Latin America and the Caribbean

292 C H A P T E R 5 G L O B A L P R O D U C T I V I T Y

(World Bank 2019e). To address this, Turkey has recently introduced a more streamlined procedure that focuses on business continuation instead of liquidation.

Even before LAC was hit by severe health and economic impacts from COVID-19, labor productivity growth there had stalled. Productivity growth in the region averaged 0.4 percent in 2013-18, the second lowest of the six EMDE regions, and well below 1.7 percent in the lead-up to the GFC, in 2003-08. In more than one-third of LAC economies, productivity growth was negative during 2013-18. Sluggish productivity growth during 2013-18 reflects negative TFP growth in some large LAC economies, as the commodity price slump and market distortions allowed unproductive firms to continue operating. Although the level of productivity in LAC remains higher than the EMDE average, this is a legacy of gains made decades ago. Shocks related to COVID-19 are likely to further set back productivity growth in the region. To boost productivity, targeted policy actions are needed to improve competition and innovation, deepen trade linkages, improve the quality of education, reduce labor market inefficiencies, strengthen institutional quality, and raise infrastructure investment.

Evolution of regional productivity

Post-GFC productivity growth slowdown to near zero. For decades, productivity growth in LAC has been anemic (Fernández-Arias and Rodríguez-Apolinar 2016). After a burst during the pre-GFC period (2003-08), the second-longest period of positive productivity growth since 1980, productivity growth fizzled out again during the postGFC years. Relative to a pre-GFC (2003-08) average of 1.7 percent, productivity growth in the region dropped to 0.4 percent during 2013-18—a slowdown broadly in line with the EMDE average but from a lower starting rate (figure 5.14).

10

The productivity growth slowdown in the post-GFC period was broad-based, affecting three-fifths of LAC countries. In 10 of 26 countries, nearly all of which are in the Caribbean and South America, productivity growth contracted in 2013-18. In most cases, productivity growth was also lower than both the pre-GFC and long-term averages, as major economies in the region struggled with poor business climates, political tensions, regulatory burdens, and plunging commodity prices. Over the course of the past four decades, troughs in productivity growth have broadly coincided with major adverse economic events, including a series of severe debt crises in the 1980s that spawned the region’s “lost decade,” the GFC, and periodic commodity price slumps.

Within-region productivity growth trends. Notwithstanding weak labor productivity growth at the aggregate level in LAC during 2013-18, there was considerable

10 Labor productivity data are available for 9 EMDEs in South America (Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, and Uruguay), 7 EMDEs in North and Central America (Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, and Panama), and 10 EMDEs in the Caribbean (the Bahamas, Barbados, Belize, the Dominican Republic, Guyana, Haiti, Jamaica, St. Lucia, St. Vincent and the Grenadines, and Suriname).