## From Windfall to Windmill: Harnessing Asia’s Dynamism for Latin America

_IMF Blog, July 22, 2015_

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**Canonical URL:** [From Windfall to Windmill: Harnessing Asia’s Dynamism for Latin America](https://www.imf.org/en/blogs/articles/2015/07/22/from-windfall-to-windmill-harnessing-asias-dynamism-for-latin-america)

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## Bibliographic details
- Authors: Andre Meier, Fabiano Rodrigues Bastos
- Published: July 22, 2015

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### Overview and context
- Latin America’s recent economic fortunes reflect closer economic ties with Asia, particularly China.
- China has become a crucial source of demand for Latin American commodities over the past two decades, delivering significant gains but also contributing to vulnerability as Chinese investment slows.
- The central proposition: Asia could serve as a sustained engine of growth for Latin America—“like a windmill”—if deeper, long-term, mutually beneficial links are developed.

### Closer economic ties: recent developments and financial linkages
- Trade:
  - Gross trade flows between Latin America and Asia have grown tenfold since 2000.
  - Trade linkages have spurred initiatives including bilateral trade agreements, the Trans-Pacific Partnership, and new multilateral development banks.
  - The rise of China is an important driver but does not fully explain intensified links; Korea, India, and Japan have increased their roles as trading partners for several Latin American countries.
- Finance and investment:
  - Japanese foreign direct investment into Latin America exceeded $110 billion between 2005 and 2014.
  - Chinese foreign direct investment to the region increased from a total of $6 billion during 1990–2009 to an average of $10 billion per year between 2010 and 2012.

### Large untapped opportunities and structural patterns
- Commodity dependence and composition of trade:
  - Latin America’s exports remain dominated by raw materials, while imports from Asia are primarily manufactured goods.
  - Despite some progress in higher-value added exports, Latin America’s economic structures remain relatively undiversified.
- Limited knowledge spillovers and supply-chain integration:
  - Knowledge spillovers and innovation effects from trade have been limited.
  - Undiversified export baskets and limited economic complexity have constrained the emergence of intraregional supply chains, with Mexico a notable exception due to integration into the North American manufacturing complex.
- Contrasts within Asia:
  - Trade patterns within Asia changed dramatically over the past 20 years, with China as a linchpin for cross-border trade, technology upgrading, and global supply chains.
  - Some Asian sub-regions remain relatively disconnected from regional trade integration; domestic hurdles such as weak business environments contribute to uneven outcomes.

### Realizing the potential: barriers and policy priorities
- Key domestic constraints to deeper integration and productivity:
  - Weak education systems.
  - Infrastructure gaps.
  - Difficult business environments.
  - Various trade barriers.
- Strategic priorities and realism:
  - Growth reality check:
    - Lower commodity prices, tighter external financial conditions, and reduced macroeconomic policy space make achieving robust growth more challenging than over the previous decade.
    - Prospects hinge on decisive efforts to address long-standing structural weaknesses that have held back investment and productivity.
  - Realistic objectives for trade integration:
    - Trade integration tends to have positive effects on productivity and knowledge transfer but is not a magic wand.
    - Efforts to boost intraregional trade and stronger links with Asia must be underpinned by domestic reforms that promote entrepreneurial initiative, innovation, and diversification.
  - Political economy considerations:
    - Broad political backing is crucial because greater trade integration can have divergent effects across society.
    - Managing distributional implications and ensuring shared gains in prosperity are critical to sustain political support for openness.
- Practical actions highlighted:
  - Reduce obstacles to trade, including high transport costs.
  - Implement domestic reform agendas to improve conditions for investment, innovation, and structural diversification.

### Conclusion and outlook
- Latin America can transform its relationship with Asia from episodic windfall gains into a sustained source of growth and dynamism—“like a windmill”—but this requires:
  - Clear and realistic objectives.
  - A long-term strategy.
  - Attention to political and social implications of deeper integration.
- The current weak growth outlook and the prospect of China’s structural investment slowdown make it especially important to begin seizing these opportunities.

*Andre Meier and Fabiano Rodrigues Bastos, July 22, 2015*

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## Content in this bundle

- **O dinamismo asiático e a América Latina: Do efeito ocasional ao impulso duradouro**
  - [O dinamismo asiático e a América Latina: Do efeito ocasional ao impulso duradouro (Markdown version)](/external/lang/portuguese/np/blog/2015/072215p.pdf.md){rel="alternate" type="text/markdown"}
  - [O dinamismo asiático e a América Latina: Do efeito ocasional ao impulso duradouro (PDF)](/external/lang/portuguese/np/blog/2015/072215p.pdf){rel="external" type="application/pdf"}

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## References

- [is weighing considerably](http://blogs.imf.org/2014/11/11/mind-the-dragon-latin-americas-exposure-to-china/)
- [Undiversified export baskets and limited economic complexity](http://blogs.imf.org/2015/06/09/raising-long-run-growth-in-latin-america-and-the-caribbean-a-complexity-issue/)
- [Domestic hurdles, including weak business environments](http://www.imf.org/external/pubs/ft/reo/2015/apd/eng/areo0415.htm)
- [Annual Meetings this October](https://www.imf.org/external/am/2015/index.htm)

_Source: https://www.imf.org/en/blogs/articles/2015/07/22/from-windfall-to-windmill-harnessing-asias-dynamism-for-latin-america_