Latin American countries are the only Western countries that are poor and that aren’t gaining ground on the United States. This article evaluates why Latin America has not replicated Western economic success. We find that this failure is primarily due to total factor productivity (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 productivity to Western levels.
Reprinted from _Journal of Monetary Economics_, (January 2005, Vol. 52, No. 1, pp. 69-107), copyright 2005, with permission from Elsevier. https://doi.org/10.1016/j.jmoneco.2004.09.002