Innovation, Productivity and Economic Development in Latin America and the Caribbean

GDP per capita in Latin America has been falling behind high-income countries and otherbenchmarks for decades and the region’s mediocre growth performance is one of the mainreasons why poverty reduction, and living standards more generally, in the region is well belowthat observed in peer countries. In this paper, we explore some of the potential roots of this poorperformance by using development accounting techniques. The results point towards total factorproductivity as the main culprit for the region’s lack of convergence. In order to investigate whatcauses the lack of productivity catch-up, we analyse the determinants of technology diffusion, inparticular of internet and mobile phone technologies. The empirical results show thatinstitutions, absorption capacity (human capital), and financial constraints are the mainexplanatory variables of the diffusion gaps in these technologies between the OECD and LatinAmerica. We also explore the performance of the region in terms of health outcomes, reflected inthe evolution of life expectancy, and the specific role played by technological innovation andadoption. Finally, a calibration exercise of an endogenous growth model allows us to assess theextent to which the region’s per capita income gap is due to problems in factor accumulation ordistortions that reduce the incentives to innovate the results point to very different situationsacross countries in the region. While for some countries we find evidence of ‚innovationshortfalls?, other countries’ problems concentrate around low factor accumulation.