Jorge Thompson Araujo

Understanding the income and efficiency gap in Latin America and the Caribbean

The countries of the Latin America and the Caribbean (LAC) region like other emerging economies, have benefited from a decade of remarkable growth and some income per capita convergence toward the United States and other high-income countries. Yet, despite this recent progress, LAC still faces a significant per capita income gap with the developed world. To narrow this income gap, it is critical that the region reduce its efficiency gap. To that end, the studies in this volume seek to identify the main candidates to explain the differences in efficiency between LAC and the United States, as well as to look for factors that drive convergence at all levels of the economy. Theory suggests two main channels through which the efficiency gap can be affected: technology adoption or innovation and resource allocation. The analysis in this volume shows that technology adoption explains about one-fifth of the efficiency gap, leaving the rest to be explained by misallocation of resources. Drawing on the findings of the studies in this volume, several broad policy directions emerge: (i) increasing focus on closing the efficiency gap - beyond mere factor accumulation - is critical to reduce the income gap and improve LAC’s convergence prospects; (ii) eliminating distortions that cause misallocation of resources will also improve the incentives to innovate; and (iii) reducing macroeconomic volatility will alleviate the negative impact of the poverty gap on growth.

Beyond commodities : the growth challenge of Latin America and the Caribbean

The Latin America and Caribbean (LAC) region has seen a decade of remarkable growth and income convergence. Growth has been a key driver for reducing poverty and boosting shared prosperity. It has been debated how much of this decade of growth has been driven by policy reforms and how much was due to the favorable external conditions. While external factors were supportive and relevant, the effect of domestic policies was just as relevant for explaining LACs recent growth performance. The emphasis of domestic policy has shifted from stabilization policies to structural policies. In addition, a benchmarking exercise reveals which policy gaps will lead to the highest potential growth-payoffs for each country and helps identify potential trade-offs. The authors analyze growth in LAC using descriptive statistics and growth econometrics. The authors use these results for explaining the pattern of growth in LAC over the last decade, for looking ahead, and to identify potential policy gaps.

Productivity growth in Latin American and the Caribbean : exploring the macro-micro linkages

This paper brings together the main findings and policy implications of two recent World Bank regional reports on economic growth in Latin America and the Caribbean: Araujo, Vostroknutova, Wacker and Clavijo, eds. (2016) and Araujo, Vostroknutova, Brueckner, Clavijo, and Wacker (2016). In doing so, the paper focuses on finding the right balance between micro- and macro-inference when thinking about growth in Latin America and the Caribbean. The paper documents the regions growth performance over the past decade, highlighting the roles played by the commodity boom, macroeconomic stabilization and structural reforms. It notes that, despite faster growth during the first decade of this century, the region failed to achieve sustained convergence towards higher income levels. The paper points out that the persistent income gap could be reduced through: (i) increasing focus on closing the efficiency gap – beyond mere factor accumulation; (ii) eliminating distortions that cause misallocation of resources will also improve the incentives to innovate; (iii) identifying the main country-specific constraints to growth instead of looking for universal recipes; (iv) containing macroeconomic volatility, thereby alleviating the negative impact of persistent poverty on growth; and (v) improving the composition of public spending.