Friday, November 03, 2006

Latin America ´s economy reforms: Some facts and myths (II)

Once the myths are melted away, it is more obvious that Latin America has gone too far to move backwards again. The New leaderships styles currently on charge in most of Latin America governments, means the people ´s call for further steps in the direction of finishing the job for this continent, to have its chance of taking advantages of new opportunities arising on the horizon. Although it might be debatable, about its contempt and scope, most of these further steps are focused on the manner the New State will be connected with its citizen and the economy and how each Latin America economy fit the best it can this people demand.-
To have a better understanding of the whole issue ,we need to move further to take into account some fact .Following J Zettlemeyer paper ,fact are classified in two groups: the first one are the well known fact settle down by the research already done in the past, and the second one is the result of new research.
Fact 1: In the last 25 years Latin America economic growth, has underperformed relative to other developing country economies ,such as East Asia pacific , and South Asia.
Fact 2: Slow GDP growth in Latin America, has been driven by slow TFP (Total factor productivity) .This means the overall efficiency of allocation of resources is below the desire levels, taking into account institutional capacity.-
Fact 3: Latin Americas economies shows similar growth patterns until the eighties, but more recently there has been large cross country differences in growth performance. External and internal shocks makes their way through with different patterns, according to each country weakness and strength.-
Fact 4: Business cycles in Latin America are both more volatile and more protracted . Volatility has changed over time, decreasing to its historical levels in countries like Mexico, Brazil and Chile in spite of a much higher capital trade and mobility. This is probably the expected result of applying rules for macroeconomic policy decisions.
Fact 5: Latin America and Africa has suffered more frequent output collapses (falling in output for more than two years resulting in a total output loss of at least 5%) than other developing countries. This means a strong vulnerability when it comes to faces external shocks.
Fact 6: Period of high average trend growth, have been shorter lived in Latin America, than in other developing countries. A possible explanation for this is related to the on and off between economics and politics ,so that as long they do not move together in the same orientation the outcome will be more unstable growth.
What do all these facts means ?. It is not easy to have precise answers or even more difficult to have the last answer ,but it seems probably that like others authors have mentioned on their research, there are institutional traits in the lower than average economic performance in Latin America . The nature of the State role in the economy and its relationship with its citizens is at the key for explaining these facts. The quality of political institutions, the protection of property right, the control of corruption, the rule of law , and the quality of bureaucracy are all relevant to explain different economic growth performance . However, the result available indicates an improvement on these issues in Latin America, but there is one key restriction; the nature of the centralized state which can affect the true democratic nature of its performance. In this situation, there are strong incentives to capture the State by political and special interest groups for their own purposes.-

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