Beyond Commodities: The Growth Challenge of Latin America and the Caribbean

Latin America and the Caribbean region (LAC) has seen a “decade of convergence.” The recent growth performance in LAC has also been especially pro-poor. Understanding the factors underlying LAC’s growth performance is critical for policy design going forward. Benchmarking the Determinants of Economic Growth in Latin America and the Caribbean reassesses these engines of growth in light of new data and information. The external conditions and policy decisions in the 2000’s to a large extent favored the LAC region. However, the region’s good luck seems to be running out and the determinants of growth that are policy-influenced will play a bigger role if the region wants to avoid losing its growth momentum. Using dynamic panel data regressions, this publication investigates how aggregate economic, political, and social variables affect per capita GDP growth rates for a large sample of countries. Research finds that drivers of growth in LAC have shifted over the last decade. This suggests that most LAC countries have already brought their macroeconomic house in order throughout the 1990s, which facilitated reaping benefits from other sources of growth. For many LAC countries, most notably net commodity exporters, external conditions were an essential driver of growth over the last decade. Structural features have turned out as a robust determinant of growth. This publication also carries out a benchmarking exercise that sheds light on where the biggest bang for the buck could be for LAC countries in terms of broad policy directions. The empirical findings provide a window into the potential growth-facilitating role for governments in the region.