Efficiency gaps help to explain why Latin America produces 1/5th the output per worker of the US

Why does the productivity of Latin America lag so far behind that of the United States? In new research, Francesco Caselli uses a development-accounting analysis to begin to explain these differences. By comparing the differences in income per worker between Latin American countries and the US to the differences that would exist if these countries differed only in their stocks of physical and human capital, he finds that Latin American countries only use their capital about half as efficiently as the US. This points to a need to understand the technological and institutional constraints that hamper the efficient use of capital.