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Vanishing Growth in Latin America

The Late Twentieth Century Experience

Edited by Andrés Solimano

Economic growth in Latin America and the rise of material welfare has lagged behind that of more dynamic areas of the world economy. In a region prone to policy experiments, the policies of the Washington Consensus applied since the 1990s failed to bring sustained growth to most of Latin America. Andrés Solimano and an impressive set of contributors analyze the last 40 years in order to determine the role of economic reforms, external conditions, factor accumulation, income inequality, political instability and productivity in explaining GDP increases. The book also looks at cycles of growth, identifying periods of rapid growth and contrasting them with periods of stagnation and collapse.
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Chapter 7: Economic Growth in Latin America: The Role of Investment and Other Growth Sources

Mario A. Gutiérrez


* Mario A. Gutiérrez 7.1 INTRODUCTION The modest recovery of Latin America after a period of stabilization and reforms that followed the 1980s debt crisis has added momentum to the interest in the factors that contribute to economic growth in the region and, in particular, about the role played by investment as a source of economic growth. Under a new outward-looking development approach, growth and investment recovered during the 1990s and early 2000s from the slump of the 1980s. The recovery has been modest, however. Growth performance has not yet reached the growth rate levels observed in 1960s and 1970s and growth rates remain well below those observed in other developing countries in Asia, the Middle East and Eastern Europe. Disagreement persists about the role of investment in the growth process. Some authors have concluded that investment has been the main factor explaining economic growth. In a study of East Asia, Young (1994) concluded that investment was the main source of growth in the experience of the East Asian economies. Other economists have acknowledged the important role played by fixed investment but argued that productivity has been the engine that has marked the difference between fast and slow growth experiences (Blomstrom et al., 1996; Harberger, 1996 and 1998; Klenow and RodriguezClare, 1997b). Elias (1992) produced evidence showing that total factor productivity explained about one-third of GDP growth in Latin America during the period 1940–85. In a more recent study, Solimano and Soto (Chapter 2 in this volume) produced evidence...

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