Crossroads in a Fog: Navigating Latin America's Development Challenges with Text Analytics

Latin America and the Caribbean are facing challenging times due to a combination of worsening development gaps and limited fiscal space to address them. Furthermore, the region is contending with an unfavorable external environment. Issues such as rising poverty, climate change, inadequate infrastructure, and low-quality education and health services, among others, require immediate attention. Deciding how to prioritize efforts to address these development gaps is challenging due to their complexity and urgency, and setting priorities becomes even more difficult when resources are limited. Therefore, it is crucial to have tools that help policymakers prioritize current development challenges to guide the allocation of financial support from international financial institutions and other development partners.

This paper contributes to this discussion by using Natural Language Processing (NLP) to identify the most critical development areas. It applies these techniques to detailed periodic country analysis reports (Country Development Challenges, CDCs) prepared by country economists at the Inter-American Development Bank (IDB) from 2015 to 2021. The study reveals that despite the perception that new development challenges have become more critical lately, the region continues to struggle with the same challenges from the past, particularly those related to the government's institutional capacity, fiscal policy, education, productivity and firms, infrastructure, and poverty.