Evaluating policies to improve total factor productivity in four large Latin American countries

This paper develops a framework to analyze the potential of different variables to increase total factor
productivity (TFP) growth in countries with poor productivity performance. It takes an industry level
approach for a set of countries used as a benchmark. The information comes from the EU KLEMS and
LA KLEMS databases. Once this influence is measured, the difference in the scores of each variable in
four Latin American countries (Argentina, Brazil, Chile and Mexico) with respect to the benchmark is
used to test their potential for increasing productivity growth. Results show that, the top priorities for
these four countries are to improve the labour market, to reduce the share of self-employed people and to
modernize the functioning of their economic systems. Our results also indicate that the intensification of
investment in ICT and R&D activities is a key instrument for promoting growth. Public policies should
also aim to encourage a higher endowment of Internet infrastructures and their use.