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Economic reforms and total factor productivity growth in Latin America and the Caribbean (1950-95) - an empirical note

  • Fajnzylber, Pablo
  • Lederman, Daniel

The authors rely on a series of growth accounting exercises to determine whether the growth rate of total factor productivity (TFP) or the unexplained portion of GDP growth (after controlling for the accumulation of capital per worker) in 18 Latin American and Caribbean economies has benefited from economic reform. They use Sachs and Warner (1995) criteria to identify the years of economic reform. They apply growth decomposition analysis and econometric tests to determine whether TFP growth has been significantly higher during periods of economic reform. Although the growth decomposition analysis assumes that the capital share of output is constant across Latin American countries, the economic estimates allow for cross-country differences. In ordinary least squares (OLS) regressions and seemingly unrelated regressions (SUR), two alternative dummy variables are used to control for the effects of business-cycle fluctuations on observed rates of TFP growth. In addition, the SUR regressions consider the possibility that Latin American economies face common shocks. Finally, panel regressions are based on five-year averages of the growth rates of GDP and capital per worker. The authors find that, on average, economic reforms have been associated with a 1.5 percent yearly increase in the rate of TFP growth. But there are important differences across countries and in some cases economic reforms have been associated with lower TFP growth.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2114.

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Date of creation: 31 May 1999
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Handle: RePEc:wbk:wbrwps:2114
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  1. Ann Harrison, 1995. "Openness and Growth: A Time-Series, Cross-Country Analysis for Developing Countries," NBER Working Papers 5221, National Bureau of Economic Research, Inc.
  2. Jose De Gregorio, 1991. "Economic Growth in Latin America," IMF Working Papers 91/71, International Monetary Fund.
  3. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  4. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  5. Susan M. Collins & Barry P. Bosworth, 1996. "Economic Growth in East Asia: Accumulation versus Assimilation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 135-204.
  6. Zvi Griliches & Frank R. Lichtenberg, 1984. "R&D and Productivity Growth at the Industry Level: Is There Still a Relationship?," NBER Chapters, in: R&D, Patents, and Productivity, pages 465-502 National Bureau of Economic Research, Inc.
  7. Edwards, Sebastian, 1998. "Openness, Productivity and Growth: What Do We Really Know?," Economic Journal, Royal Economic Society, vol. 108(447), pages 383-98, March.
  8. Easterly, William & Loayza, Norman & Montiel, Peter, 1997. "Has Latin America's post-reform growth been disappointing?," Policy Research Working Paper Series 1708, The World Bank.
  9. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
  10. Francesco Caselli & Gerardo Esquivel & Fernando Lefort, 1997. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Working Papers Central Bank of Chile 03, Central Bank of Chile.
  11. Loayza, Norman V. & DEC, 1994. "A test of the international convergence hypothesis using panel data," Policy Research Working Paper Series 1333, The World Bank.
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