This post is a summary of the book with the title above. The book was published in 2005 at https://publications.iadb.org/bitstream/handle/11319/279/Sources%20of%20Growth%20in%20Latin%20America.pdf?sequence=1
During the last two decades, a great deal of research has been conducted to explain what lies behind the large differences in income per capita that we observe across countries. Long-run economic growth is central for understanding these differences. This book analyzes the source of growth in Latin America and focus on what is missing to sustain fast economic growth in the long run. Latin America ( LA ) countries are falling behind. The growth record of LA in the recent past has been poor. For decades the average income per capita has fallen relative to those of other countries, raising concerns about the capacity of the region to emulate more successful developing countries and lift its living standards closer to those of the developed world. What is failing? The first two chapters offer an overview of Latin America's growth performance. Chapter 1 shed light on the strengths and weaknesses of the growth process in LA by means of comparisons with other regions. Two clear messages arise from this chapter: first, LA's relative performance is poorer due to slower productivity growth; and second, this productivity growth is impeded by the quality of its institutions, The authors acknowledge that other factors, such as bad economic policies, have also played a role. During the past four decades, many LA countries experienced episodes of economic crisis, political instability, and social unrest. At the same time, they also implemented economic stabilization policies, political reorganization, and structural reform. A cursory review of indicators suggest a positive result from these efforts. Generally speaking, income per capita, health, and education indicators improved. The achievement are impressive in many respects, yet how satisfactory are they? To tackle this issue, we focus on the per capita economic growth rate and its contributing factors. We compared the experience of a "typical" country in LA with that of benchmark countries, "typical" countries for the rest of the world and for subsets of developed countries and East Asian countries. The literature in economic growth generally highlights the role of human capital in long-term growth. As a factor of production, human capital has a direct role. It is important for innovation and for the absorption of foreign technology. Macro stability is a significant determinant of schooling attainment and of the proportion of individuals that complete basic education. This conclusion is very important because it reveals that macroeconomic crises can have long-term negative effects through a vicious circle in which low growth and high macro volatility hamper schooling attainment, which in turn inhibits future growth. The process by which countries grow is a complex phenomenon. We hope that this material contributes to better understanding of the growth phenomenon in LA and to the transformation needed for success. Brazil experienced steady increases in output per worker from 1900 to 1980. As in the rest of LA, the 1980s were a decade of negative growth. What are the sources of Brazil's growth? The economy underwent significant changes during the 1990s, changes that transformed Brazil from inward-oriented, inflation-prone, and crisis-vulnerable to open; price-stable, and economically well managed. But Brazil's recent efforts to integrate itself into the world economy, establish macro stability and rely on private enterprise rather than state planning as the engine of economic growth have met limited success as measured by GDP growth. Whether these reforms will be sufficient to generate GDP growth rates in the longer term is still a open question. Our hypothesis is that such growth will require further improvements, which are now possible given Brazil's new, more stable environment. Indeed some of these improvements- higher capital productivity associated with longer-term investment and greater innovation; greater investment in skills and training; and the reform of institutions governing business activity- have only been imaginable under clearer ground rules engendered by macro stabilization. To achieve these improvements, further reforms are necessary in government, policies, and institutions. This second stage of reform consolidation, in contrast to the first stage, technical and political complexities are higher, depending on a larger and more diverse set of actors. This underlines the need for political consensus about the necessity and content of these reforms, which has clearly been lacking in Brazil. Thus, the analysis tries to answer the question: What parts of Brazilian state-level characteristics or policies coincided with income growth within the period studied? To frame the answer to this question, initial hypotheses about what determines or constrains household income growth in Brazil and its states are needed. Many such hypotheses exist. The following hypothese were selected, with notes amplifying the evidence that would support each. First are education constraints. Brazil's low level of workforce education is often cited by investing companies as an impediment to economic activity. So it is natural to posit this as an obstacle restraining growth. Second is political and policy uncertainty. Policy uncertainty has been cited by firms in many surveys as the number-one obstacle to investing in Brazil. It is sometimes difficult to ascertain exactly what comprises this uncertainty: exchange rates, economic ambiguity, and unpredictable legal ruling, among ither factors, may play a part. Third are infrastructure bottlenecks. Brazil's infrastructure is not worse than of its neighbors. There is, however, great variations among the states. Some findings suggest the importance of technological innovation: higher shares of IT in physical capital raised both productivity and its growth rate. Complementing this result, firms employing more skilled labor showed faster productivity growth. Given evidence from firms in other countries about the importance of international knowledge flows, this result raises concern that Brazil's integration into international production is not generating its full potential, perhaps because of a bias towards regional trade or owing to tech transfer impediments. The future importance of knowledge flows must been seen in the context of Brazil's present business environment. A heavy regulatory burden involving three levels of government, cascading taxes, controls on foreign licensing and tech transfer, and slow process of intellectual property protection are all candidates for public scrutiny and reform given the evidence presented here. The expansion of basic education is the single most powerful tool at the government's disposal for improving the distribution of gains from economic growth among the population. In this regard, the household data contain another important finding. The fundamental role the Real Plan played in improving of income growth among the poor by ending inflation. By continuing these two basic policies: expanding high-quality basic education and keeping inflation low, Brazil can avoid the growth inequality that has faced in the past. Attention to what the macro and micro data are telling us today suggest that trade, innovation, knowledge flows, and human capital will be the primary drivers of Brazil's growth in the 21st century.
