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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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Volume (Year): (2013)
Issue (Month): (January)

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Handle: RePEc:col:000425:010912
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  6. 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.
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  9. repec:bla:restud:v:77:y:2010:i:4:p:1421-1449 is not listed on IDEAS
  10. Guillaume Vandenbroucke & Diego Restuccia, 2013. "Explaining Educational Attainment across Countries and over Time," 2013 Meeting Papers 488, Society for Economic Dynamics.
  11. Jeremy Greenwood & Juan M. Sanchez & Cheng Wang, 2010. "Financing Development: The Role of Information Costs," American Economic Review, American Economic Association, vol. 100(4), pages 1875-91, September.
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  13. Ashantha Ranasinghe, 2012. "Property Rights, Extortion and the Misallocation of Talent," 2012 Meeting Papers 293, Society for Economic Dynamics.
  14. Veracierto, Marcelo, 2001. "Employment Flows, Capital Mobility, and Policy Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 571-95, August.
  15. Tatyana Koreshkova & Diego Restuccia & Andres Erosa, 2007. "How Important is Human Capital? A Quantitative Theory Assessment of World Income Inequality," 2007 Meeting Papers 782, Society for Economic Dynamics.
  16. Riccardo DiCecio & Levon Barseghyan, 2010. "Entry Costs, Industry Structure, and Cross-Country Income and TFP Differences," 2010 Meeting Papers 964, Society for Economic Dynamics.
  17. Lutz Hendricks, 2002. "How Important Is Human Capital for Development? Evidence from Immigrant Earnings," American Economic Review, American Economic Association, vol. 92(1), pages 198-219, March.
  18. Margarida Duarte & Diego Restuccia, 2006. "The productivity of nations," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 195-223.
  19. 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.
  20. Margarida Duarte & Diego Restuccia, 2006. "The Structural Transformation and Aggregate Productivity in Portugal," Working Papers tecipa-261, University of Toronto, Department of Economics.
  21. 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.
  22. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, December.
  23. Diego Restuccia & Guillaume Vandenbroucke, 2014. "Online Appendix to "Explaining Educational Attainment across Countries and over Time"," Technical Appendices 13-98, Review of Economic Dynamics.
  24. Hernan J. Moscoso Boedo & Toshihiko Mukoyama, 2011. "Evaluating the Effects of Entry Regulations and Firing Costs on International Income Differences," Virginia Economics Online Papers 379, University of Virginia, Department of Economics.
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  27. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
  28. Todd Schoellman, 2012. "Education Quality and Development Accounting," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 388-417.
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