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

83 Pages Posted: 23 Jul 2020

See all articles by Bas Berend Bakker

Bas Berend Bakker

International Monetary Fund (IMF)

Manuk Ghazanchyan

International Monetary Fund (IMF)

Wai-Yip Alex Ho

International Monetary Fund (IMF)

Vibha Nanda

International Monetary Fund (IMF)

Date Written: June 1, 2020

Abstract

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.

JEL Classification: C53, E23, E27, E32, E62, E01, E2, O4, Z13, F3

Suggested Citation

Bakker, Bas Berend and Ghazanchyan, Manuk and Ho, Wai-Yip Alex and Nanda, Vibha, The Lack of Convergence of Latin-America Compared with Cesee: Is Low Investment to Blame? (June 1, 2020). IMF Working Paper No. 20/98, Available at SSRN: https://ssrn.com/abstract=3654358

Bas Berend Bakker (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Manuk Ghazanchyan

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Wai-Yip Alex Ho

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Vibha Nanda

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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