Introduction

INTRODUCTION

In recent decades, the Latin America and Caribbean region made great advances in macroeconomic stability, per capita incomes, and institutional capacities. But it faces fundamental development challenges to avoid a “middle income trap,” with insufficient economic diversification and competition and unimpressive productivity growth. Trade and global value chains are key to address these challenges, as the economies of East Asia and Eastern Europe clearly show.

The Latin America and Caribbean region’s low integration into international trade and GVCs has coincided with a slowdown in economic growth, contrasting sharply with the real gross domestic product (GDP) growth in other emerging economies. Many factors have played a part, but one probable explanation for the region’s low dynamism is the combination of its specialization in commodities and its limited participation in manufacturing GVCs. This contrasts with East Asia, Europe, and North America, which are more strongly integrated into advanced manufacturing, services, and innovative GVC activities (World Bank 2020b). Greater GVC participation is linked to gains in productivity, value added, and growth (Constantinescu, Mattoo, and Ruta 2019; Pahl and Timmer 2020; Stolzenburg, Taglioni, and Winkler 2019; World Bank 2020b).1 And for firms, the productivity and employment gains from importing intermediate inputs magnify those from exporting only (Banh, Wingender, and Gueye 2020; Kasahara and Lapham 2013; Muûls and Pisu 2009; Wagner 2012; World Bank 2020b).

This chapter benchmarks trade and GVC integration in the Latin America and Caribbean region and countries against selected aspirational comparator regions and countries—zooming in on selected sectors. Latin America and the Caribbean is benchmarked against comparator countries in the East Asia and Pacific and Europe and Central Asia regions through aggregate and firm-level patterns.2 The chapter includes only countries that are part of the GVC taxonomy (introduced below) and were eligible for World Bank lending in 2000. The countries considered for analysis based on aggregate data are Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay, and República Bolivariana de Venezuela. Analysis based on microdata considers only the subset of countries with customs data.

The chapter includes sectoral insights for mining and commodity-intensive manufacturing (petroleum, chemical, and nonmetallic minerals and metals); agribusiness (agriculture and food and beverages); and manufacturing (textiles and apparel, electrical and machinery, and transportation equipment). Where possible, the analysis also covers traditional services (wholesale trade and transportation) and modern services (telecommunications and financial and business activities).