Physical capital accumulation has been constrained by high volatility in investment per worker, low marginal product of capital, and high adjustment costs. The cyclical dynamics of TFP are shaped by cyclical variables such as terms of trade and fluctuations in the real exchange. However, economic policy variables (such as macroeconomic stabilization and external debt management), institutional variables (such as democracy and civil rights) and initial conditions also appear to be significant when explaining the behavior of Bolivia’s TFP.
A clear pattern of regional divergence for the period 1988-2000. In contrast, the 2000-2014 period points to a much more complex pattern of di-convergence: the long-run equilibrium distribution is characterized by both a process of convergence arising from the top and a process of divergence near its bottom tail.
Cross-country productivity disparities rapidly increased in the 1980s, slowed down in the next decade, and stabilized in the mid-2000s. The upper tail the productivity distribution is more sensitive to improvements in human capital, while the lower tail is more sensitive to improvements in technology.
Differences in welfare-adjusted development are larger than those predicted by per-capita GDP. Differences in labor productivity account for most of the differences in both production and welfare-adjusted development. Inefficient production is the main factor holding down labor productivity.