Development in the Americas (DIA)
IDB Flagship Publication
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The Age of Productivity: Transforming Economies from the Bottom Up
Publication date: April 2010
Editor: Carmen Pages-Serra
Contributors: Manuel Agosín, Juan Pablo Atal, Juan Blyde, Matías Busso, Eduardo Cavallo, Alberto Chong, Christian Daude, Eduardo Lora, Eduardo Fernández-Arias, Arturo Galindo, Pablo Ibarrarán, Alejandro Izquierdo, Juan José Llisterri, Carlos Ludeña, Lucía Madrigal, Alessandro Maffioli, Mauricio Mesquita Moreira, Juan Carlos Navarro, Hugo ñopo, Charles Sabel, Carlos Scartascini, Rodolfo Stucchi, Mariano Tommasi and Pluvia Zúñiga.
- D24-Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- H25-Business Taxes and Subsidies
- H55-Social Security and Public Pensions
- J24-Human Capital; Skills; Occupational Choice; Labor Productivity
- O25-Industrial Policy
- O31-Innovation and Invention: Processes and Incentives
- O4 -Economic Growth and Aggregate Productivity
DIA previous edition
César Patricio Bouillon
Productivity, the main driver of economic prosperity, is languishing in Latin America and the Caribbean and is preventing the region from catching up with the developed world. Asking why the region is falling farther and farther behind, this book looks beyond the traditional macro explanations and digs all the way down to the industry and firm level to uncover the causes of this low productivity. It provides tools to ponder productivity growth beyond conventional aggregate analysis, focusing on the extreme heterogeneity of sectors and firms while emphasizing the importance of policies that allow high productivity firms to thrive and expand. While it certainly considers the plight of manufacturing, the book zeros in on the critical services sectors, particularly those, such as transportation and retail, with important repercussions on the rest of the economy. It challenges the argument that the region is condemned to stagnation and examines a number of policy levers that can transform the economies of the region.
- Financial Dependence, Formal Credit and Informal Jobs
- Financial Development and TFP Growth: Cross-Country and Industry-Level Evidence
- Integration, Resources Reallocation and Productivity: The Cases of Brazil and Chile
- Misallocation and Productivity in Colombia’s Manufacturing Industries
- On the Role of Productivity and Factor Accumulation in Economic Development in Latin America and the Caribbean
- Politics, Policies and the Dynamics of Aggregate Productivity in Colombia
- Productive Development Policies in Trinidad and Tobago: A Critical Review
- Reforms and Counter-Reforms in Bolivia
- The Political Economy of Productivity in Argentina: Interpretation and Illustration
- The Political Economy of Productivity in Brazil
Abstract: This paper examines a much overlooked link between credit markets and formalization: since access to bank credit typically requires compliance with tax and employment legislation, firms are more likely to incur such formalization costs once bank credit is more widely available at lower cost. The relevance of this credit channel is gauged using the Rajan-Zingales measure of financial dependence and a difference-in-differences approach applied to household survey data from Brazil. It is found that formalization rates increase with financial deepening, especially in sectors where firms are typically more dependent on external finance. Also found is that, decomposing shifts in formalization rates into those within each firm size category and those between firm sizes, financial deepening significantly explains the former but not so much the latter. Some key policy implications are derived. Click here for more information.
Abstract: This paper estimates the impact of financial development on industry-level total factor productivity (TFP) growth using a largely unexploited panel of 77 countries with data for 26 manufacturing industries for the years 1963 to 2003. A significant relationship is found between financial development and industry-level TFP growth when controlling for country-time and industry-time fixed effects. The results are both statistically and economically significant. TFP growth can accelerate up to 0.6 percent per year, depending on the external finance requirement of industries, following a one standard deviation increase in financial development. The results are robust to different samples and specifications. Click here for more information.
Abstract: Most microeconometric studies available for LAC have focused on measuring the direct impact of trade on plant productivity leaving aside other effects that arise through the market selection process. Additionally, most studies have focused on tariff barriers as the only obstacle to international trade and integration. In this paper we use data from Brazil and Chile to analyze how trade affects aggregate productivity through the process of resource reallocation and to explore not only the role of tariffs but also the role of transport costs. We find that trade costs affect the reallocative process by protecting inefficient producers, lowering their likelihood to exit, and also by limiting the expansion of efficient plants, lowering their likelihood to export. We also find that the reallocative impacts of trade come not only from tariff barriers but also from transport costs. Click here for more information.
