Is GDP the whole story? For selected East Asian and Latin American economies in 2000, East Asia’s GDP per capita is 3.10 times Latin America’s, while its welfare-adjusted development is 4.22 times as high. Two bars use a common ratio scale. Welfare incorporates life expectancy, consumption, leisure and inequality; it widens the measured gap. These are rounded descriptive, model-based estimates for six Latin American and four East Asian economies, with no uncertainty reported.
Is GDP the whole story? For selected East Asian and Latin American economies in 2000, East Asia’s GDP per capita is 3.10 times Latin America’s, while its welfare-adjusted development is 4.22 times as high. Two bars use a common ratio scale. Welfare incorporates life expectancy, consumption, leisure and inequality; it widens the measured gap. These are rounded descriptive, model-based estimates for six Latin American and four East Asian economies, with no uncertainty reported.

On the Development Gap between Latin America and East Asia: Welfare, Efficiency, and Misallocation

Carlos Mendez
February 2015
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Abstract

Both long economic stagnation in Latin America and sustained growth and in East Asia imply a rapidly raising development gap between the two regions. Using a series of numerical decompositions, this article documents three facts about this gap. First, differences in welfare-adjusted development are larger than those predicted by per-capita GDP. Second, differences in labor productivity account for most of the differences in both production and welfare-adjusted development. Third, inefficient production is the main factor holding down labor productivity. Furthermore, an analysis of the sectorial dynamics suggests that labor misallocation across sectors has been reducing the overall aggregate efficiency of Latin America. In particular, premature deindustrialization (i.e., workers moving from manufacturing into services) and falling productivity in the service sector had potentially large negative effects on efficiency, productivity, and welfare-adjusted development.

Type
Journal article
Publication
Forum of International Development Studies, 45(3)
convergence decomposition Latin America Asia
Carlos Mendez
Carlos Mendez
Associate Professor of Development Economics

My research interests focus on the integration of development economics, spatial data science, and econometrics to better understand and inform the process of sustainable development across regions.

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