If since 1960 the Bolivian economy had grown at the same rate as the rest of the world, in 2006, in terms of purchasing power parity, Bolivia would have more than doubled its per capita income, reaching similar levels to Peru, which according to the latest Human Development Report, has a high human development indicator, while in Bolivia the level of human development is just medium.


In fact, from the Latin America perspective, due to its lower long-term economic growth rate, average income per capita in the region since 1960 still represents only a quarter of U.S. per capita income, while several other countries in East Asia for example, whose incomes per capita fifty years ago were even below those of Latin American countries, are now approaching or have already joined the club of the high-income nations.


According to Lora and Pagés (2010), the low growth rate of productivity is the main determinant of the poor economic growth rate in per capita terms in Latin America. It has also prevented the region from closing the income gaps and economic development levels with developed economies. Therefore, the achievement of higher productivity should be located in the epicenter of the current economic debate in Latin American countries.


Increasing productivity means finding better ways to use more efficiently the production factors, which are the labor, the physical and the human capital that exists in a country. More likely, the efficiency gains are calculated as the portion of growth that cannot be attributed to the accumulation of these factors. Since the seminal work of Solow (1957), productivity gains are usually associated with increases in technological progress of a country, but the empirical evidence has shown that this is a complex problem that goes beyond technological growth.


Finally it is crucial to note that productivity in a country seems to be endogenous to its institutions, as shown by Easterly and Levine (2003). Knowing that institutions are the formal and informal rules of the game that shape the incentives of individuals, business-friendly institutions ensure fair competition for resources and provides businesses with good ideas the opportunity to thrive and grow. Therefore, low productivity is often the result of State failures that distort incentives to innovate and also prevent the expansion of efficient firms while promoting survival and growth of inefficient firms. These failures are often more pronounced in weak-institutional economies, such as Bolivia[1], and they are probably the most important factors behind its relatively low productivity rate observed now a day.

[1] Bolivia ranks 119 out of 144 economies in terms of Institutions according to the latest Global Competitiveness Report 2012-2103 of the World Economic Forum.