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

Author/Editor:

Bas B. Bakker ; Manuk Ghazanchyan ; Alex Ho ; Vibha Nanda

Publication Date:

June 19, 2020

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 20/98

Subject:

English

Publication Date:

June 19, 2020

ISBN/ISSN:

9781513547886/1018-5941

Stock No:

WPIEA2020098

Format:

Paper

Pages:

82

Please address any questions about this title to publications@imf.org