Latin America in the rearviewmirror $

Latin American countries are the only Western countries that are poor and that are not gaining ground on the U.S. This paper evaluates why Latin America has not replicated Western economic success. We find that this failure is primarily due to TFP differences. Latin America’s TFP gap is not plausibly accounted for by human capital differences, but rather reflects inefficient production. We argue that competitive barriers are a promising channel for understanding lowLatin TFP. We document that Latin America has many more international and domestic competitive barriers than do Western and successful East Asian countries. We also document a number of microeconomic cases in Latin America inwhich large reductions in competitive barriers increase Latin American productivity to Western levels. r 2004 Elsevier B.V. All rights reserved