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The Latin American Development Problem: An Interpretation

  • Diego Restuccia

    ()

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 dif- ference 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 estimate 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 post-world-war-II economic development in the United States.

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Article provided by LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION in its journal JOURNAL OF LACEA ECONOMIA.

Volume (Year): (2013)
Issue (Month): ()
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Handle: RePEc:col:000425:010912
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  1. Jeremy Greenwood & Juan M. Sanchez & Cheng Wang, 2009. "Financing development : the role of information costs," Working Paper 08-08, Federal Reserve Bank of Richmond.
  2. Diego Restuccia & Guillaume Vandenbroucke, 2011. "Explaining Educational Attainment across Countries and over Time," Working Papers tecipa-433, University of Toronto, Department of Economics.
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  6. Andres Erosa & Tatyana Koreshkova & Diego Restuccia, 2009. "How Important is Human Capital? A Quantitative Theory Assessment of World Income Inequality," Working Papers 09007, Concordia University, Department of Economics, revised Mar 2009.
  7. James Tybout, 1998. "Manufacturing Firms In Developing Countries: How Well Do They Do, And Why?," Development and Comp Systems 9805004, EconWPA.
  8. Margarida Duarte & Diego Restuccia, 2006. "The Structural Transformation and Aggregate Productivity in Portugal," Working Papers tecipa-261, University of Toronto, Department of Economics.
  9. Raphael Bergoeing & Patrick J. Kehoe & Timothy J. Kehoe & Raimundo Soto, 2002. "Data Appendix to A Decade Lost and Found: Mexico and Chile in the 1980s," Technical Appendices bergoeing02, Review of Economic Dynamics.
  10. Hernan Moscoso Boedo & Toshihiko Mukoyama, 2012. "Evaluating the effects of entry regulations and firing costs on international income differences," Journal of Economic Growth, Springer, vol. 17(2), pages 143-170, June.
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  13. Finn E. Kydland & Carlos E.J.M. Zarazaga, 2001. "Argentina's lost decade," Center for Latin America Working Papers 0401, Federal Reserve Bank of Dallas.
  14. 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.
  15. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
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  18. repec:bla:restud:v:77:y:2010:i:4:p:1421-1449 is not listed on IDEAS
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  20. Harold L. Cole & Lee E. Ohanian & Alvaro Riascos & James A. Schmitz, Jr., 2004. "Latin America in the rearview mirror," Staff Report 351, Federal Reserve Bank of Minneapolis.
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  23. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
  24. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
  25. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, October.
  26. Margarida Duarte & Diego Restuccia, 2006. "The productivity of nations," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 195-223.
  27. Ashantha Ranasinghe, 2012. "Property Rights, Extortion and the Misallocation of Talent," 2012 Meeting Papers 293, Society for Economic Dynamics.
  28. Omar D Bello & Juan S Blyde & Diego Restuccia, 2011. "Venezuela's Growth Experience," Working Papers tecipa-431, University of Toronto, Department of Economics.
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