Productivity in the service sector in Colombia: the misallocation and innovation channels

Abstract

Latin America and the Caribbean have underperformed in economic growth compared to other developing regions like Southeast Asia or Eastern Europe. This has implied a low rate of income convergence with developed economies. For example, the average income per capita was around 0.20 of that of the USA in 1960 and went up to only 0.26 at the end of the second decade of the XXI century. Most growth accounting exercises (see Jones, 2019; Alvarez et al., 2018) show that weakened productivity dynamics is a critical immediate cause of this lack of convergence. In other words, the LAC countries have not improved their efficiency when using their resources at the firm level, sectors, and the aggregate economy.