Latin America: After the commodity boom, how to survive the end of the party?
During the last decade many Latin American countries have experienced important changes in their socioeconomic structure. Decreases in the level of poverty, expansion of the middles classes, reduction of inequality and gains in education are some of the indicators of a positive transition in the region. These favorable changes have been attributed, among other factors, to a generalized wage increase experienced in the region as consequence of the commodity boom that was caused by the Chinese economic expansion.
However, despite strong evidence of encouraging indicators, growth is still low and Latin America as a region is still poor when compared to the rest of the world. What explains this apparent contradiction between better socioeconomic indicators and insufficient growth? My contention is that low productivity and deficient productivity growth are at the base of Latin American unsatisfactory growth and lower-than-expected economic performance. Deploying a multi-methods approach, this paper presents results and empirical evidence to support this contention. It is divided in four parts. Part one explores the interaction between commodities, wages and economic growth in the region, explaining the dependent nature of this relationship. Part two presents indicators of productivity and productivity growth, and develops quantitative methodologies to show their effect over insufficient economic growth. Part three compares Latin America to other regions of the world, illustrating it qualitatively with two case studies. Finally, part four presents perspectives for the region now that the commodity boom has come to an end and the “party” seems to be over.
As results show, the only alternative for the region to grow at desired rates and break the dependent relationship between growth and commodity prices is to invest in productivity. Changes in the productive structure, investment in capital accumulation, and institutional changes geared towards stimulating entrepreneurship and innovation are a necessary road for Latin America to attain sustained growth.
Kew words: Latina America; commodity boom; productivity; capital; economic growth