Latin America and the Caribbean’s Productivity: The Role of Pro-Market Policies, Institutions, Infrastructure, and Natural Resource Endowments

Abstract

This paper examines the role played by pro-market policies, institutions, natural resources, and infrastructure on the total factor productivity (TFP) of twenty Latin American and Caribbean countries over the period 2000–2018. In estimating the TFP, we use the Färe-Primont index based on DEA. We have verified cointegration and estimated the long-run parameters by the grouped-mean FMOLS estimator. For measuring the impact of institutions, natural resources, and infrastructure, we have used the Productive Capacity Indexes of UNCTAD. We found a positive effect of all these variables on the TFP. Natural resources and energy play the most important role. Followed by information and communication technology and institutions quality. Transport infrastructure has played a minor role. The pro-market policies have been measured by the Fraser Institute indexes. We verified the positive impact of pro-market policies in the area of international trade and financial openness through six different variables. Finally, we considered three areas to measure the impact of domestic regulations and policies; credit, labor and business. We could verify a positive impact of credit and business pro-market policies, but we did not get statistically significant results from the labor regulations index.