The rate of interest and income distribution: an examination of the Pasinetti index in Latin America

Noemi Levy-Orlik and Jorge Bustamante

Chapter 7 in Central Banking, Monetary Policy and Income Distribution, 2023, pp 139-163 from Edward Elgar Publishing

Abstract: In this work, we analyze the distributive character of the interest rate in a sample of Latin American countries. This study is carried out through the application of the Pasinetti index for Brazil, Colombia, Chile, and Mexico, during 1950-2018. We show that since the nineties the income distribution favored the rentier class, because the economic policy of the region generated the macroeconomic conditions that favored a positive real interest rate (high nominal interest rates and lower inflation rate) that was above the growth rate of productivity. The redistributive character of real interest rate is shown through a panel data econometric analysis that proof the negative relationship between the growth rate of real wages and the rate real interest rate variation. This ultimately shows that the period of financial globalization has favored the rentier class with a positive real interest rate, that has been achieve via contention of working-class wages.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2023
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