Why has economic shrinking receded in Latin America? A social capability approach

Episodes of economic shrinking have declined since the 1980s in Latin America and the Caribbean (LAC). This paper asks why. We propose that the reduction in the frequency and rate of shrinking reveals the dynamic transition from being natural states towards becoming open access societies. To provide empirical support to the argument, we rest on the notion of social capabilities. Hence, societies that invest in their social capabilities are more likely to reduce the frequency of shrinking and become better off in the long run. Using survival models, we test three capabilities (transformative, distributive and regulative) that, we argue, reflect an increase in the resilience to economic shrinking. The results suggest that the transformative capability has not lowered the risk of shrinking in the region. Neither has the distributive capability despite the increases in productive employment during the 2000s. In contrast, regulative capability seems to reduce the risk of shrinking. We conclude that the institutional transformations in LAC are part of the explanation of why economic shrinking has receded. Compared to previous decades, this is an essential step towards open access societies. However, the persistent dependence on a few natural resources seems to hinder progressive transformation and remains a menace to sustainable catching up of the countries in the region.