The Quality of Latin American Institutions

Faced with institutional competition, accelerated by the process of globalization, countries have basically two options: participate in it and get their benefits or isolate themselves and be left aside. With a few exceptions, Latin American countries have not been able to cope with competition and are lagging behind. In this article an attempt will be made to evaluate the quality of Latin American institutions in terms of macroeconomic stability and the rule of law through the building of a composite index called “Institutional Quality Index†, averaging together indexes evaluating economic and political issues, trying to capture the essence of institutional arrangements that have allowed countries to progress and showing whether Latin America’s institutions are able to compete in the world arena. It will be concluded that small countries, such as Chile and some islands on the Caribbean and Central America, get better qualifications than larger countries in the region. This may be explained by the fact that their size forces them to be open economies where contracts and property rights are enforced, since their economies would not be self-sustainable if closed. Also, the “heritage†of legal systems such as the British “common law†shows that some countries could get a better performance of justice as shown by, for example, the high qualifications of some Caribbean countries as compared to others in Latin America that inherited the legal systems of Spain or Portugal. A few recommendations follow.