What closes the output gap? In a 2015 author proof, development accounting for the median sampled Latin American country in 2010 puts output per worker at 19% of the U.S. level, hypothetically 34% with the input gaps closed and 57% with the total factor productivity gap closed. The input gaps concern the capital-output ratio and human capital. These are separate accounting scenarios, not causal estimates; no uncertainty intervals are reported. Productivity matters more in this decomposition.
What closes the output gap? In a 2015 author proof, development accounting for the median sampled Latin American country in 2010 puts output per worker at 19% of the U.S. level, hypothetically 34% with the input gaps closed and 57% with the total factor productivity gap closed. The input gaps concern the capital-output ratio and human capital. These are separate accounting scenarios, not causal estimates; no uncertainty intervals are reported. Productivity matters more in this decomposition.

Divergent and Unequal Development in Latin America: Causes and Policy Challenges

Carlos Mendez
October 2015
Cite Source Document

Abstract

This chapter first evaluates the proximate and deeper determinants of the socioeconomic performance of Latin America over the long run. Then, it points to four policy areas where progress is still needed. At a proximate level, a production accounting exercise suggests that it is not the lack of productive factors, but the way they are utilized and allocated across sectors what holds down the relative income of the region. At a more deeper level, the findings from the recent political economy of growth literature suggest that extractive institutions, which have characterized the region since its independence, drive both low accumulation of productive factors and their inefficient use. Looking ahead, further policy action should aim to enhance counter-cyclical economic capacity, promote regional integration, reduce logistics costs associated with international trade, minimize the misallocation effects of some well intended social policies, and sustainably reduce income inequality.

Type
Book section
Publication
In Shigeru Otsubo (Ed.), Globalization and Development: In Search of a New Development Paradigm
Latin America
Carlos Mendez
Carlos Mendez
Associate Professor of Development Economics

My research interests focus on the integration of development economics, spatial data science, and econometrics to better understand and inform the process of sustainable development across regions.

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