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The Latin American Development Problem

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  • Diego Restuccia

Abstract

By international standards, gross domestic product (GDP) per capita in Latin America is low: around one fourth 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 in Latin America. Using a development accounting framework, I find that the bulk of the difference in GDP per capita between Latin America and the United States is accounted for by low GDP per hour and, in particular, low total factor productivity (TFP) in Latin America. I calculate that to explain the difference in GDP per hour, TFP in Latin America must be around 60 percent of that in the United States. I then 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 GDP per hour in Latin America by a factor of 4 relative to that of the United States. This increase is equivalent to 70-years worth of U.S. post WW-II development.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-432.

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Length: Unknown pages
Date of creation: 12 Jun 2011
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Handle: RePEc:tor:tecipa:tecipa-432

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Keywords: labor productivity; capital; schooling; establishment heterogeneity; policy distortions;

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Citations

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Cited by:
  1. Matias Busso & Lucia Madrigal & Carmen Pages-Serra, 2012. "Productivity and Resource Misallocation in Latin America," Research Department Publications 4753, Inter-American Development Bank, Research Department.
  2. Perez Caldentey, Esteban & Pineda, Ramon, 2010. "Does Latin America lag behind due to shaper recessions and/or slower recoveries?," MPRA Paper 25036, University Library of Munich, Germany.
  3. Ferreira, Pedro Cavalcanti Gomes & Pessôa, Samuel de Abreu & Veloso, Fernando A., 2010. "The Evolution of TFP in Latin America: High Productivity when Distortions Were High?," Economics Working Papers (Ensaios Economicos da EPGE) 699, Graduate School of Economics, Getulio Vargas Foundation (Brazil).
  4. Leal Ordóñez, Julio C., 2010. "Informal sector, productivity, and tax collection," MPRA Paper 26058, University Library of Munich, Germany, revised Oct 2010.
  5. Bhattacharya, Dhritiman & Guner, Nezih & Ventura, Gustavo, 2011. "Distortions, Endogenous Managerial Skills and Productivity Differences," IZA Discussion Papers 5963, Institute for the Study of Labor (IZA).
  6. Alain Gabler & Markus Poschke, 2013. "Experimentation by Firms, Distortions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 26-38, January.
  7. Ferreira, Pedro Cavalcanti & Pessôa, Samuel de Abreu & Veloso, Fernando A., 2011. "On The Evolution of TFP in Latin America (revised)," Economics Working Papers (Ensaios Economicos da EPGE) 723, Graduate School of Economics, Getulio Vargas Foundation (Brazil).
  8. Daniel Chiquiar & Manuel Ramos Francia, 2009. "Competitiveness and Growth of the Mexican Economy," Working Papers 2009-11, Banco de México.

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