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The Latin American Development Problem

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Author Info
Diego Restuccia

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Abstract

By international standards, gross domestic product (GDP) per capita in Latin America is low -- around one fifth of that of the United States. Moreover, in the last five decades, Latin America has failed to catch-up in wealth to the level of the United States while other countries at similar or even lower stages of development have been successful. The failure to attain higher levels of relative income represents what I call the development problem of Latin America. Using a variety of data, I find that the bulk of the difference in GDP per capita between Latin America and the United States is explained by low GDP per worker and, in particular, low total factor productivity (TFP) in Latin America. I calculate that to explain the difference in GDP per worker, TFP in Latin America must be around 60 percent of the level in the United States. I consider a model with heterogeneous production units where institutions and policy distortions lead to a 60 percent productivity ratio between Latin America and the United States. Removing the barriers to productivity can increase long-run relative GDP per worker in Latin America by a factor of 4. This increase is equivalent to 70-years worth of U.S. post WW-II development.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-318.

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Length: 46 pages
Date of creation: 14 May 2008
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Handle: RePEc:tor:tecipa:tecipa-318

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Related research
Keywords: labor productivity; capital; schooling; plant heterogeneity; policy distortions;

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Find related papers by JEL classification:
O1 - Economic Development, Technological Change, and Growth - - Economic Development

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    Other versions:
  4. Guner, Nezih & Ventura, Gustavo & Xu, Yi, 2007. "Macroeconomic Implications of Size-Dependent Policies," CEPR Discussion Papers 6138, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Margarida Duarte & Diego Restuccia, 2007. "The Role of the Structural Transformation in Aggregate Productivity," Working Papers tecipa-300, University of Toronto, Department of Economics. [Downloadable!]
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  6. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc. [Downloadable!]
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  8. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February. [Downloadable!] (restricted)
  9. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Working Papers tecipa-283, University of Toronto, Department of Economics. [Downloadable!]
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  10. Galindo, Arturo & Schiantarelli, Fabio & Weiss, Andrew, 2007. "Does financial liberalization improve the allocation of investment?: Micro-evidence from developing countries," Journal of Development Economics, Elsevier, vol. 83(2), pages 562-587, July. [Downloadable!] (restricted)
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  11. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932.
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  16. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-83, April.
    Other versions:
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  18. Atkenson, Andrew & Khan, Aubhik & Ohanian, Lee, 1996. "Are data on industry evolution and gross job turnover relevant for macroeconomics?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 215-239, June. [Downloadable!] (restricted)
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  20. Simeon Djankov & Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "The Regulation Of Entry," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 1-37, February. [Downloadable!] (restricted)
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  21. Margarida Duarte & Diego Restuccia, 2007. "The structural transformation and aggregate productivity in Portugal," Portuguese Economic Journal, Springer, vol. 6(1), pages 23-46, April. [Downloadable!] (restricted)
    Other versions:
  22. Andrew Atkeson & Patrick J. Kehoe, 2002. "Measuring Organization Capital," NBER Working Papers 8722, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    Other versions:
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This page was last updated on 2009-11-21.

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