Political Risk Latin America Blog @PolRiskLatam

Face-to-Face with Productivity

Posted in News and Articles, Political Risk by politicalrisklatam on March 4, 2011

by Eduardo Lora and Carmen Pagés for International Monetary Fund, March, 2011.

It is not lack of investment but inefficient production that holds back Latin American incomes

Most Latin American countries withstood the global financial crisis better than advanced economies. In 2010, Latin America experienced outstanding per capita income growth of more than 4 percent, with countries like Argentina, Brazil, and Peru roaring ahead at rates above 5 percent. But over the next few years, per capita growth is projected to moderate to no better than 2 to 3 percent a year. Sustaining growth at this rate would not be bad, but it won’t allow the region to catch up quickly with the advanced economies—as such fast-growth economies as Japan and Korea have done or as China is doing now.

Moreover, because of a legacy of poor growth, the gap between Latin America and the developed world has actually increased during the past 50 years. The per capita income of a typical Latin American country was one-quarter that of the United States a half-century ago. Today it is one-sixth.

Despite frequent calls for more investment in the region, that’s not the main reason for its flagging growth. Latin America’s most serious problem is slow growth in productivity or, more precisely, in total factor productivity (TFP)—which is the ratio of the total goods and services an economy produces to the factors of production—such as capital, labor, and human skills. (continue reading… )



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