISBN: 9780191601255 | DOI:

Series: WIDER Studies in Development Economics

 Factor Shares and Resource Booms: Accounting for the Evolution of Venezuelan Inequality

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This is the second of five country case studies on income inequality, and shows that income inequality in Venezuela has significantly worsened during the past 27 years; in particular, the worsening has taken the form not of higher inequality among workers, but of higher inequality between those who own and those who do not own capital. Factor shares (shares of factors of production) have moved decisively against labour during the last three decades, resulting in a transfer of approximately 15% of GDP from labour to capital income: the data show an average worker in the late 1990s to be roughly half as well off in terms of income as an average worker in 1970. The chapter examines several possible explanations for the change in income inequality. It has six sections: Introduction; What the data say; Factor Shares, Factor Prices, and Oil Booms—an attempt to explain the evolution of factor shares on the basis of the evolution in human and physical capital accumulation; Other Influences on Income Distribution—an examination of alternative influences on factor shares; Labour's Loss of Power and the Political Economy of Inequality—an in‐depth discussion of the loss of political power by the Venezuelan labour movement and the relationship of this with the main hypothesis presented by the chapter; and Concluding Comments. The main thrust of the explanation offered is that the increase in Venezuela's income inequality can to a great extent be traced back to the decline in the country's physical capital stock and its rigid production processes, although policies such as trade liberalization, contractionary macropolicies, and capital account convertibility have made a far from negligible additional contribution.

Keywords: capital account convertibility; capital accumulation; capital income; capital stock; case studies; economic policy; Factor Prices; Factor shares; factors of production; Income Distribution; income inequality; inequality; labour income; labour movement; liberalization; loss of political power; political power; production processes; rigidity of production processes; trade liberalization; Venezuela; workers

Chapter.  11539 words.  Illustrated.

Subjects: Economic Development and Growth

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