Essays on the Endogeneity of the Natural Rate of Growth in Latin American Countries

This Thesis contains four original essays that have been devoted to the study of different elements of the hypothesis of endogeneity of the natural rate of growth. The theoretical framework of the Thesis is presented in Chapter 1. In it, we explore various elements that are of utmost importance in order to understand the hypothesis of endogeneity and that have been generally overlooked by the literature.

The four empirical essays presented in Chapters 2 to 5 explore different aspects of the endogeneity of the natural rate of growth in a sample of thirteen Latin American countries during the period 1981-2011. The first two empirical essays test the hypothesis of endogeneity using new specifications and various econometric techniques. The results indicate that the natural rate of growth is endogenous to the actual rate of growth, so that the long-run economic growth rate presents sensitivity both in the upward and downward directions in the majority of countries of study. We also find evidence that suggests that expansions are more important than recessions in the sample of Latin American countries.

Chapter 4 tries to: 1) estimate a time-varying natural rate of growth; and 2) measure the sensitivity of the latter with respect to its individual components: the rate of growth of labour productivity and the rate of growth of labour force. The results show that the natural rate of growth is more sensitive to labour force growth in the sample of Latin American countries.

Finally, the fifth essay studies the interactions between the individual components of the natural rate of growth and the individual components of the rate of growth of aggregate demand. The empirical results show that the rate of growth of labour productivity is more sensitive to the different components of the rate of growth of aggregate demand. However, we find mixed evidence regarding which component of the rate of growth of aggregate demand is more relevant, so that it is not possible to derive a single conclusion that encompasses all the Latin American countries of study.

All in all, the present research finds both theoretical elements and empirical evidence that support the hypothesis of endogeneity of the natural rate of growth in Latin America during the period 1981-2011.