Giving Credit to Productivity

Productivity and financial development go hand in hand. Unfortunately, credit is scarce, volatile, and expensive in Latin America and the Caribbean (IDB, 2004). Average credit to the private sector in the region, at about 40 percent of GDP, is much lower than the averages for the advanced economies (112 percent of GDP) and for East Asian developing countries (64 percent of GDP) (Figure 6.1).1 A GDP-weighted average presents an even bleaker picture, with credit to the private sector at 33 percent of GDP in Latin America, compared to 156 percent for the advanced economies and 98 percent of GDP for developing East Asia. Given this lack of financial development, it is not surprising that productivity in the Latin American and Caribbean region is low.