Missed Opportunities: Innovation and Resource-Based Growth in Latin America

The twentieth century offered opportunities for rapid resource-based growth that Latin America systematically missed. Even if it were clear that resource-abundant countries have, on average, experienced relatively slow growth, the more interesting question is why some—Australia, Canada, and the nations of Scandinavia, for example—developed successfully while others did not. ¹ This paper argues that the causes of Latin America's underperformance and acute sense of dependency can be found in barriers, with deep historical roots, to technological adoption and innovation. The most important was and remains deficient national "learning capacity," exacerbated in the postwar period by the perverse incentives of inward-looking development policies.

Concerns that resource-based sectors intrinsically lack dynamism have probably been exaggerated. ² Even in Prebisch's era, future Nobel Prize winner Douglass North argued that "the contention that regions must industrialize in order to continue to grow . . . [is] based on some fundamental misconceptions," while the pioneer trade economist Jacob Viner held that "there are no inherent advantages of manufacturing over agriculture." ³ Viner's claim is supported by estimates that total factor productivity (TFP) growth, which explains roughly half of the differences in the growth of per capita gross domestic product (GDP), was roughly twice as high in agriculture as in manufacturing globally from 1967 to 1992. ⁴ Blomström and Kokko argue that forestry will remain a dynamic sector in Sweden and Finland, where rapid productivity growth ensures competitiveness relative to emerging low-wage producers. ⁵ Wright draws on the early experiences of the United States and Australia to demonstrate that the stock of minerals is, to an important degree, endogenous, and major increases in productivity can be realized in discovery and exploitation. ⁶ More generally, the literature clearly indicates that these development successes based their growth on natural resources, and by Leamer's measure of resource abundance, several still do (see figure 1). ⁷

Latin America seemed unable to follow their lead. As a crude summary, regressing Maddison's well-known growth data from 1820-1989 (table 1) on Leamer's measure of resource abundance suggests that resources had a positive growth impact from 1820-1950, but that Latin America's especially poor performance in the postwar period is responsible for the apparent resource curse afflicting that era. ⁸ This underperformance is illustrated more starkly by several examples at the microeconomic level. Despite being far from the innovation frontier, and thus having the potential to play catch-up, the growth of total factor productivity in Latin America in both agriculture and manufacturing perversely lags that of the countries at the technological frontier (see figure 2). ⁹ The 1944 Haig technical assistance mission to Chile revealed the "indisputable truth that an adequate management of our forests could become the basis for a great industry of forest products," yet nothing remotely similar to the dynamic Scandinavian experience appeared in this country until the late 1970s. ¹⁰ Wright categorizes Latin American countries as traditional mineral underachievers, and massive discoveries of deposits throughout the region in recent years confirm his view. ¹¹ More emblematically, the question arises why it was Australia, another small antipodal dependency, that discovered La Escondida, Chile's largest copper mine, a century after Chile's once-dominant native industry had all but vanished.

Central to every example are the forgone opportunities to exploit the global stock of knowledge to increase productivity growth and create, or perpetuate, dynamic industries, as the Nordic and East Asian miracles have done. ¹² Or, to paraphrase Di Tella's broader historical view, the region proved unable to move beyond a state of exploiting the pure rents of a frontier or extraction of mineral riches, and beyond the collusive rents offered by state-sanctioned or otherwise imposed monopoly, to tap the "unlimited source of growth" found in exploiting the quasi-rents of innovation. ¹³

This failure...