Latin American countries are the only “western countries” that are poor. Why Latin America has not replicated Western economic success? Several authors as Cole, et al. [12] find that this failure is primarily due to TFP differences. Latin America’s TFP gap reflects inefficient production.
In a seminal work, Parente and Prescott[23] study the differences in TFP across countries. They find that although countries have access to the same stock of knowledge, they do not all make equally efficient use of this knowledge because policies in some countries lead to barriers that effectively prevent firms from adopting more productive technologies and from changing to more efficient work practices. These barriers exist in a large number of instances to protect interests of specialized suppliers of inputs to a particular production process. They show how the granting and protection of monopoly rights of industry insiders leads to the inefficient use of inferior technologies. This is an argument to explain the different roles copper and oil have played in the Chilean and Mexican economies during the last decades.
Especially, two Latin American countries that shared similar economic conditions in the past are studied in order to shed light about the role commodities play in the crisis and recoveries of emergent economies. Previous works, leaded by Bergoeing, et al.([6],[7]) have concluded that among several economic theories, the one that explains economic crisis and recoveries in Mexico and Chile, is the structural reforms one.
Other works, like Cole, et al.[12] suggest that big increases in barriers to competition are followed by large productivity decreases, and big decreases in these barriers are followed by large productivity increases. The authors suggest that the link between competition and productivity is one of the leading channels for understanding low productivity in Latin America. The latter applies to the Mexican and Chilean economies given that for many years both countries had state-owned enterprises. CODELCO was the main copper producer in Chile and PEMEX is the state monopoly for oil production in Mexico. Both commodities are important for these economies. For the Chilean economy, copper exports represented 36% of total exports while 8% of total GDP for the period 1985-2000. During the nineties, copper exports accounted for about 40% of Chilean exports, equivalent to 9% of its GDP.
International oil and copper prices have been studied to explain economic growth. Increases in oil prices have been held responsible for recessions, periods of excessive inflation, reduced productivity and lower economic growth for the USA economy. Oil price shocks may also have long term consequences for economic growth.
Notably, the rise in the price of oil in 1974 has been blamed for the productivity slowdown, which is often dated as beginning in 1973 [Barsky and Killian[4]] . Even though the relationship between oil price increases and changes in total factor productivity has been explored extensively, the evidence has not been kind to oil-based explanations of the productivity slowdown. The fundamental problem is that the cost of energy is too small as part of GDP to explain the productivity slowdown[Olson[22]]. Barsky and Killian[4] and Reberlo[27] conclude that disturbances in the oil market are likely to matter less for U.S. macro economic performance than has commonly been thought.
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