Latin America in the rearview mirror

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2004.09.002 Byline: Harold L. Cole (a)(b), Lee E. Ohanian (a)(b)(c), Alvaro Riascos (d), James A. Schmitz (c) Keywords: Latin America Abstract: Latin American countries are the only Western countries that are poor and that are not gaining ground on the U.S. This paper evaluates why Latin America has not replicated Western economic success. We find that this failure is primarily due to TFP differences. Latin America's TFP gap is not plausibly accounted for by human capital differences, but rather reflects inefficient production. We argue that competitive barriers are a promising channel for understanding low Latin TFP. We document that Latin America has many more international and domestic competitive barriers than do Western and successful East Asian countries. We also document a number of microeconomic cases in Latin America in which large reductions in competitive barriers increase Latin American productivity to Western levels. Author Affiliation: (a) Department of Economics, University of California, Los Angeles, Los Angeles, CA 90024, USA (b) National Bureau of Economic Research, Cambridge, MA 02138, USA (c) Federal Reserve Bank of Minneapolis, Minneapolis, MN 55480, USA (d) Banco de La Republica de Colombia, Bogota, D.C. Article History: Received 23 April 2004; Revised 27 September 2004; Accepted 27 September 2004 Article Note: (footnote) [star] We would like to thank our discussant, Bill Easterly, as well as Michele Boldrin, Tom Holmes, Ed Prescott, Ken Rogoff, and John Tilton for their comments. We would like to thank Otsu Keisuke, Sanghoon Lee and Mauro Rodrigues for their able research assistance. Finally, we would like to thank Alan Stockman who has long served as a mentor, guide and inspiration to many of us. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis, or the Federal Reserve System. Cole acknowledges NSF grant SES 0137421. Ohanian acknowledges NSF grant SES 00099250.