The Lack of Convergence of Latin-America Compared with CESEE: Is Low Investment to Blame?

By Bas B. Bakker, Manuk Ghazanchyan, Johannes Emmerling, Vibha Nanda

June 19, 2020

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Bas B. Bakker, Manuk Ghazanchyan, Johannes Emmerling, and Vibha Nanda. The Lack of Convergence of Latin-America Compared with CESEE: Is Low Investment to Blame?, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

In the last few decades there has been little convergence of income levels in Latin America with those in the United States, in sharp contrast with both emerging Asia and emerging Europe. This paper argues that lack of convergence was not the result of low investment. Latin America is poorer because of lower human capital levels and lower TFP—not because of a lower capital-output ratio. Cross-country differences of TFP in turn are associated with differences in human capital, governance and business climate indicators. We demonstrate that once levels of human capital and governance are taken into account, there is strong conditional cross-country convergence. Poor countries with high levels of human capital, governance or business climate indicators converge rapidly. Poor countries without those attributes do not. We show that low investment is the result of low TFP and thus GDP growth—not the cause.

Subject: Business environment, Capital productivity, Economic sectors, Human capital, Labor, National accounts, Personal income, Production, Total factor productivity

Keywords: Business environment, Capital deepening, Capital input, Capital productivity, East Asia, Economic Convergence, Global, Growth, Human capital, Human capital, Levels in CESEE, Output indicator, Personal income, Ratio rise, South America, Southeast Asia, TFP, TFP difference, TFP growth, TFP level, Total factor productivity, Western Europe, WP

Publication Details

Pages:

82
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/098
Stock No:

WPIEA2020098
ISBN:

9781513547886
ISSN:

1018-5941

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