Venezuela's Growth Experience
AbstractThe standard of living, measured as gross domestic product (GDP) per capita, increased dramatically in Venezuela relative to that of the United States from 20 percent in 1920 to 90 percent in 1958, but since then has collapsed to around 30 percent nowadays. What explains these remarkable growth and collapse episodes? Using a standard development accounting framework, we show that the growth episode is mainly accounted for by an increase in capital accumulation and knowledge transfer associated with the foreign direct investment in the booming oil industry. The collapse episode is accounted for equally by a fall in total factor productivity and in capital accumulation. We analyze Venezuela during the collapse episode in the context of a model of heterogeneous production units were policies and institutions favour unproductive in detriment of more productive activities. These policies generate misallocation, lower TFP, and a decline in capital accumulation. We show in the context of an heterogeneous-establishment growth model that distortionary policies can explain between 80 to 95 percent of the current differences in TFP, capital accumulation, and income per capita between Venezuela and the United States.
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Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-431.
Length: 38 pages
Date of creation: 03 Jun 2011
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Productivity; physical capital; misallocation; policies;
Other versions of this item:
- Omar D. Bello & Juan S. Blyde & Diego Restuccia, 2011. "Venezuela’s Growth Experience," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 48(2), pages 199-226.
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
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