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The Latin American efficiency gap

Caselli, Francesco (2014) The Latin American efficiency gap. CEP Discussion Papers (CEPDP1289). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

The average Latin American country produces about 1 fifth of the output per worker of the US. What are the sources of these enormous income gaps? I report development-accounting results for Latin America. On average Latin America’s overall physical and human capital endowment relative to the USA is essentially identical to Latin America’s efficiency relative to the USA . In my main sample average relative capital and average relative efficiency are both roughly double actual average relative incomes. Hence, both capital gaps and efficiency gaps are very large: the average Latin American country has less than half the capital (human and physical) per worker of the US, and uses it less than half as efficiently. In assessing this evidence, it is essential to bear in mind that efficiency gaps contribute to income disparity both directly -- as they mean that Latin America gets less out of its capital -- and indirectly -- since much of the capital gap itself is likely due to diminished incentives to invest in equipment, structure, schooling, and health caused by low efficiency. The consequences of closing the efficiency gap would correspondingly be far reaching. Explaining the Latin American efficiency gap is therefore a high priority both for scholars and for policy makers.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/_new/publications/series.asp?...
Additional Information: © 2014 The Author
Divisions: Economics
Centre for Economic Performance
Subjects: F History United States, Canada, Latin America > F1201 Latin America (General)
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
JEL classification: O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
Sets: Departments > Economics
Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 28 Nov 2014 15:30
Last Modified: 14 Mar 2019 00:04
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/60358

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