Latin America's Big Efficiency & Income Gap Is Caused by Resource Misallocation

Reports suggest that countries of Latin America and the Caribbean could be richer and enjoy the level of efficiency in labor and capital same as the United States of America. But for some reason, the commodity boom in these countries are now over and the region again is struggling to find its footing.

LAC (Latin America and the Caribbean) countries reportedly could have been twice richer. This is according to the findings of World Bank in Understanding the Income and Efficiency Gap in the Caribbean and Latin America. These countries considered being one of the fastest growing of the 2000s.

Latin America and the Caribbean achieved several degrees of per capita income than the United States and that was the glory days as the commodity boom is now over. The countries are now struggling to finds its footing in the lighting of widespread fiscal imbalances. The question might rise as to why did the long-term productivity is back and why is it LAC has failed as they had implied the traditional theory? World Bank Group has reported.

Efficiency gap has something do with it. Measuring the LAC's per capita compared to the United States has a massive income gap. The region's workers could produce just a fifth output than a US worker and known to be "capital poorer."

With a massive efficiency gap, it perpetuates low productivity, hence lower returns and reduces incentives to further invest in some activities. But what is really behind the Latin America and Caribbean efficiency gap? So, one of the causes of low efficiency is the slow adoption of new technology from abroad, The World Post has reported.

Acquiring technology adoption lags has something to with the Resource misallocation. It is the underlying problem why Latin America and the Caribbean have such a massive efficiency gap. Back in 2000 Colombia and Mexico is much productive compared to the U.S and adopting technology than reducing resource misallocation.

Latin America does a better job in 2000 but then millions of workers in LAC moved from high productivity of manufacturing to much lower-productivity jobs in several sectors like the wholesaling, government, retailing, and construction. The structural shift resulted into lower value-added per worker.