Is the Growth Momentum in Latin America Sustainable?

Abstract

A favorable external environment coupled with prudent policies fostered output growth inmost of Latin America during the last decade. But, what were the drivers of this strong growthperformance from the supply side and will this momentum be sustainable in the years ahead?We address these questions by identifying the proximate causes of the recent high GDPgrowth and estimating potential growth rates for the period ahead for a large group of LatinAmerican countries based on standard (Solow-style) growth accounting methodologies. Wefind that factor accumulation (especially labor), rather than growth in total factor productivity(TFP), remains the main driver of GDP growth. Moving forward, given the expectedmoderation of capital accumulation and some natural constraints on labor, the strong growthmomentum is unlikely to be sustainable unless TFP performance improves significantly.