Alternative measures of potential economic growth in Latin America

Hubert Escaith is Director of the Division of Statistics and Economic Projections of ECLAC. These methodological notes were prepared for a lecture at the 2005 ECLAC Summer School. They are based on, and up-date, a series of papers in Spanish published in 2003 and 2004, which received in 2005 the award Maestro Jesus Silva Herzog" from Economic Research Institute of the Universidad National Autonoma de Mexico. The views expressed in this document, which has been reproduced without formal editing, are those of the authors and do not necessarily reflect the views of the Organization. Summary The document analyses the dynamics of economic growth in Latin America. The objective is to present from a didactic perspective several techniques used for extrapolating growth trends, and apply them to the regional situation at the end of the 1990-2003 economic cycle. The document reviews the medium term determinants of growth in the region from the dual standpoints of production function approaches and export-led models, contrasting the particular situation of the principal sub-regions in Latin America. In this process, a series of issues are raised, ranging from the impact of structural reforms on total factor productivity, to the Balance of Payment constraints and the sustainability of the export-led model. Even if the potential for export-led growth seems higher than may have been expected, structural reforms did not have the expected beneficial effect on the supply side of the economy. Productive capacity has been debilitated by years of reduced investments, and total factor productivity has not responded positively to the reforms. Comparing the empirical outcome of various theoretical schools and methodologies, the study determines a set of plausible economic scenarios for the region, and concludes by highlighting some economic policy conditions for strengthening its growth potential and ensure being in a better position to seize the opportunities offered by external markets."