An empirical analysis of economic growth for Uruguay and the Latin American region: 1950-2000

The modern growth literature studies the relationship between countries’ economic growth and a variety of social, economic and political indicators. In its most recent empirical analyses a positive association is found between variables that reflect
political stability, high literacy rates, homogeneous middle class societies, low poverty
and inequality levels and countries overall growth rates. This paper investigates the
extent to which the Uruguayan and Latin American economic growth experiences of
the last fifty years can be assessed within the framework of both traditional and modern
theories of economic growth. Its findings are that differences in population growth and
capital accumulation account for an important observed variation in the gross domestic
product across countries. In addition to the cross-section growth analysis, from which
almost all-previous studies derive their results, a beginning is made towards obtaining
estimates based on panel data for the Latin American case. The inclusion of the individual country effect that corrects for the cross-section omitted variable bias problem,
augments the estimated convergence rates and has a significant impact on the growth
regression results. Moreover, and once the determinants of income on the balance path
are effectively controlled, conditional convergence is found for the four samples analysed. Furthermore, it is shown that while cross-country regressions can highlight some
useful factors that are statistically correlated with economic growth, a richer understanding of the dynamics of growth at the country level is needed and requires a thorough investigation of the institutional structures. The individual country study case
casts doubt on many deep-seated ideas within the growth and development community:
the Uruguayan economic process cannot be fully captured within the framework of the
theories of growth. In this sense, it is showed that in contradiction with these theories’
main predictions, this small Latin American country, which maintained during the past
century the comparatively better overall social indicators of the region, was the one
who registered the poorest growth rate. The paper stresses the need of further research
referring this particular and paradoxical experience where the precise nature of the traditional hypothesised relationships should be reconsidered.