Abstract: Following Hsieh and Klenow (2009), this paper studies productivity dispersions in Colombian industrial establishments using the Colombian Annual Manufacturing Survey (AMS) from 1982 to 1998. The United States is used as a benchmark to estimate the reallocation of capital and labor to equalize marginal products across plants in Colombia. Gains are found in manufacturing Total Factor Productivity (TFP) of approximately 3-8 percent and TPF is positively correlated with exporting status, age, size, and location in the central region of the country. There is also suggestive evidence that opening the economy in 1991 is associated with an increase in plant productivity levels for firms that export goods. The 1990 reform that reduced dismissal costs is associated with an increase in productivity, while the reform that increased labor costs in 1993 is associated with a decrease in plants’ productivity. Further work is needed to establish a causal relation between productivity and policy changes. Click here for more information.
Abstract: This paper combines development and growth accounting exercises with economic theory to estimate the relative importance of total factor productivity and the accumulation of factors of production in the economic development performance of Latin America. The region’s development performance is assessed by contrast with various alternative benchmarks, both advanced countries and peer countries in other regions. The paper finds that total factor productivity is the predominant factor: low productivity and slow productivity growth, as opposed to impediments to factor accumulation, are the key to understanding Latin America’s low income relative to developed economies and its stagnation relative to other developing countries. While policies easing factor accumulation would help somewhat in improving productivity, for the most part, closing the productivity gap requires productivity-specific policies. Click here for more information.
Abstract: This paper describes private actors’ involvement in Colombia’s policymaking process. While more transparent and formal channels are used to discuss horizontal policies, they are also less effective. The adoption of targeted policies, however, follows a faster track and depends more on political power than on those policies’ potential as engines for productivity growth. Data on policies and political characteristics across sector-region units are used to further characterize the different groups’ weight in policymaking, and the effect of the implied unbalance on aggregate productivity. Electoral weight and being represented by business groups and associations are found to be important determinants of the policy benefits received by a sector in a region, especially when activities are located in regions affected by armed conflict. It is also found that the resulting imbalance of policies damages aggregate productivity. Click here for more information.
Abstract: Even as Trinidad and Tobago seeks productive diversification away from the energy sector, the process underlying the country’s productive development policies (PDP) is in a state of transition from state-directed industrial policy to a newer approach with extensive private-public participation. This study explores the main characteristics of four PDPs in Trinidad and Tobago and reviews them following the related literature (e.g., Rodríguez-Clare, 2005a and 2005b, and Melo and Rodríguez-Clare, 2006). The four PDPs are: a) The process towards the Promotion of Clusters; b) the PDPs for the Tourism industry; c) the classical PDPs for Micro, Small and Medium Enterprises and; d) the Free Trade Zone as a policy designed to compensate for the failure of the State. Click here for more information.
Abstract: This paper analyzes reforms and counter-reforms in Bolivia in recent decades and their effects on the policymaking process (PMP) and productivity. Bolivia’s PMP has shifted from a formal representative democracy to a “participative and direct type of democracy” where street protest and other non-conventional forms of political participation have become dominant. While reforms have increased productivity, they have failed to secure the political support necessary to assure long-term sustainability. In contrast, counter-reforms have so far enjoyed extensive political support, but productivity has stagnated since this process started, with declining economic growth and job creation—developments likely to undermine support for the counter-reform process. The document stresses the need to rebuild a consensus around a PMP capable of increasing productivity and employment creation while restoring social cohesion. Click here for more information.
Abstract: This paper examines how the main characteristics of Argentina’s policymaking process (PMP) affect the productivity of its economy using the conceptual framework presented in Murillo, Scartascini and Tommasi (2008), Stein et al. (2008), Spiller and Tommasi (2007), and IDB (2005). First, the paper complements existing descriptions of the PMP by considering private agents and elaborating on structural characteristics possibly conducive to policymaking instability. Second, the paper illustrates the (negative) impact of Argentina’s lowquality and myopic PMP equilibrium on productivity by examining two key areas: provision of infrastructure services and agricultural policy. Finally, the paper explores the PMP at the local level of government (municipalities and local communities), finding that it mimics the flaws observed at the federal level. Click here for more information.
Abstract: This paper explores the link between Brazil’s political institutions and its disappointing productivity and growth in recent decades. Although political institutions provide the president with incentives and the instruments to pursue monetary stability and fiscal discipline they simultaneously raise the costs of achieving those very objectives. The insulation of certain expenditures from presidential discretion necessitates the use of other policy options, such as high taxation levels and cuts in unprotected expenditures, which put a drag on productivity and growth. In a context of robust checks and balances and interest group fragmentation, a state overburdened by constitutional entitlements has resorted to massive increases in taxation. The resulting environment possesses both essential elements for sustainable economic growth and distortions that conspire against its realization. While some improvements in productivity and growth have occurred in the past decade, the pace has been slow and incremental. Click here for more information.
