The Latin American efficiency gap

Francesco Caselli

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The average Latin American country produces about 1 fifth of the output per worker of the US. What are the sources of these enormous income gaps? I report development-accounting results for Latin America. On average Latin America’s overall physical and human capital endowment relative to the USA is essentially identical to Latin America’s efficiency relative to the USA . In my main sample average relative capital and average relative efficiency are both roughly double actual average relative incomes. Hence, both capital gaps and efficiency gaps are very large: the average Latin American country has less than half the capital (human and physical) per worker of the US, and uses it less than half as efficiently. In assessing this evidence, it is essential to bear in mind that efficiency gaps contribute to income disparity both directly -- as they mean that Latin America gets less out of its capital -- and indirectly -- since much of the capital gap itself is likely due to diminished incentives to invest in equipment, structure, schooling, and health caused by low efficiency. The consequences of closing the efficiency gap would correspondingly be far reaching. Explaining the Latin American efficiency gap is therefore a high priority both for scholars and for policy makers.

Keywords: Latin America; income gaps; development accounting (search for similar items in EconPapers)
JEL-codes: O11 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2014-08
New Economics Papers: this item is included in nep-eff and nep-lam
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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