| Summary: | Since 1979, Colombia´s annual GDP growth has been on average two percentage pointslower than what was observed between 1950 and 1980. The sources-of-growth decomposition shows that this deceleration can be accounted entirely by changes inproductivity. Indeed, between 1960 and 1980 productivity gains increased output perworker by nearly 1% per year. Since 1980, productivity losses have reduced output perworker at about the same rate. The time series analysis suggests that the implosion ofproductivity was caused by the increase in criminality which diverted capital and labor tounproductive activities. In turn, the rise in crime was the result of rapid expansion indrug-trafficking activities, which erupted around 1980. Consequently, the fortunesassociated with the emergence of Colombia as the world largest producer of cocaine had a significantly negative effect on growth and productivity. This explanation is supportedby cross-country evidence that shows that Colombia´s underperformance, especially inthe 1990s, is explained by its high homicide rate.Economic growth, productivity, social capital, crime and conflic
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