2022-09-08-IMF-Closing_Peru_39_s_Ethnic_Gaps_Amidst_Sustained_Economic_Growth_48页_4mb

Peru’s Ethnic Gaps Amidst Sustained Economic Growth: Analysis and Summary

This paper analyzes the evolution of ethnic economic inequalities in Peru during the period from 2004–2018, a time of sustained economic growth and poverty reduction. Using National Household Survey (NHS) data, the analysis focuses on the three largest ethnic groups: White, Mestizo, and Native American.

Key Findings:

1. Narrowing Ethnic Gaps: Economic growth contributed to a significant reduction in income/expenditure inequalities among ethnic groups. By 2016–2018, the Mestizo group surpassed the White group in average income, while the Native American group also saw improvements, though at a slower pace.
2. Drivers of Progress: The narrowing of ethnic gaps was primarily driven by two factors:
   • Rural-to-Urban Migration: Mestizo and Native American groups increasingly moved to urban areas, which generally offered higher incomes due to agglomeration effects.
   • Educational Attainment: Increased schooling years, particularly among Mestizo and Native American groups, played a crucial role. Education levels of the Mestizo group surpassed those of the White group by 2016–2018.
3. Role of Informality: Informality remains a barrier, especially for Native Americans, who have higher rates of informal employment. Data shows an association between informality and lower income, though reforms to reduce informality have seen mixed success.
4. Sectoral Shifts: Workers from Mestizo and Native American groups increasingly shifted from agriculture to services, reflecting urbanization trends. However, migration into manufacturing was less pronounced, partly due to the high education requirements for such jobs.

Policy Recommendations:

1. Expand Public Services: Prioritize education and healthcare, particularly in rural areas, to address quality and access disparities. ( e.g., investing in infrastructure, cash transfers, and better targeting poverty alleviation programs).
2. Increase Government Revenue: Mobilize revenue through tax reforms, including direct taxes and anti-evasion measures, to fund public services.
3. Reduce Informality: Soften regulations to encourage formalization, especially for small and medium enterprises in informal sectors. Note that a high minimum wage ratio poses challenges for formalization.
4. Promote Competition: Regulate oligopolistic sectors to enhance market contestability, particularly at high income levels, to reduce inequality at the top of the wealth distribution.

Concluding Remarks:

The reduction in ethnic income gaps over two decades demonstrates that market-oriented reforms are compatible with declining inequality in Peru. The analysis underscores the importance of continued policies focusing on education, urbanization, and regulatory reforms to accelerate further narrowing of gaps while maintaining economic stability.