Essays on Economic Growth and Development in Latin America

The economic growth and development process of the Latin American economies has been historically uneven. The persistent differences in per capita income growth and technological progress appears to be largely attributable to differences in economic policy. This thesis examines the growth effects of exchange rate variations, currency misalignments and nominal exchange rate regimes on productivity growth, the role of capital accumulation on economic growth and relative income differences, and the role of inflation thresholds on economic growth in thirty-two Latin American economies over a period of fifty years from 1960 to 2010. Our methodology implements the system generalized method of moment’s estimation approach for dynamic panel data models of productivity and economic growth where the growth determinants are crucially assumed endogenous to the growth process. In addition, we implement the novel dynamic panel threshold estimation methodology to growth models. We carry out these estimations using our new and extended macroeconomic dataset for the region. The main original contributions of this thesis are as follow. In Chapter 2 we show that real exchange rate depreciations and exchange rate volatility have a contractionary effect on productivity growth in Latin America. In addition, we find evidence on the neutrality of currency misalignments and nominal exchange rate regimes in explaining productivity variations. However, our results show that currency undervaluations and flexible exchange rate regimes correlates with lower productivity growth. Our findings in Chapter 3 show that the acquisition of capital imports enhances economic growth and lessens relative income differences. However, countries that invest relatively more in domestic capital experience a faster relative income growth with respect to the Unites States. In Chapter 4, we document the existence of an inflation threshold located at a 14% inflation rate. Inflation lower than the threshold is found to be significantly conducive to economic growth. In contrast, additional inflation higher than the threshold has a detrimental effect on economic activity