Regional highlights: Latin America and the Caribbean
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After almost a decade of strong growth following the global financial crisis, growth rates in the region have fallen and several countries are now heading into recession. The end of the commodity super-cycle resulted in a drop in export values for major commodity-exporting countries, including Brazil, Venezuela, Colombia, Ecuador, and Argentina. The subsequent fall in global trade has also hit demand for manufacturing exports, further reducing the value of exports across most of the region. The result of this negative terms-of-trade shock has been a large trade deficit, producing current account deficits and government budget deficits.
Despite the relative depreciation of the region’s floating currencies against the US dollar, exports have not recovered. This makes evident the magnitude of the competitiveness challenges in the region, where productivity has been falling, on average, during the last 20 years.
The top performing country in the region remains Chile (33th), increasing two places in the rankings, followed by Panama (42nd) with an improvement of eight positions. Costa Rica falls slightly to 54th rank, and Mexico (51st) improves by six positions.
The overall range of scores in Latin America and the Caribbean remains large, with the worst-ranked in 130th place and the best-ranked in 33rd place. Within pillars, the largest regional gaps remain in the macroeconomic environment, reflecting the magnitude of the commodity and investment shock on commodity-exporting countries, and size of domestic markets. We also observe an increased dispersion within the institutions pillar, driven by the ethics and corruption subpillars and recent scandals in the region.
Figure 14 shows the best, worst, median, and mean performer in the region—and the best global performer—on each of the 12 pillars of the GCI. This allows us to understand the sources of regional inequality driving productivity and growth differences, as well as the gap between the regional and global top performers. Although Latin America and the Caribbean has made progress on average, large gaps remain in all pillars. The largest gaps with the best world performer are in business sophistication and innovation, where Panama and Costa Rica lead the region. Other large gaps are in infrastructure, institutions, and labor market efficiency.
Panama, the largest upward mover in the overall Index this year, leads the region in macroeconomic environment, goods market efficiency, financial market development, and business sophistication. Costa Rica leads in health and primary education and innovation. Uruguay leads the institutions pillar, and Chile leads higher education and training. Barbados tops the regional rankings in infrastructure, labor market efficiency, and technological readiness, despite having the smallest domestic market.
Figure 15 compares the results of oil-exporting countries and oil-importing countries in the region. Oil-exporting countries fare worse in macroeconomic performance, and they perform worse than oil-importing countries in institutions, infrastructure, goods market efficiency, labor market efficiency, and financial development. The commodity boom masked the need to make urgent progress on pending competitiveness gaps. Large inflows of FDI, prices of oil above US$100, and the resulting export and government revenue increases all reduced the urgency of advancing on a competitiveness agenda that would allow new growth sectors to emerge. Oil-exporting countries in the region are now facing the consequences of unfinished work on all fronts. They also have the opportunity to respond with renewed competitiveness agendas (for an example see Box 7 on competitiveness labs).