Why does Latin America Grow More Slowly?

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Oct 2004
In order to analyze how satisfactory the growth process in Latin America has been over the past 40 years it is important to make relevant comparisons with other experiences. To tackle this issue, the authors focus on the per capita economic growth rate and its contributing factors, comparing the experience of the typical country in Latin America (LAC) with that of benchmark countries, namely a typical country of the rest of the world (ROW) and of its subsets of developed countries (DEV) and East Asian countries (EASIA). They provide some econometric evidence suggesting that the worse institutional quality of Latin America relative to rest of the world, and to a lesser extent, the lower degree of openness and the higher degree of macroeconomic instability, were important factors behind these differences in productivity growth. The rest of the paper includes a description of economic performance of Latin America during the last four decades and a comparison it with the experience of the benchmark countries, accounting exercises in order to examine the contributions of various factors to the differences in performance observed, an econometric model to explore the role of policy and institutional variables as drivers of these contributions, and a conclusion.