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The Latin American Efficiency Gap

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  • Francesco Caselli

Abstract

The average Latin American country produces about 1 fifth of the output per worker of the US. What are the sources of these enormous income gaps? I report development-accounting results for Latin America. On average Latin America's overall physical and human capital endowment relative to the USA is essentially identical to Latin America's efficiency relative to the USA . In my main sample average relative capital and average relative efficiency are both roughly double actual average relative incomes. Hence, both capital gaps and efficiency gaps are very large: the average Latin American country has less than half the capital (human and physical) per worker of the US, and uses it less than half as efficiently. In assessing this evidence, it is essential to bear in mind that efficiency gaps contribute to income disparity both directly -- as they mean that Latin America gets less out of its capital -- and indirectly -- since much of the capital gap itself is likely due to diminished incentives to invest in equipment, structure, schooling, and health caused by low efficiency. The consequences of closing the efficiency gap would correspondingly be far reaching. Explaining the Latin American efficiency gap is therefore a high priority both for scholars and for policy makers.

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  • Francesco Caselli, 2014. "The Latin American Efficiency Gap," CEP Discussion Papers dp1289, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1289
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    Cited by:

    1. Eric A. Hanushek & Jens Ruhose & Ludger Woessmann, 2017. "Knowledge Capital and Aggregate Income Differences: Development Accounting for US States," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 184-224, October.
    2. Eric A. Hanushek & Jens Ruhose & Ludger Woessmann, 2015. "Human Capital Quality and Aggregate Income Differences: Development Accounting for U.S. States," CESifo Working Paper Series 5411, CESifo.
    3. Mendez-Guerra, Carlos, 2020. "Labor Productivity, Capital Accumulation, and Aggregate Efficiency Across Countries: New Evidence for an Old Debate," MPRA Paper 99268, University Library of Munich, Germany.
    4. Jorge Thompson Araujo & Ekaterina Vostroknutova & Markus Brueckner & Mateo Clavijo & Konstantin M. Wacker, 2016. "Beyond Commodities," World Bank Publications - Books, The World Bank Group, number 25321.
    5. Nikita Céspedes & Pablo Lavado & Nelson Ramírez (ed.), 2016. "Productividad en el Perú: medición, determinantes e implicancias," Books, Departamento de Economía, Universidad del Pacífico, edition 1, number 07-14.
    6. Mendez-Guerra, Carlos, 2017. "Labor productivity, capital accumulation, and aggregate efficiency across countries: Some stylized facts," MPRA Paper 82461, University Library of Munich, Germany.
    7. Jorge Thompson Araujo & Markus Brueckner & Mateo Clavijo & Ekaterina Vostroknutova & Konstantin M. Wacker, 2014. "Benchmarking the Determinants of Economic Growth in Latin America and the Caribbean," World Bank Publications - Reports 21318, The World Bank Group.

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    More about this item

    Keywords

    Latin America; income gaps; development accounting;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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