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The Latin American Development Problem

Diego Restuccia ()

Working Papers from University of Toronto, Department of Economics

Abstract: By international standards, gross domestic product (GDP) per capita in Latin America is low -- around one fifth 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 of Latin America. Using a variety of data, I find that the bulk of the difference in GDP per capita between Latin America and the United States is explained by low GDP per worker and, in particular, low total factor productivity (TFP) in Latin America. I calculate that to explain the difference in GDP per worker, TFP in Latin America must be around 60 percent of the level in the United States. I 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 relative GDP per worker in Latin America by a factor of 4. This increase is equivalent to 70-years worth of U.S. post WW-II development.

Keywords: labor productivity; capital; schooling; plant heterogeneity; policy distortions (search for similar items in EconPapers)
JEL-codes: O1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev
Date: 2008-05-14
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Related works:
Working Paper: The Latin American Development Problem (2011) Downloads
Working Paper: The Latin American development problem (2009) Downloads
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