Chapter 10: Past, Present and Future Economic Growth in Latin America
Edited by D. S.P. Rao and Bart van Ark
The objective of this chapter is to explore the medium-term growth prospects for Latin America. The starting point for this endeavour is the analysis of historical performance of the countries in the region. This allows us to identify some of the facts that have characterised growth in the region. In order to evaluate future growth prospects of the region we focus our analysis on the evolution of potential output. For the purpose of this chapter potential output is defined as the level of output that would be attained in the long-run under full utilisation of installed capacity. There are many techniques for the estimation of potential output. In this chapter we use the production function approach; this provides a convenient way of investigating the sources of potential output fluctuations, and allows us to link the results obtained to those obtained in the growth accounting literature. The strategy followed is to estimate the coefficients of each country’s aggregate production function using a dynamic framework. These coefficients are used to estimate potential output for the period 1950–2005. The results are compared to those of a standard growth accounting exercise using the same data set. Although in general the productivity estimates of both approaches are qualitatively similar, the estimates of the dynamic setting are smoother and explain a smaller proportion of output fluctuations.
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