Running head: LATIN AMERICA LOW ECONOMIC GROWTH 1

Montclair State University

Economics

Fall 2019

Latin America Low Economic Growth: The Causes, Consequences, and Solutions

Course: Eco 101#

Students Name:

Professor Jean-Wilner Alexander

Final paper due:

Wed, December 4th, 2019

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Introduction

Gross Domestic Product (GDP) of Latin America and Caribbean countries remains

sluggish, and it estimated that economic growth is growing at 0.6 percent in the year 2019

being the slowest since 2016 which was growing at -0.355 percent but expected to pick again

and grow at the rate of 2.3 percent come the year 2020 (www.worldbank.org). This year's

economic growth (0.6 percent) down from expected growth rate of 1.4 percent and estimated

growth comes the year 2020 is expected at 2.3 percent down from an expected rate of 2.4

percent. In Brazil, the economic growth rate is at 0.8 percent cut down from 2.1 percent at the

first quarter of the year 2019 mainly due to uncertainties brought up by legislations such as

complete pension scheme overhaul and that of Mexico is at 0.9 percent which felled from 1.6

percent recorded at the first quarter of the year 2019 due to government policies made by

President Andres Manuel Lopez Obrador, labor strikes, and fuel shortages. Moreover,

Venezuela is in economic and human crisis due to political tensions, and in Columbia, the

economy is growing moderately and expects to accelerate to 3.6 percent come 2020

(www.imf.org) As well as weakening global economic growth and US-China trade tensions

are shaking the economy of Latin America by negatively impacting prices of commodities

and exports (Reyes & Sawyer, 2019). 

Economic Growth

Economic growth is a general increase in the GDP of the country as compared to the

preceding years due to an increase in real national income (Lewis, 2013). Reduction of real

national income due to inefficient use of factors of production such as labor, capital,

entrepreneurship, and land leads to a decline in the country's GDP hence slow or low

economic growth and may cause the economic crisis, and the reverse is true (Lewis, 2013).

Columbia one of the Latin America countries is experiencing a moderate economic growth

currently at 3.3 percent and expected to be at 3.5 percent when the year 2019 ends and
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expected to accelerate to 3.6 percent come the year 2020 and this is a significant growth in

the Columbia's economy since when it went down to 1.4 percent in the year 2017. The

moderate economic growth in Columbia is associated with accommodative monetary policies

and favorable financial conditions, 2018 election-year spending by subnational governments,

increased inflow of migrants from Venezuela, execution of 4G infrastructure projects, and tax

reforms (www.worldbank.org).

Causes of Moderate Economic Growth in Columbia

Increased inflow of migrants from Venezuela has led to moderate economic growth in

Columbia due to increased labor force in a labor market, and as of September 2019, 1.4

million Venezuelans had migrated into Columbia. More are expected due to the humanitarian

crisis in Venezuela and open border policies by the Columbian government to Venezuelans

(www.dane.go.ke). As well as the implementation of 4G projects and financial closure of 4G

and other existing projects has led to the growth of the Columbian economy, 3.3 percent from

1.4 percent in the year 2017. Moreover, tax reforms such as lowering of corporate tax, tax

discounts for VAT paid commodities, incentives in exploration, and exploitation of oil in

Columbia have led to significant moderate growth in the economy. Moreover, the adoption of

Fiscal Rule (2011) has improved the fiscal policies of Columbia, and it has facilitated both

domestic and external economic adjustments to potential threats of the economy, and this has

led to moderate growth in Columbia's economy. Furthermore, the significant growth of the

economy in Columbian is attributed to the 2018 presidential elections which led to growth of

the economy from 1.4 percent in the year 2017 to 3.3 percent in the year 2019 this due to the

fact that there was increased in both public and private investment (www.worldbank.org).

Consequences of Moderate Economic Growth in Columbia

Increased immigrants from Venezuela have led to the increased labor force in the

labor market, leading to increased production as well as increased unemployment rate by 15.7
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percent hence moderate economic growth in Columbia (www.dane.go.ke). Accommodative

monetary policies, tax reforms, and favorable financial policies by Columbian government as

discussed above has led to increased private spending and investment making an economy to

grow from 1.4 percent in the year 2017 to 3.3 percent in the year 2019 and expected to grow

to 3.6 percent in the year 2020 (www.worldbank.org). 

Solutions to Moderate Economic Growth in Columbia

Creating job opportunities and formulating policies favoring immigrants Venezuela

by the Columbian government to immigrants from Venezuela will undoubtedly accelerate the

economy into a boom as the labor force will increase and unemployment rate reduced due to

available job opportunities. Also, formulating more tax reforms concerning tax incentives and

tax discounts will help boost Colombian economic growth since there will be an increase in

real income by both the public and private sectors in the economy. Moreover, the government

of Columbia needs to stay more committed to its fiscal policies and macroeconomic

frameworks so as to strengthen resilience from inflation and external shocks in the global

market and to improve government spending on immigrants to accelerate the Columbian

economy (www.worldbank.org). 

Applications of Solutions to Moderate Economic Growth in Columbia

The Columbian government needs to create more job opportunities for both

immigrants and its citizens and train them as well. Also, the Central Bank of Columbia and

the government need to operate together, formulating more accommodative fiscal policies

and implementing them. Moreover, the Columbian government with the tax authority needs

to formulate more tax reforms and implement them so as to increase tax revenue and increase

investor spending. 
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Conclusion

Apart from how efficient and effective factors of production are in the economy of a

given country, economic growth depends on the government policies, interventions, and

frameworks formulated geared for economic growth. Moreover, politics and security play a

key role in the economic growth of the country. 

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References

Lewis, W. A. (2013). Theory of economic growth. Routledge.

Reyes, J. A., & Sawyer, W. C. (2019). Latin American economic development. Routledge.

Internet Sources

Retrieved from https://www.worldbank.org/en/country/colombia/overview on 12.12.2019

Retrieved from https://www.dane.gov.co/index.php/en/ on 12.12.2019

Retrieved from www.worldbank.org on 12.12.2019

Retrieved from https://www.imf.org/en/search#q=latin%20america%20economy&sort=relevancy on

12.12.2019