Institutional obstacles to Latin American growth

This paper argues that institutional obstacles are now a much more crucial problem for the transition from stabilization to growth for most countries in the region. The first section examines the relative decline of Latin American economies in the past several decades and considers the traditional explanations for this decline, which the paper claims are unsatisfactory. The second section offers a new approach for explaining differences in growth rates by concentrating on institutional factors. The third section shows that people in Latin America suffer from uncertain institutions that distort their expectations and have far- reaching consequences for economic transactions. The fourth section explains these institutional shortcomings, while the fifth proposes reforms that could allow Latin American countries to return to a stable growth path. The report concludes that the main cause of institutional uncertainty is the highly discretionary power of the executive, which changes laws at will and enforces existing laws inconsistently. This climate creates the ideal breeding ground for rent seeking by powerful interest groups capable of using the intransparent and unchecked system to their advantage.