The need to amend Bolivia’s historic unbalanced growth pattern


By: Luis Carlos Jemio Ph.D.


Historically, Bolivia’s economic growth patterns have depended on export commodity sectors, namely minerals and hydrocarbons, which booms and collapses have determined the behavior of the economy as a whole. Past economic growth patterns have resulted in distorted economic structures, and did not promote better labor market results. In particular,  employment remains heavily concentrated in low-productivity activities, mostly in non-tradable sectors, with high poverty incidence, such as traditional agriculture and urban informal sectors.  The historical patterns of Bolivia’s economic growth have also produced large labor productivity gaps among different sectors of the economy, and within them. In Figure 1, sectors are grouped based on their labor intensity, differentiating them between labor intensive and non-labor intensive sectors.

graficas-21-10-01Figure 1 shows that in 2014, 49.4% of GDP was concentrated in labor-intensive activities, while 50.6% in non labor-intensive activities. Employment, on the other hand, was largely concentrated on labor-intensive activities, which comprised 81.4% of total employment, while non labor-intensive activities only comprised 18.6% of the occupied population.  These GDP and labor structures imply large productivity gaps between the two sector groups, being the average productivity in non labor-intensive sectors 4.5 times larger than that in labor intensive sectors. The productivity gap in turn brought about labor income disparities, with workers employed in non labor-intensive activities earning 2.5 more than those in labor-intensive sectors.

The observed growth patterns of the Bolivian economy, and the economic and employment structures resulting thereafter, have been the outcome of policies implemented in the past. Independent of the ideological orientation of successive governments, policies invariably focussed on promoting growth in non labor-intensive commodity-exporting activities, such as mining and hydrocarbons. For instance, due to the various reforms implemented during the 1990s, FDI flows to those sectors in the 1999-2014 period, almost tripled FDI flows received by labor-intensive sectors.


The productivity and income gaps existing among activity sectors, resulting from Bolivia’s historic growth patterns, overlap with poverty incidence existing among workers of these two group categories. Figure 2 shows that poverty incidence of workers in labor-intensive sectors is 39.4%, while that for workers in non labor-intensive sectors is only is 15.5%.

Existing productivity and income gaps between these two sector groups are linked to various socio-economic dimensions that characterize the Bolivian labor force, including workers’ informality condition, educational level, gender, ethnicity, geographic location among the most important.

For instance, there are large educational differentials between workers in the two sector groups. In labor-intensive sectors the share of non-skilled workers in total employment is 62.4%, while this share is only 39% in non labor-intensive sectors. The later highlights the importance of education as a means to increase labor productivity and labor earnings and thus reduce poverty incidence.

Existing gaps are also linked to the prevalence of informality among workers belonging to the two sector groups. According to Figure 2, in 2004 77.3% of workers in non labor-intensive sectors were employed in informal activities, while 45.8% of workers employed in non labor-intensive sectors were informal. Informality is measured considering workers in firms with up to four workers (excluding professionals). In this regard, informality can explain productivity and income gaps between and within any particular activity sector. In many sectors, mostly labor-intensive ones, there are formal and informal activities coexisting, with former exhibiting larger productivity and income levels than the later.

Furthermore, the shares of vulnerable groups, such as women and indigenous people, among workers in the two sector groups show that vulnerable groups are mostly employed in labor-intensive sectors, where productivity and incomes are lower, and poverty incidence and informality are higher. The share of women employed in labor-intensive sectors is 44.9%, while this percentage is as low as 25% in non-labor intensive activities.  Likewise, share of indigenous people employed in labor-intensive sectors is 42.5%, while this percentage is only 20.7% for non labor-intensive activities.

From the above analysis, it is clear that Bolivia requires a change in its economic growth pattern to one, which would promote growth based on labor-intensive activities, but with higher productivity, probably in tradable sectors, such as the manufacturing sector. In 2014, manufacturing activities comprised 17.5% of GDP and only 9.3% of employment, being its labor productivity on average more than three times greater than that in other labor-intensive activities.

The development strategy and policies necessaries to promote the required change, at the macro, sectoral and micro levels, need to be carefully designed and implemented. They have to cover a wide range of areas. Appropriate policies  should cover: i) macroeconomic policies, including tax, exchange rate and monetary policies aimed at maintaining macroeconomic stability and promoting competitiveness; ii) trade policies and integration to the global economy; iii) FDI promotion policies to strategic sectors of the economy; iv) sectoral allocation of public investment, mainly to infrastructure and public services; v) setting-up strong and stable institutions to guarantee contract enforcement and the rule of law; vi) improving the overall business climate; vi) and investing in human capital through improving the access to and quality of education and health services.




Live Research Bulletin: The opposite poles of environmental accounts of Canada and the United States

“I’m not in this race to slow the rise of the oceans or to heal the planet.” Republican Presidential Candidate Governor Mitt Romney, an interview on “Meet the Press”, September, 2012.

This month, Development Roast has published several posts offering insights into different principles and practices of green accounting. After our overview of European experience with environmental accounting, we now turn to North America. Excluding Mexico (which will be discussed next week in the Latin America update), the two remaining countries show us quite different experiences with greening the national accounts. While Canada has shown to be an example of comprehensive implementation, the United States suspended its national project for environmental accounting in 1995 and hasn’t made large attempts to develop these accounts since. Read More »

Can economics protect the environment?

When the last tree is cut down, the last fish eaten, and the last stream poisoned, you will realize that you cannot eat money,” Native American saying

“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs,” Brundtland Report

It is undeniable that our current way of life is unsustainable; If every country consumed resources and created waste at the same per person rate as the United States, we would need three to five planets to survive. Part of the problem lies in the fact that economics—the major discipline advising global and national policy—has failed to include the environment in its calculations. To rectify this problem, different methods have been proposed, so as to make predictions and come up with better ways of managing the planet’s resources without compromising the future.

Read More »

Book Roast: The Cartoon Introduction to Economics

“What’s the difference between a recession and a depression,” asks a member of the public. “A recession is when you lose your job; a depression is when I lose mine,” replies an economist.

This is just one of numerous little jokettes that colour the pages of The Cartoon Introduction to Economics—a brilliant must-have for any student or teacher of economics or, indeed, anyone else interested in getting to know or simply recapping on the basics of a field that is currently positioned at the center of local, national and global decision-making. Read More »

The Monetary Approach to Poverty: Strengths and Weaknesses

By Fabian Soria

Poverty has been created by the economic and social system that we have designed for the world.
It is the institutions that we have built, and feel so proud of, which created poverty.
It is the concepts we developed to understand the reality around us, made us
see things wrongly. […] It is our policies borne out of our reasonings and
theoretical framework, with which we explain interactions among
institutions and people, that caused this problem for so

many human beings.”

Muhammad Yunus, Nobel Peace Prize 2006

When we read about poverty in the news, most of us know more or less what it means. But what are they exactly talking about? When an academic publishes a paper on poverty reduction, what exactly is he proposing to reduce?

Read More »


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