Endogenous Growth and Exogenous Shocks in Latin America During the Twentieth Century

Using a new database for the whole 1900-2000 period, this paper estimates the relative contribution of endogenous and exogenous factors in GDP and productivity growth in each of the six larger Latin American economies with multivariate annual models, and complements these with a single aggregate model using panel data by decade to test for convergence within the region and with the US. Our method is innovative as it includes external economic shocks as well as endogenous growth variables. The main findings are: (i) that investment contributed most to growth during the middle of the century when the region was relatively closed to the world economy and state was proactive; (ii) that the six main economies did converge considerably over the century due to improvements in resource allocation, advances in health and education and increased investment effort; (iii) that these improvements were not, however, enough to produce convergence between Latin America and US; and (iv) that terms of trade volatility, trade and interest rate shocks were a major obstacle to both sustained economic growth and catching up.