Chile’s sustained growth over the past few decades has reduced poverty and substantially improved living conditions. The country stands out for having the highest Human Development Index in Latin America, as well as having made progress towards shrinking the income gap with OECD countries. This achievement is largely related to capital deepening as well as robust growth in labor force participation, while total factor productivity (TFP) growth has been meager, stalling after 2000 (OECD, 2017). In terms of labor productivity, Chile has only reached 40% of US levels, and 55% of OECD levels (McKinsey, 2015).
Further income convergence with the OECD will require faster TFP growth, given the pressures of demographic transition, the end of the…show more content… We draw on the framework developed by Syverson (2011) and used by the World Bank to offer a private sector perspective on these challenges. We distinguish between firm ‘levers’ (managerial practices; quality of inputs; innovation, R&D, and learning by doing) and ‘external’ factors (competition and input market flexibility). Then we prioritize a subset of private sector mechanisms where the intersection between critical gaps and IIC comparative advantage presents strategic opportunities to contribute to Chile’s productivity agendas.
A) Chilean firms’ subpar managerial practices reduce productivity. Chile has some of the longest working hours in the OECD, yet it ranks near the bottom in terms of GDP per hour worked (OECD, 2015), suggesting problems in leadership and making an efficient use of workers’ talents. Among the studies linking leadership to TFP, Bloom and Van Reenen (2007) show that higher quality management practices are correlated with several measures of productivity and firm performance; in China, India and Brazil they find that low management scores are driven by a large left tail of very poorly managed firms. Despite being a top regional performer, Chile lags behind the OECD in the World Management Survey areas of monitoring, targets, and human resources. The shape of