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Latin America´s response to China and India: overview of research findings and policy implications - Observatorio de Política

Author

Listed:
  • Daniel Lederman

    (World Bank, Washington, DC)

  • Marcelo Olarreaga

    (University of Geneva)

  • Guillermo Perry

    (Fedesarollo, Bogotá, Colombia)

Abstract

The economic success of China and India is looked upon with admiration but also concern about the effects that the growth of these Asian economies may have on the Latin American and Caribbean (LAC) region’s manufacturing and services sectors. The evidence summarized here indicates that certain manufacturing and service industries in some countries, particularly in Mexico and to a lesser extent in Central America and the Caribbean, have been negatively affected by Chinese and Indian competition in third markets. Also, LAC imports from China and India have been associated with modest unemployment and adjustment costs in manufacturing industries. Nevertheless, there is substantial evidence of positive aggregate effects for LAC economies associated with China and India’s greater presence in world exports, financial flows, and innovation. Even though there is significant heterogeneity of such effects across LAC sub-regions, 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, which not only benefit from the growing internal markets of the two Asian economies and their effect on commodity prices, but also from complementarities in third markets through production networks, cheaper inputs and capital, and innovation spillovers. 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. 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. Governments should avoid protectionist temptations and should focus on facilitating the adjustment in affected sectors, as well as the emerging structural shift towards more natural-resource and scientific-knowledgeintensive sectors by adopting adequate education, innovation (both patentable and non patentable), natural resource management, and rural development policies. / El éxito económico de China e India es mirado con admiración pero también preocupación por los efectos que el crecimiento de estas economías pueda tener sobre América Latina y el Caribe (ALC), en especial sobre sectores productores de manufacturas y servicios. La evidencia aquí resumida indica que ciertos sectores productores de manufacturas y servicios, en especial en México y también en menor medida América Central y el Caribe, han sido afectados de manera negativa por la competencia de China e India en terceros mercados. También, las importaciones por parte de ALC de productos originarios en China e India han sido asociadas a efectos modestos en términos de desempleo y costos de ajuste en el sector de manufacturas. Sin embargo, hay evidencia substancial de efectos agregados positivos para las economías de ALC derivados del mayor peso de China e India en las exportaciones mundiales, flujos financieros, e innovación tecnológica. Más allá de que se observa una alta heterogeneidad de tales efectos para los distintos países de ALC, el crecimiento de China e India implica nuevas posibilidades de producción para ALC, en particular para aquellos sectores con una fuerte incidencia de recursos naturales y conocimiento científico, beneficios que no solo se deben al crecimiento de los mercados domésticos de estos dos países asiáticos, y sus efectos sobre el precio de los commodities, sino también de la existencia de complementariedades con terceros mercados a través de cadenas de producción, disponibilidad de bienes intermedios y dec apital mas baratos, y de spillovers tecnológicos. En resumen, el crecimiento de China e India no ha sido un juego se suma cero para ALC, pero los beneficios potenciales no están siendo apreciados en su justa dimensión. Es crucial que para que ALC aproveche la creciente presencia de China e India en los mercados mundiales se adopten estrategias que faciliten la participación de las empresas de ALC en cadenas de producciones globales, así como la presencia comercial en los mercados domésticos de China e India. Los gobiernos de ALC deben evitar las tentaciones de aplicar políticas proteccionistas y deben focalizar en facilitar el proceso de ajuste en los sectores afectados, así como también el cambio en la estructura de producción dirigida hacia sectores mas intensivos en recursos naturales y conocimiento, adoptando las políticas adecuadas en las áreas de educación innovación, manejo de recursos naturales y Desarrollo rural.

Suggested Citation

  • Daniel Lederman & Marcelo Olarreaga & Guillermo Perry, 2007. "Latin America´s response to China and India: overview of research findings and policy implications - Observatorio de Política," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 45(1), pages 149-193, Junio.
  • Handle: RePEc:ief:reveye:v:45:y:2007:i:1:p:149-193
    DOI: 10.55444/2451.7321.2007.v45.n1.4083
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic theory & research; free trade; trade policy; markets and market access;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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