The Priorities for Productivity and Income (PPIs) website offers results of the PPIs study carried out by IDB’s Research Department, which identifies priorities for Latin American countries across eight productivity-determinant sectors that maximize the likelihood of reaching higher income-per-capita groups, depending on their actual income-per-capita level.
The Priorities for Productivity and Income (PPI) project seeks to answer the following key questions:
1. What did successful countries invest in that allowed them to reach higher income per capita groups?
2. Which determinants of productivity are the most important in increasing the likelihood of jumping to a higher income per capita group?
3. How do these determinants change according to the per capita income of the country under analysis?
4. How do these priorities interact in maximizing the probability of reaching a higher income group?
49 countries−including 19 from Latin America and the Caribbean, and 30 from the OECD−were used in the analysis to answer these questions. Countries were first clustered into 4 different income per capita groups (or clusters) depending on how similar their income per capitas are. Performance of each country in each of eight sectors affecting productivity−Labor Markets, Education, Health, Infrastructure, Innovation, Integration and Trade, Telecommunications and Capital Markets−was measured using a set of 34 key indicators.
With this information at hand, an ordered Probit model was estimated to assess which of these sectors make a significant impact in increasing the probability of jumping to the next higher income per capita cluster. Note that priorities differ depending on the cluster a country belongs to, and the probability of jumping to the next cluster depends on a country’s starting point, and how much it can invest on these priorities.
While for low income countries priorities are more basic−i.e., education and health−priorities shift to labor markets and integration and trade for lower-middle income countries. In the case of middle-income countries−including the seven biggest Latin American Economies−priorities change once more to capital markets and infrastructure.
A full description and results of the methodology are available in IDBs Working Paper 680, “In Search of Larger Per Capita Incomes: How to Prioritize Across Productivity Determinants?”, authored by Alejandro Izquierdo, Jimena Llopis, Umberto Muratori and José Juan Ruiz.
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