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Mr. Sebastian Sosa, Ms. Evridiki Tsounta, and Miss Marie S Kim

LAC countries for the period 1961-2000. The study builds on earlier work by Elias (1992) , De Gregorio (1992), Bosworth and Collins (1996) , and Easterly and Levine (2002) . 3 Overall, this literature points to two key results. First, TFP performance in LAC (either in terms of the contribution to GDP growth or in level terms compared to other regions/countries) was very weak from 1980 through 2000, with TFP being a particular drag to growth in the 1980s. Second, the contribution of TFP to overall growth tends to be procyclical and changes in output growth are

Ms. Evridiki Tsounta

differential being explained by differences in TFP performance . On the positive side, the growth gap vis-à-vis Asia has narrowed for all regions in the last decade compared with the 1990s, on account of a reduction in differences in capital accumulation and—to a smaller extent–labor contributions ( Figure 4 ). However, large TFP growth differentials remain, accounting for most of the GDP growth gap in the period 2000–12, for LAC, MENA and the CCA. The labor contribution to growth has been historically smaller in Europe than in Asia, while declining unemployment rates in LAC

Mr. Sebastian Sosa, Ms. Evridiki Tsounta, and Miss Marie S Kim
A favorable external environment coupled with prudent policies fostered output growth in most of Latin America during the last decade. But, what were the drivers of this strong growth performance from the supply side and will this momentum be sustainable in the years ahead? We address these questions by identifying the proximate causes of the recent high GDP growth and estimating potential growth rates for the period ahead for a large group of Latin American countries based on standard (Solow-style) growth accounting methodologies. We find that factor accumulation (especially labor), rather than growth in total factor productivity (TFP), remains the main driver of GDP growth. Moving forward, given the expected moderation of capital accumulation and some natural constraints on labor, the strong growth momentum is unlikely to be sustainable unless TFP performance improves significantly.