Going Places

By Kotschwar, Barbara | Americas Quarterly, Winter 2012 | Go to article overview

Going Places


Kotschwar, Barbara, Americas Quarterly


ASIA OUTPERFORMS LATIN AMERICA IN INVESTMENT IN, AND QUALITY OF, INFRASTRUCTURE (PARTICULARLY ROADS AND RAIL LINES) AS WELL AS TRADE VOLUME. THE RELATIONSHIP IS NO COINCIDENCE.

Following concerted unilateral, regional and multilateral trade liberalization efforts in the 1990s and 2000s, Latin American countries have seen a significant increase in trade. Latin American exports grew by 9.8 percent annually from 1980 to 2010, compared to a world average of 8.5 percent. And from 1986 to 2010, the region's share of world exports rose from 4.4 percent to 6.9 percent-a rise made more noteworthy when taking into account that this period includes the rise of China, India and other Asian countries in world trade. For example, exports from the Association of Southeast Asian Nations (ASEAN)- which does not include South Korea, Taiwan or China-grew from $72 billion in 1980 to $1 trillion in 2010. Even in relative numbers, ASEAN's growth in trade outstripped Latin America's, and by 2010, ASEAN exports had gone from 4 percent of world trade to 7 percent.

The difference in export growth did not stem from trade policy. Tariffs across the array of partners, both World Trade Organization (WTO) members and nonmembers, are relatively similar. By 2009, Latin America's average tariffstood at around 8 percent, and East Asia's average just below 5 percent. (In fact, this figure overstates the duties actually charged, as most Latin American and many East Asian countries are parties to numerous preferential trade agreements that eliminate or significantly lower the tariffs.)

However, as border barriers to trade have fallen, other factors have emerged as obstacles-in some cases even greater obstacles- to trade performance. In Latin America, inadequate transportation infrastructure has become an impediment to the region's further integration in global commerce, and has prevented Latin American countries from taking advantage of the multitude of regional, bilateral and multilateral trade agreements signed in the past decade and a half.

Several comprehensive studies have found that infrastructure is a compelling factor in explaining the growth differential between these two regions. A 1996 study by Charles Hulten found that effective use of infrastructure could explain about a quarter of the growth differential between Latin America and East Asia and more than 40 percent of the differential between low- and high-growth countries.1 César Calderón and Luis Servén, in their seminal 2004 study on the subject, demonstrate that a significant determinant of Latin America's trade and growth underperformance relative to East Asia in the 1980s and 1990s can be attributed to the region's deficient investment in infrastructure.2

In contrast to Latin America, Asian regional trade arrangements have emphasized infrastructure upgrades and investments among the parties. This article explores whether the Asian experience in addressing transport infrastructure integration at the regional level holds any lessons for Latin America.

CONNECTIONS

Under the right conditions, improvements in infrastructure can have a significant positive impact on trade, growth and development. Infrastructure affects the ability to move goods, services and ideas within countries and to pass goods and services from one country to another; the quality and quantity of investment, as well as investment outcomes; and the population's access to health and education services essential for development. Infrastructure also has an important role to play in reducing rural poverty. By connecting rural farmers and/or small business owners in isolated geographic pockets to mainstream markets, infrastructure helps combat their social and economic exclusion.

Latin America's main exports tend to be heavy (gold, copper, iron ore, and nickel) or perishable (fresh fruits and vegetables). Both categories of goods are highly sensitive to transportation costs. …

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