Latin America and the Caribbean’s Response to Growth in China and India

by Dave

World Bank – Office of the Chief Economist –

According to the study Latin America and the Caribbean’s Response to the Growth of China and India: Overview of Research Findings and Policy Implications, concerns that both countries are displacing the LAC region in world markets for goods, services, foreign direct investment, and innovation are misleading.

Guillermo Perry, Chief Economist for the World Bank Latin American and the Caribbean region and one of the authors of the study, says despite the concern about the possible effects of the growth of these Asian economies on the LAC region’s manufacturing and services sectors, there is substantial evidence of positive aggregate effects associated with China and India’s presence in world exports, financial flows, and innovation.

China and India’s growth is creating new production possibilities for LAC economies, in particular for sectors that rely on natural resources and scientific knowledge.On the other hand, the study also indicates that some industries, firms and sub-regions are being negatively affected, specially industrial and electrical machinery, electronics, transport equipment, and textiles.

In sum, China and India’s growth has not been a zero-sum game for LAC, but the potential benefits are not being fully realized.

According to the authors, it is crucial that LAC countries take full advantage of the growing presence of China and India in world markets by adopting offensive strategies that facilitate both, the participation of LAC firms in global production networks and their commercial presence in the two Asian economies’ markets.

For governments, the study recommends avoiding protectionist temptations and focusing on facilitating the adjustment in affected sectors, as well as the emerging structural shift towards more natural-resource and scientific-knowledge-intensive sectors by adopting adequate education, innovation, natural resource management, and rural development policies.