The Negative Implications of The High Levels of Inequality in Colombia

Territorial Inequalities in Colombia: Realities and Prospects

By Ramiro López-Ghio - Laura Giles Álvarez - Ekaterina Cuéllar - Cristhian Larrahondo

Territorial inequality comes at a cost: it significantly reduces economic efficiency and hinders productivity in the most vulnerable regions...

Colombia, like many countries in Latin America and the Caribbean, has high levels of inequality, in both in terms of income and the country’s geography.  This characteristic has negative implications for its economic growth and the quality of life of its population.

Severe income inequality at the national level requires, among other measures, progressive fiscal policies to generate greater equity.  Yet territorial inequality presents a significant challenge: we lack measures of territorial inequality over time that are comparable to those at the national level.  This limitation hinders evidence-based diagnosis that could support the development of effective policies.

Measuring Territorial Inequality in Colombia

In order to better understand inequalities between Colombia’s different regions and consider public policies to address them, the IDB published on a study in which it developed a multidimensional index of territorial inequality.  This index measures seven determining factors in the lives of Colombians, from childhood to old age.  It also provides an objective measure of the phenomenon that can be replicated over time.  The results outline four broad categories when it comes to the different departments of Colombia.  These groupings, which together we can call the Multiple Colombias (see Figure 1) are:

1. Consolidated Colombia: The most prosperous departments, where a robust and diversified economic model has been consolidated.
2. Emerging Colombia: Departments that, although lagging in some dimensions, have the conditions to consolidate improvements in the well-being of their inhabitants.
3. Colombia in Transition: Departments facing significant structural challenges, but able to partially mitigate social shocks.
4. Vulnerable Colombia: Departments where multiple factors that inhibit citizens’ well-being and quality of life converge.

The results show that the differences between these regions are equivalent to the disparities between countries of vastly different wealth and development.  There are regions in Colombia with social and economic indicators equivalent to high-income countries, other areas resembling upper-middle-income and lower-middle-income ones, and others with results similar to those of low-income countries.

The Implications of Territorial Inequality

Territorial inequality comes at a cost: it significantly reduces economic efficiency and hinders productivity in the most vulnerable regions.  The concentration of resources in favored areas not only limits the development of disadvantaged regions; it keeps them in a state where the lack of opportunities and investment perpetuates a vicious cycle of poverty and exclusion.  This dynamic negatively impacts productivity and economic growth, hindering inclusive development.

In fact, the departments in the Vulnerable Colombia have shown a negative gap of one percentage point in real GDP growth over the last decade compared to the national average.  In contrast, the departments in the Consolidated Colombia show a positive gap, which reinforces their competitive advantage.  Likewise, departmental competitiveness indices reveal significant disparities: while departments in the Vulnerable Colombia score an average of 3.1 out of 10, those in the Consolidated Colombia  have almost double this score with an average of 6.4 out of 10.

Social mobility is also negatively affected by these gaps.  Compared to other countries in the region, Colombia has lower social mobility, as revealed by studies that consider both years of education and other wealth indicators.  This lack of access to equitable opportunities, exacerbated by territorial inequalities, perpetuates poverty over generations, restricting the possibilities for socioeconomic advancement and maintaining these disparities over time.

Strengthening territorial work

Counteracting regional disparities is essential.  At the IDB, we emphasize the importance of designing evidence-based territorial development policies that can respond to the specific needs of the Multiple Colombias. These policies should address the economic, social and environmental particularities of each region and be integrated into national development plans.

The use of multidimensional inequality indices and measures of social mobility is an important advance in this sense.  These instruments provide a more complete and nuanced view than traditional metrics and are crucial to the design of effective strategies to address inequalities in a comprehensive manner.  Strategies to improve the quality of education and cash transfer programs, for example, will be effective to the extent that they consider territorial realities.

In addition, it is essential to strengthen territorial entities with programs that increase their capacity to generate their own resources and formulate projects of public investment and social support projects.  This support will not only improve the effectiveness of regional policies but will also reduce inequalities and help promote equitable development.  After all, every citizen, regardless of where they live, should have the opportunity to benefit from inclusive growth: to prosper and contribute to the country’s development.

Source