NS4053 Winter Term 2015
Productivity Growth in Latin America
Latin American Productivity I
• Henry Bruton, “Productivity Growth in Latin America” American Economic Review, December 1967
• Wants to determine sources of Latin American growth• Focus is on the relative contribution of labor, capital and
technological change/efficiency (the residual)• Argument built around an aggregate production function – the
Solow approach• Wants to look at sub-periods to see if sources of growth have
changed
• 1940-1964
• 1946-64
• 1955-64
• Also wants to make comparisons with the advanced economies
2
Latin American Productivity II
Findings:
•For the period as a whole (1940-64)
•Latin America and the advanced countries had similar sources of growth
•Residual in Latin America about one half that of the advanced countries
•Finds that for the later sub-periods the residual in Latin America is increasingly negative
•Growth in these periods increasingly dependent on direct factor inputs
Explanation:
•During WWII, the Latin American economies were cut off from supplies of equipment from the advanced countries
•Receipts from exports to the advanced countries put in blocked accounts. 3
Latin American Productivity IV
• During the war years, Latin American companies had to make due with what they had
• Lack of imports of machinery provided incentives to develop capital goods industries – develop new domestic technologies
• This effort paid off in creating an environment conducive to innovation and improved efficiency
• After the war, most Latin American countries adopted import substitution as their industrialization strategy
• Incentives – overvalued exchange rates, low interest rates.
• Minimum wage laws and unions forced wages up.
• Result, foreign capital substituted for domestic capital and labor
4
Latin American Productivity V
• Import substitution
• By making foreign capital relatively inexpensive, few incentives to use it efficiently
• Also because foreign capital created in very different factor proportions setting, not designed to use abundant labor
• Result – many of those predicted by Marx, but for very different reasons
• Few jobs created in manufacturing
• High wages attracted migrants into urban areas
• Increasing unemployment
• Concentration of capital due to smallness of domestic market and inability to export
• Eventual stagnation in late 1960s and 1970s5
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