| 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. |