of the shifting structure of production towards domestic sectors, which are more capital-intensive.
Table 6. Incremental Capital Output Ratios
Note: Authors’ calculations based on data in World Bank World Development Indicators.
Performance of Individual Countries
(a)Growth: Of the 20 countries, 11 grew faster over the entire period 1965–2015 than the world, and thus, there seems to be mild convergence. Growth rates of the countries are not correlated with size as countries with a smaller population grew as rapidly as those with a larger population.
The debt crisis resulted in a slowing down of the Latin American economies. Only five countries, Chile, El Salvador, Guyana, Jamaica and Uruguay, grew faster in the two decades after the crisis than they had done in the two decades before the crisis (Table 7). But the effect of the debt crisis in slowing growth tapered after two decades or so. If one divides the period 1965–2015 into two, before the debt crisis of 1982 and after, one finds that 10 countries grew faster before the crisis and 10 grew faster after the crisis. Also, except for Chile, El Salvador and Jamaica, the rest of the countries grew faster in this century than they had in the last two decades of the previous century. But even over the period 2001–2015, most countries saw a decline in their growth rates after the onset of the 2008 crisis and then a recovery. Only Bolivia, Guyana and Uruguay grew faster after the crisis than they had done earlier, and only Brazil did not experience a recovery over the 2010–2015 period.
We have seen above that the gap between per capita income in the Latin American region as a whole and the high-income countries did not lessen in the period 1965–2015. We now examine whether there was convergence among the Latin American countries. We ran regressions of the growth of per capita income over various periods, e.g. 1965–2015, 1983–2015, etc. against per capita income in the initial period. We usually did not find any significant relation except for the period 1983–2000 when the Latin American economies grew very slowly. During this period, there was a significant coefficient, at the 5% level, but its sign was positive implying that the economies diverged.
Table 7. Average Annual Growth Rates for Different Periods
Source: World Bank World Development Indicators.
Investment
The pattern of the behaviour of the ratio GFCF to GDP is very similar among the Latin American countries, though here are some exceptions. Generally, the ratio fell after the onset of the debt crisis and was lower in the following two decades (Table 8). But it started increasing and was higher in this century than in the last two decades of the last century. Though the ratio has declined since the financial crisis of 2008, it is still for most countries higher than it was in the decades following the debt crisis.
Table 8. GFCF as Percent of GDP
Source: World Bank World Development Indicators.
The countries have usually grown slowly even though the investment rate has been high. This has resulted in very high ICORs for most of the countries (Table 9). Only Panama and Paraguay have ICORs similar to those of countries in the other regions.
(b)Exports: A total of 17 of the 19 countries for which we have data over the 50-year period show a higher exports to GDP ratio in the period 2011–2015 than in the period 1965–1973 (Table 10). Only Guyana and Jamaica show a fall in the ratio. On the contrary, Bolivia, Chile, Ecuador and Mexico exhibit a very substantial increase.
Table 9. ICORs for the period 1965–2015
Source: Authors’ calculations based on data from World Bank Indicators.
The pattern of behaviour of exports to GDP ratio is again very similar for most of the Latin American countries, though obviously there are some differences. Usually, the percent of exports to GDP fell in the 1980s and 1990s after the debt crisis, then rose in the period 2001–2007 and fell after the financial crisis (Table 10).
However, countries such as Colombia, Ecuador and Jamaica show almost a continuous rise throughout the 50-year period and there is no substantial fall in any period. On the contrary, Bolivia, Nicaragua and Peru show no fall after the crisis.
The increase in exports has affected the economic linkages between the countries in LA and major regions of the world. We regressed the growth rates of the Latin American countries with the growth rates of the other regions and countries and found that a number of these correlations have increased (Table 11).
The correlation with growth rates of the world have increased and become significant at the 5% level from 8 countries to 15 and with the LAC also from 5 countries to 16. Number of countries whose growth rate is significantly correlated with that of the US has increased from 5 to 9, though 5 of these are small Central American countries, and with China from 0 to 7. A prosperous world economy would boost growth in LA. Also, the increasing growth linkages among the Latin American countries suggest that stronger integration among them may be beneficial to these countries.
The CAB, however, shows a substantial difference between the countries on the Latin American continent including Mexico and the Central American and Caribbean countries (Table 12). The latter show much larger CADs, and these have become very large in this century.
Table 10. Exports of Goods and Services as Percent of GDP
Source: World Bank World Development Indicators.
Average 2 is the average of Costa Rica, El Salvador, Guatemala, Guyana, Honduras, Jamaica, Nicaragua, namely the Central American and Caribbean countries.
The average deficits of the other group, usually the larger countries, are much more moderate, rarely exceeding 2% of the GDP. In many periods, the CAB is positive showing that the countries were running surpluses. This happened in the 1980s after the debt crisis. Many of these countries were hit by the debt crisis and ran surpluses in order to service their debts.
Table 11. Correlations of Growth Rates of Countries in LA with the World, LAC, USA and Chian
Source: Authors’ calculations based on data from World Bank World Development Indicators.
Table 12. CAB (% of GDP)
