Inflation crises and total factor productivity in Latin America

This study examines the relationship between inflation and total factor productivity (TFP) growth in 18 Latin American countries during the period 1961–2000, in the context of inflation crises. Using a dynamic panel data approach and the Generalized Method of Moments (GMM) estimation methodology, the study analyzes the effects of both high inflation rates and inflation volatility on TFP growth. The results show that periods of high inflation have a significant negative impact on TFP growth; it is estimated that a 100% increase in inflation reduces this growth by 3%. On the other hand, low levels of inflation do not have adverse effects on TFP, suggesting nonlinear relationships. Additionally, it is found that the negative effects of inflation on TFP growth are robust, even when controlling for supply shocks. The implications for economic policy underscore the importance of maintaining price stability as a fundamental condition for fostering productive growth in the region. (Abstract and audio: Department of Economic Publications)