Low Productivity, a Hindrance for Ecuador and Latin America
Low productivity rates in Ecuador and in Latin America, are to blame for the nation’s major socio-economic development gaps compared to the most advanced economies, according to CAF’s Economy and Development Report (2018 EDR).
Ecuador is experiencing the same issues as the rest of Latin America. Nearly 90% of Ecuador’s population income differential vs. the United States are attributable to its low total productivity, and the rest is due almost entirely to differences in human capital, as explained in the Economy and Development Report (2018 EDR) prepared by CAF Development Bank of Latin America, presented today in Quito.
The region lags behind mainly due to very low productivity in all sectors of their economies, rather than the fact that the region has, compared with developed countries, a large concentration of resources in sectors of particularly low productivity, as explained by Pablo Sanguinetti, Vice President of Knowledge at CAF, when speaking of the EDR’s findings.
Fernando Alvarez, senior economist at CAF, said the report focuses on cross-cutting factors affecting companies, such as the degree of competition, access to supplies and cooperation between businesses, and funding. The evidence shows that Latin American economies have, in general, markets with lower competition compared to more developed regions, which is reflected in high price margins, especially in the services sector.
In Ecuador, lack of competition is more associated with entry barriers (license and permits) than with the behavior of logistics systems and antitrust regulation. On the other hand, there is evidence that price margins are higher in the country (vs. the region), suggesting that there are potential gains for wellbeing for the population.
In order to make headway in this area, the report recommends increasing the capabilities of antitrust agencies, reducing barriers for the entry of companies, and boosting international trade and integration, which are still limited by para-tariff and logistics barriers.
The report also points out that the workforce in Latin America shows a significant gender gap, a mismatch between workers’ skills and their tasks and, especially, a huge concentration of the labor force in informal and low-productivity jobs. While Ecuador’s informality rates are slightly below the regional average, this indicator has now proved vulnerable to the macroeconomic environment. More importantly, the report notes there is a significant gap between the wages of salaried formal workers and informal laborers.
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