Trapped in bad specialisation: premature deindustrialisation and unstable growth in LACs

Abstract

Over the last 40 years, Latin American countries (LACs) have experienced a variety of specialisation trajectories, however sharing a common pattern of weak and unstable growth. Manufacturing has represented an interrupted opportunity of development, given the accelerated premature deindustrialisation path and the loss of productive capacity. The result has been a stable landing into a middle-income trap and economic stagnation. Accordingly, in this paper we address the relationship between sectoral productive composition, growth performance and its volatility. Integrating the UN-COMTRADE and the Penn World Table 10.1 databases between 1962 and 2017, we account for the specialisation strategies of LACs, linking aggregate output, export products, and sectoral composition. In a nutshell, we examine the extent to which revealed comparative advantages, at country or technological-class level, and the relative composition of the export baskets exert any significant role in explaining output growth and volatility. According to our findings, specialising in existing factor endowments and natural resources have brought LACs into a trap of halted catching-up.