Investment and productivity are key to Latin America's prospects
| Author | Rishi Goyal |
| Position | IMF Western Hemisphere Department |
| Pages | 330 |
Page 330
Latin America and the Caribbean have recorded impressive growth in recent years, but it should have been stronger, Mexico's President Vicente Fox and Finance Minister Francisco Gil Díaz said in opening the first joint conference of the Latin American and Caribbean Economic Association and the Latin American Meeting of the Econometric Society.
The event, held in Mexico City November 2-4, spotlighted what needs to be done to boost growth, maintain stability, and enhance social welfare.
How can the region turn relatively strong growth into dynamic, sustained growth? Central to this transformation, said Robert Lucas (University of Chicago), are higher returns on human capital accumulation. Once these higher returns are recognized, people will invest more in themselves and in their children, and that, in turn, will lead to higher per capita income. Policies and institutions, he emphasized, should be geared toward raising the return on human investment. Income transfers simply cannot produce the kind of sustained increase in per capita income that is needed.
Jeffrey Sachs (Columbia University) argued that the region's priorities should be investing in better-quality education and health care and facilitating technological innovation, including through greater trade openness. The region continues to lag behind Asia- a situation he attributed to time lost in pursuing inward-oriented policies and in remaining focused on market reforms rather than on productivity-enhancing technological progress.
Inefficiencies in the labor and financial markets mattered, too. José Scheinkman (Princeton University) found that excessive regulatory burdens and weak institutions encourage informality in economic activity, and informal activities tend to perpetuate themselves, hindering advances in productivity.
Arturo Fernández (Instituto Tecnológico Autónomo de México) called for regulatory reforms to help shift resources from the informal to the formal sector, while Andrés Velasco, Chile's Finance Minister, called for pathbreaking research on industrial organization and labor economics for the region.
In recent decades, recurrent crises have set back the region's quest to boost per capita income. The current expansion, however, has been on firmer ground, according to Anoop Singh, who presented the IMF's economic outlook...
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