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Latin America’s Growth Conundrum

Since 1960, only a few countries in Latin America have narrowed the gap between their per capita income and that of the United States, while most of the region has lagged far behind. Making up for lost ground will require a coordinated effort, involving both technocratic tinkering and bold political leadership.

RIO DE JANEIRO/MEXICO CITY/LONDON – Economic theory suggests that poor countries should, over time, converge toward the income levels of advanced economies. While that has happened in East Asia and Central Europe, Latin America still lags behind. Since 1960, only a few countries in the region have managed to narrow the gap between their per capita income and that of the United States – and even in those cases, the gains have been small.

As we explain in a new report for the G30, there is no single cause for Latin American economies’ mediocre growth over the decades. In some countries – such as Argentina, Ecuador, and Venezuela – there will be little to no sustained growth until policymakers address serious outstanding fiscal, debt, and (in some cases) inflation problems.

Brazil, too, has struggled to achieve sustained growth. Not only has its growth rate per capita been lower than that of the US for most of the past 40 years, it was even negative half the time during that period. While inflation and extreme poverty have fallen, macro policies have yet to deliver sustained low interest rates and lower volatility, and microeconomic policies have been woefully inconsistent, indicating a surprising inability to learn from past errors and successes. As a result, informal labor arrangements are common, unemployment remains high, investment remains low, and productivity has stagnated.