Joana Cecilia Chapa Cantú

Cointegration with structural changes between per capita product and income inequality in Mexico

The long-run relationship between per capita product and income inequality in Mexico is assessed for the period 1963–2010. The methodology consists of stochastic unit root techniques with structural changes. The integration and cointegration tests suggest that it is not possible to understand this link if the possibility of structural changes is not taken into account. Causality, running from per capita product to income inequality, and a negative and significant overall effect are estimated. However, after the regime shifts – mainly estimated to occur in the 1980s – the connection is no longer meaningful. This result seems to be linked to the slow growth of the Mexican economy after these structural breaks, affecting, in turn, the reductions in income inequality.