Global Value Chains and Export Sophistication in Latin America

The process of globalization has wrought a major change in the international economy, and the scope of feasible trade between countries has broadened. Global value chains (GVCs) combine participation by a large number of suppliers across the world in the production of modern manufactured goods characterized by an acceleration of technical progress. Unlike other developing countries, the Latin American countries have not played a leading role in this dynamic, with consistently low levels of export sophistication. This paper evaluates the level of Latin America’s export sophistication from a dynamic and comparative perspective, using a modern product sophistication indicator. Its results confirm the starting hypothesis, but reveal different situations and trajectories. An order according to levels of export sophistication was established in the countries selected: Mexico, Brazil, Argentina, Colombia, Costa Rica, Uruguay, and Peru. The work takes in the dimension of the dynamic of the export specialization pattern by product type (e.g. capital goods, primary inputs, processed inputs, consumer goods) in the period 2000-2007. In products with permanent specialization, which channel the bulk of exports and reflect the pattern of specialization, Mexico and Brazil are always around the Latin American average for all types of goods. Mexico reaches levels of sophistication similar to the OECD average in capital goods, processed inputs, and consumer goods, but with notably lower levels of sophistication in primary inputs. Brazil is below Mexico except in primary inputs, where it has an average similar to the OECD countries. In the products that describe the dynamics (i.e. that lose and gain specialization), the level of sophistication is always higher than goods with permanent specialization. The order within the countries analyzed does not hold and, in some cases, even has almost the reverse pattern. In all cases, the countries most notable for their levels of sophistication in goods that gain specialization are Peru, Uruguay, Costa Rica, and Colombia. In other words, in the margin, there may be evidence that these countries are participating in a recent process of export modernization, particularly in processed intermediate goods.