Exploring Correlations Between Governmental Expenditure in Research and Development and Productivity in Latin America

Amid complex vicious sociopolitical and institutional contexts, the extractive nature and uncompetitive industries of Latin American economies have perpetuated poverty cycles in the region. Nowadays, local economic development seems threatened by widespread productivity stagnation, urging Latin Americans and their policymakers to examine productivity growth as a central part of a long-run remedy for economic misery. The research and development (R&D) sector plays a crucial role in productivity growth, where produced knowledge stimulates the efficient use of production factors and drives productivity gains. Therefore, examining correlations between Latin American expenditure in R&D activities and productivity becomes interesting to explore the local applicability of expected productivity returns from the R&D sector and assess the efficiency of fiscal fund allocations towards development. This work explores associations of R&D expenditure and six other productivity correlates to Total Factor Productivity (TFP) evolution in nine Latin American countries between 1996 and 2019, making use of individual and pooled time-series Ordinary Least Squares (OLS) linear regression models. Our results identify a lack of significant partial correlations between R&D expenditure and TFP, which might reflect the poor quality of R&D infrastructure and systems in the region. This highlights the need to increase expenditure to assemble efficient R&D environments that could start yielding much required productivity gains in the future. Establishing well-functioning R&D sectors will be important to tackle observed productivity stagnation during the contemporary economic restructuring and development processes of Latin American countries.