- Innovation, R&D Investment and Productivity in Latin American and Caribbean Firms
- Estimating the Causal Effect of Economic Policies on Productivity in Latin America and the Caribbean
- Industrial Policies in Latin America and the Caribbean
- The Political Economy of Productivity: Actors, Arenas and Policymaking
- Presentation for the World Bank and the International Monetary Fund - The Age of Productivity: Transforming Economies from the Bottom Up
July 6, 2010
- Presentation in Chile for The Age of Productivity: Transforming Economies from the Bottom Up (in Spanish)
June 16, 2010
- Growth Limits and Productivity in Latin America (in Spanish)
June 3, 2010
- Presentation in Argentina for The Age of Productivity: Transforming Economies from the Bottom Up (in Spanish)
June 1, 2010
- Presentation in Brasil for The Age of Productivity: Transforming Economies from the Bottom Up (in Spanish)
June 1, 2010
- The Challenge of Increasing Productivity in Mexico (in Spanish)
March 24, 2010
- Comments for "The Age of Productivity" (in Spanish)
March 24, 2010
- The Age of Productivity: Transforming Economies from the Bottom Up (in Spanish)
March 24, 2010
- Presentation to the Media
March 20, 2010
May 28, 2010 - Duration: 2:17 minutes
Apr 7, 2010 - Duration: 10:20 minutes
Nov 21, 2010 - Duration: 2:05 minutes
Nov 27, 2009 - Duration: 3:21 minutes
Press and Events
- Good Intentions, Wrong Results (in Spanish)
La Prensa, Nicaragua, January 28, 2011
- Presenting The Age of Productivity in Nicaragua (in Spanish)
Bolsa de Noticias, Nicaragua, January 28, 2011
- IDB: Productivity Laggard (in Spanish)
La Prensa, Nicaragua, January 26, 2011
- IDB: Low Productivity Limits Growth (in Spanish)
Diario El Pais, Uruguay, December 2, 2010
- IDB Believes Dominican Republic Should Be Focused in Agricultural Development and Tourism (in Spanish)
Diario Libre, Dominican Republic, September 23, 2010
- Businesses Shackled by Obstacles to Productivity (in Spanish)
7 días, Dominican Republic, September 2, 2010
- The Age of Productivity at the World Bank
Washington, DC, July 6, 2010
- Latin America Needs to Increase Productivity (in Spanish)
El Heraldo Austral, Chile, June 17, 2010
- IDB Study: Productivity Growth in Chile is Lower Than in Asia (in Spanish)
El Mercurio, Chile, June 17, 2010
- IDB Study Identifies Key Factors for Productivity in Chile (in Spanish)
123 Noticias, Chile, June 15, 2010
- Labor Conditions and Productivity (in Spanish)
Dinero.com, June 11, 2010
- The BID Demands Greater Productivity (in Spanish)
La Nación, Argentina, June 7, 2010
- IDB Press Special Clipping - Brazil (in Portuguese)
June 1, 2010
- IDB: Fall in Productivity Over The Last 50 years Reduces Income in Brazil (in Portuguese)
O Globo, Brazil, May 28, 2010
- Too Many Micro Firms, Too Few Medium Firms (in Spanish)
El Economista, March 29, 2010
- Service Break (in Spanish)
El Mercurio, Chile, March 29, 2010
- Service Break: How Public Policies Have Promoted Inefficiency
The Economist, March 25, 2010
- Stagnant Productivity Curbs Growth in Latin America and Caribbean
BBC, March 22, 2010
- Stagnant Productivity Causing Poor Growth in Latin America and the Caribbean: Latest edition of IDB flagship publication says improving efficiency in the service sector is vital to speed up economic progress and reduce poverty
ENP, March 22, 2010
- IDB Shareholders Discuss Capital Increase
Financial Times, March 21, 2010
- IDB: Low Productivity Affects Growth of Latin America (in Spanish)
El Tiempo, Venezuela, March 21, 2010
- Half of The Countries with Low Productivity in the World are from Latin America: IDB (in Spanish)
Portafolio, Colombia, March 20, 2010
- Dull, The Performance in Productivity of Mexico: IDB (in Spanish)
Milenio, México, March 20, 2010
- Half of The Countries with Low Productivity in The World are from Latin America (in Spanish)
El Comercio, Ecuador, March 20, 2010
- Low Productivity Weakens Latin America (in Spanish)
CNN, March 20, 2010
- Latin America Does Not Grow More Because Labor Productivity is Low, says BID (in Spanish)
ABC, March 20, 2010
- IDB: Low Productivity Holding Back Latin America Growth (in Spanish)
Poder 360, March 20, 2010
- IDB: Low Productivity Holding Back Latin America Growth
EFE, March 20, 2010
- Stagnant Productivity Causing Poor Growth in Latin America and the Caribbean
IDB News Release, March 20, 2010
- An Exemplary Alliance (in Spanish)
La Nación, Argentina, February 8, 2010
- Innovation Models (in Spanish)
El Clarín, Argentina, December 6, 2009
- Latin American Economies Stymied by High Transportation Costs, IDB Study Shows
IDB News Release, November 27, 2009
Previous editions of Development in the Americas (DIA):
More than Revenue: Taxation as a Development Tool
More than Revenue aims to provide an up-to-date overview of the current state of taxation in the Latin American and Caribbean (LAC) region, its main reform needs, and possible reform strategies that take into account the likely economic, institutional, and political constraints on the reform process.
