Accounting for Latin American Growth: A Trade and Macroeconomic Perspective

This paper reviews Latin America’s growth over the last half century using a novel method that decomposes countries’ growth relative to the world into three factors: (1) the traction on growth exerted by export expansions (export pull), (2) the growth implications of changes in external imbalances (external leverage), and (3) the economy’s ability to expand faster than its imports (domestic response). It applies this method to explore the macroeconomic and trade drivers behind several historical growth trends: (1) the success or failure of Latin America’s import-substitution industrialization, (2) Mexico’s persistent slow growth despite a successful switch to export-oriented industrialization, (3) the ability or failure of South American commodity exporters to grow smoothly based on commodities, and (4) the heterogeneous growth performance of Central American services producers and exporters. With different mixes and patterns by subregion, insufficient export pulls, depressed domestic responses, and bursts in external leverage all played major roles in explaining the region’s disappointing growth.