1. 14 October 2016 Christian Daude
Towards a New Strategy for Latin America:
Productivity as an engine of growth
 14 October Christian Daude
OECD Economics Department

2. Background
During the last decade, Latin America grew very fast and made important social progress thanks to extremely favourable external conditions.
However, these conditions are no longer present and growth is slowing down sharply.
New sources of growth are urgently needed to help Latin America move back to a stronger, more inclusive and sustainable growth path.
Improvements in productivity are key to boost growth in the region.

3. Latin America has made great progress over the past decade
Poverty headcount ratio
(Poverty line of 3.10 USD PPP per day)
Source: World Development Indicators, World Bank.

4. Strong growth supported the improvement in living standards
Gross domestic product, constant prices
Source: OECD EO99 database

5. Recently, growth has slowed sharply
Gross domestic product, constant prices
Source: OECD EO99 database

6. Lower commodity prices have contributed to weaker growth
Evolution of selected commodity prices
Source: OECD EO99 database

7. Inequality remains high and the tax and transfer system has limited effects
Gini coefficient
(0=perfect equality; 1=perfect inequality)
Difference in Gini coefficient
(Disposable income – market based income)
Source: OECD (2016), Promoting Productivity for Inclusive Growth in Latin America.

8. Boosting productivity is key
Evolution of GDP per worker relative to the U.S.
Source: Own calculations based on World Bank World Development Indicators.

9. What constrains productivity growth?
Poor human capital and skills development
Low investment in innovation and R&D
Informality in economic activity
Functioning of product, labour and financial markets
Lack of competition
Low participation in GVCs

10. Poor human capital and skills
Percentage of students not attaining basic skills in math
(in 2012)
Note: Students do not attend basic skills when they are below 420 points in math exams in PISA.
Source: OECD, PISA 2012 Database

11. Low investment in innovation and R&D
Gross domestic expenditure on R&D
(% of GDP, 2013)
Source: OECD Main Science and Technology Indicators Database

12. Barriers to entrepreneurship are high
(Scale 0 – 6, with 6 being the most restrictive, 2013)
Source: OECD Product Market Regulations database.

13. High barriers to trade and investment
(Scale 0 – 6, with 6 being the most restrictive, 2013)
Source: OECD Product Market Regulations database.

14. Administrative burdens for sole proprietor firms, PMR score 0 to 6
It is crucial to promote productivity diffusion from frontier to lagging firms
Administrative burdens for sole proprietor firms, PMR score 0 to 6
Cost of bankruptcy,
% of estate
Resources remained trapped in low-productive and non-viable firms
Source: OECD Product Market Regulations database, Doing Buisneess database.

15. High level of skills mismatch
Index of Qualification Mismatch
(2012)
Source: Randstad Workmonitor (2012)

16. Higher cross-border trade intensity is needed
Trade intensity and country size (GDP)
Source: Kowalski et al (2015)
Even controlling from country size, most of LA countries are among the least connected in trade networks

17. Participation in Global Value Chains is very low
Backward GVC participation ratios, cross-country comparison
(as a percentage of country’s gross exports, 2011)
Source: Kowalski et al (2015)

18. In particular, intra-regional integration in GVCs is very low
Backward participation
Forward participation
Source: Kowalski et al (2015)

19. It is key to improve trade facilitation
Latin America and the Caribbean’s trade facilitation performance
OECD indicators, Latest available data, where 2 = best performance
Source: Kowalski et al (2015)

20. Reforms are key
Diversification is key to boost growth and reduce resource dependence
Fostering productivity growth and inclusive should be top priority
Product and labour market reforms are crucial to make domestic markets more competitive and to enable faster diffusion of technology
Innovation and skills policies
Trade policy and effective regional integration