Room for Development: Housing Markets in Latin America and the Caribbean
This edition of the IDB's flagship publication, Development in the Americas, takes an in-depth look at the opportunities countries have to improve urban housing markets and pave the way for solutions that involve the private sector.
Unveiling the Impact of New Information Technologies
Policymakers and academics agree that computers, the Internet, mobile telephones and other information and communication technologies can be beneficial for economic and social development. But how strong is the impact?
The Age of Productivity: Transforming Economies
from the Bottom Up
The book provides tools to ponder productivity growth beyond conventional aggregate analysis, focusing on the extreme heterogeneity of sectors and firms while emphasizing the importance of policies that allow high productivity firms to thrive and expand.
Beyond Facts: Understanding Quality of Life
Using an enhanced version of the recently created Gallup World Poll, the Inter-American Development Bank surveyed people from throughout the region and found that perceptions of quality of life are often very different from the reality.
Previous editions of the Economic and Social Progress Report (IPES):
Outsiders? The Changing Patterns of Exclusion in Latin America and the Caribbean
This report raises a number of fundamental questions about the multidimensional and interrelated nature of social exclusion and moves beyond the traditional emphasis on outcomes and groups to view exclusion as a process that results from societal traits that limit the functionings of the excluded.
Living with Debt: How to Limit the Risks of Sovereign Finance
This report analyzes the nature and evolution of sovereign debt in Latin America and discusses the policies that can be followed by countries and international financial institutions (IFIs) to reduce the vulnerabilities associated with it.
The Politics of Policies
Certain simple ideas can help to mobilize society, but they are rarely sufficient for understanding the processes of fundamental change. Sadly, there are no shortcuts to the Promised Land of sustainable development and prosperity for all.
The Quest for Deep and Stable Bank Lending
Unfortunately, credit is scarce, expensive, and volatile. Without deep and stable credit markets, it will be very difficult for the region to achieve high and sustainable growth rates and combat poverty.
Good Jobs Wanted: Labor Markets in Latin America
Topics of the Report include the employer-worker dynamic, the new profile of the supply of labor, the impact of structural reforms, and the role of technology and institutions.
The New Regionalism in Latin America
It focuses on current subregional integration schemes, the new agenda launched in Doha for multilateral trade talks, regional initiatives, and interregional agreements between countries in the region and the European Union.
Competitiveness: The Business of Growth
This report provides guidelines to increase productivity and improve access by businesses to productive resources.
Development Beyond Economics
This report examines three entrenched structural factors -demography, geography and institutions- that are closely connected to economic and social development.
Facing Up to Inequality in Latin America
Latin America in the 1990s remains the most unequal region in the world in terms of income distribution. Yet because of its changing demographics the region now has a unique window of opportunity to reduce the income gap by accelerating the development process, putting people to work, improving education, and saving for the future.
Latin America After a Decade of Reforms
This report examines the complex forces that have shaped the reform process and assesses the challenges ahead to sustain economic growth, prevent instability, improve income distribution, and foster participation in public decisionmaking.
Making Social Services Work
The 1996 Report on Economic and Social Report in Latin America interprets these macroeconomic developments in light of structural reforms implemented across the region over the past decade.