chapter  4
27 Pages

Latin America

Economic growth and productivity since the 1990s
ByAndre Hofman, Claudio Aravena

Over the past 25 years, economic growth has been very dissimilar between Latin America and the Caribbean and India. Low and unstable growth in the former, and high and sustained growth in India. The analysis presented in this chapter intends to explain some factors behind these different performances, and discusses the challenges Latin America and the Caribbean faces in achieving long-term growth. A new data base, LA KLEMS, is used comparable with KLEMS databases for India, and more than 40 advanced and developing countries. In view of the policy challenges facing the region, the following guidelines are relevant to promote sustainable growth. Macroeconomic policies that maximize the utilization of production capacity, on a sustainable basis, are critical for long-term growth and for protecting labor productivity and income. Macroeconomic policies need to place emphasis on promoting investment and must also focus on safeguarding the competitiveness of tradable sectors. Microeconomic policies must aim to improve labor productivity and total factor productivity in key sectors. None of the above suggests that there is a single recipe for achieving and maintaining high growth rates. The experience of other regions shows that progress toward higher income levels entail much “sweat and sacrifice” (high rates of investment, which defer present consumption).