Latin America and the Caribbean’s poor international integration and limited participation in GVCs have contributed to its low economic growth over the past decade

LATIN AMERICA AND THE CARIBBEAN’S POOR INTERNATIONAL INTEGRATION AND LIMITED PARTICIPATION IN GVCs HAVE CONTRIBUTED TO ITS LOW ECONOMIC GROWTH OVER THE PAST DECADE

After experiencing rapid economic growth in the first decade of the twenty-first century because of high commodity prices, Latin America and the Caribbean entered a phase of weak performance. Growth in exports, imports, and gross domestic product (GDP) per capita in 2000–18 was lower in Latin American and Caribbean countries than in comparator countries in the Europe and Central Asia and the East Asia and the Pacific regions (figure O.1). Globally, greater integration in international trade and GVCs were linked to increased GDP per capita and productivity (Constantinescu, Mattoo, and Ruta 2019; Dollar and Kraay 2004; Harrison and Rodríguez-Clare 2009). In Latin American and Caribbean countries, limited trade openness, low trade growth, and a scarcity of exporting firms contributed to their overall sluggish performance.

Latin American and Caribbean countries display limited trade openness and weak integration into GVCs on average. Their trade is roughly one-third of GDP on average, compared with half for Europe and Central Asia and East Asia and the Pacific, and that share has not grown since 2000. The region’s GVC performance lags other regions across all sectors in both imported components to be embedded in production for export (backward participation) and in components produced for export (forward participation).

Although some of the region’s countries (such as Costa Rica and Mexico) have broken that pattern and are more integrated into GVCs, most have low participation. The latest data show backward GVC participation at 16 percent of total exports on average across Latin American and Caribbean countries in 2015, compared with 20 percent in East Asia and the Pacific and 30 percent in Europe and Central Asia.2 The region’s forward participation is also low, at 19 percent of total exports on average, compared with 28 percent for Europe and Central Asia and 29 percent for East Asia and the Pacific. Although Latin America and the Caribbean’s aggregate GVC participation is low, the region’s firms that participate in GVCs perform better than firms that do not, revealing unexploited potential.3

The World Development Report 2020 proposed a GVC taxonomy with four categories of participation: commodities, limited manufacturing, advanced manufacturing and services, and innovative activities (World Bank 2020). Latin American and Caribbean countries are mostly in commodity and limited manufacturing GVCs, except Mexico, which is in advanced manufacturing and services GVCs. (See chapter 1 for more about the GVC taxonomy, by country.) Countries in the region differ, but only three managed to upgrade to the limited manufacturing group over 1990–2015: Argentina, Costa Rica, and El Salvador.