How Latin America Can Use Trade to Boost Growth

IMF Blog, November 16, 2023

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Sum of exports and imports of goods and services stands at just 47 percent of gross domestic product.
That’s about 20 percentage points below the level for other emerging markets around the world.
Trade between countries in the region has stayed broadly flat at less than 20 percent of Latin America’s total trade.
Intra-regional trade amounts to:
- just half the level of intra-regional trade in Eastern Europe and Central Asia, and
- a third of the level in East Asia.

Latin America’s participation in global value chains is limited.
Many countries are more focused on exporting raw commodities rather than intermediate or final goods.
Mexico is a prominent exception, with a much more integrated economy mainly due to its close ties with the United States.

Poor infrastructure, burdensome customs clearance procedures, and relatively high tariff and non-tariff barriers constrain trade.
Narrowing the infrastructure gap between the region and advanced economies by half would:
- lower trade costs,
- result in a 30 percent increase in exports, and
- boost GDP by as much as 7 percent.
Streamlining customs procedures, fostering public-private partnerships in the logistics industry, and lowering bureaucratic obstacles are cited as concrete policy measures.

Some countries may not be able to afford large infrastructure investments.
Progress requires prioritizing the biggest bottlenecks and attracting more private investment.

The energy transition is expected to profoundly alter global trade patterns.
Latin American countries with large reserves of critical minerals—like Chile, Peru, Brazil, Mexico, and Argentina—could benefit substantially from rising demand for copper, lithium, magnesium, and other essential inputs for green technologies and decarbonization.
With appropriate policy frameworks, these resources could attract significant investments and help increase participation in global value chains.

Nearshoring, where companies relocate parts of their supply chain operations to closer countries for resilience reasons, is an opportunity for the region to increase trade.
Mexico is an example of a country that has been benefitting from more investment in manufacturing due to this trend.

Close infrastructure gaps.
Further reduce trade barriers.
Put in place policies that make Latin America a more attractive investment destination.

Source: How Latin America Can Use Trade to Boost Growth — Flavien Moreau, Rafael Machado Parente, November 16, 2023.