1. NS4540 Winter Term 2019 Productivity Growth in Latin America
Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

2. Latin American Productivity I
Henry Bruton, “Productivity Growth in Latin America” American Economic Review, December 1967
Wants to determine sources of Latin American growth
Focus is on the relative contribution of labor, capital and technological change/efficiency (the residual)
Argument built around an aggregate production function – the Solow approach
Wants to look at sub-periods to see if sources of growth have changed
Also wants to make comparisons with the advanced economies

3. Latin American Productivity II
Findings:
For the period as a whole ( )
Latin America and the advanced countries had similar sources of growth
Residual in Latin America about one half that of the advanced countries
Finds that for the later sub-periods the residual in Latin America is increasingly negative
Growth in these periods increasingly dependent on direct factor inputs
Explanation:
During WWII, the Latin American economies were cut off from supplies of equipment from the advanced countries
Receipts from exports to the advanced countries put in blocked accounts.

4. Latin American Productivity IV
During the war years, Latin American companies had to make due with what they had
Lack of imports of machinery provided incentives to develop capital goods industries – develop new domestic technologies
This effort paid off in creating an environment conducive to innovation and improved efficiency
After the war, most Latin American countries adopted import substitution as their industrialization strategy
Incentives – overvalued exchange rates, low interest rates.
Minimum wage laws and unions forced wages up.
Result, foreign capital substituted for domestic capital and labor

5. Latin American Productivity V
Import substitution
By making foreign capital relatively inexpensive, few incentives to use it efficiently
Also because foreign capital created in very different factor proportions setting, not designed to use abundant labor
Result – many of those predicted by Marx, but for very different reasons
Few jobs created in manufacturing
High wages attracted migrants into urban areas
Increasing unemployment
Concentration of capital due to smallness of domestic market and inability to export
Eventual stagnation in late 1960s and 1970s