Latin American Industrial Competitiveness and the Challenge of Globalization

Manufacturing in Latin America and the Caribbean region (LAC) faces severe competitive stresses as it integrates into the global economy. It is not, on the whole, coping well. Though it was the first region in the developing world - in the post-war era - to liberalize on international trade and investment flows and had the most advanced industrial base, it failed to tap fully the opportunities offered. As a result, it has steadily fallen behind the most competitive economies in the developing world, the Tigers of East Asia. What is behind LAC's under-performance? The dominant view in the region puts emphasis on the legacy of import substitution, macroeconomic mismanagement and on a costly business environment. Although important, these factors do not seem to tell the whole story. The heavy emphasis on government failures has led policymakers to overlook key market failures that stand on the way to sustained productivity growth, increasing technological capability and greater competitiveness. This paper can be seen as a first step to redress the balance of the policy debate and focus on benchmarking competitive performance and capabilities in the 1990s in LAC and East Asia, letting the comparisons speak for themselves. While it is known in the region that its recent industrial record has been poor, the dimensions are not well analyzed or understood. This benchmarking exercise, using a simple framework to measure performance and capabilities, should prove instructive to policy analysis