Developing Asia Could Catch Up to Latin America by 2030
By Claudio Loser
Published in the Dialogue’s Latin America Advisor, June 3, 2008
Developing Asia Could Catch Up to Latin America by 2030
Originally published in Claudio Loser’s monthly “By the Numbers” column for the Dialogue's daily Latin America Advisor
WASHINGTON, DC—Most of Latin America has come a long way in the management of economic policies in the last 15 years or so. The macroeconomic conditions for trade-related growth are more predictable and stable, and per capita income exceeds that of other emerging regions, except for Central and Eastern Europe. However, Latin American countries' economic rankings within the world are mediocre. This reflects past performance, but the prospects do not look promising, even with rich natural and human resources.
Many other areas of the world, particularly in developing Asia, have been catching up at a feverish pace. This column briefly presents some per capita income projections through 2030. The results suggest a declining relative position of the region in the world. For example, gross domestic investment for the period 2001-07 was the equivalent of 20 percent of GDP in Latin America, compared to 36 percent for developing Asia, and even higher for China. These high investment ratios and fast improvements in education have resulted in much faster rates of economic growth on a per-capita basis. Of course, the increasing integration of Asia helps, and there are serious issues about the quality of investment, but the differences are striking nonetheless.
Even with improved policies, it is very likely that Latin American growth will lag other regions in the future. The data in the chart below assume economic growth equivalent to the average for 1999-2008. There are caveats to this simplified approach, but the projections provide a good understanding of the implications for Latin America of the rapid growth of developing Asia, particularly China. In per-capita terms, Latin America, growing at a rate of 3.5 percent per year could easily fall behind China in less than 15 years, using assumptions developed by the Asian Development Bank for Asia. Even in the likely event that China sees a reduction in per-capita growth from about 9 percent a year to 6 percent, China would catch up with Latin America by 2030 or so. In general emerging Asia could catch up at that time.
By itself, a reduced ranking is not to be confused with worsening living conditions, but it certainly shows a reduced role and standing of the region in the world. To do better, the region will need to define new policies more conducive to increased investment and productivity growth. No matter what the reasons, it will be in the hands of Latin America to change these unpromising prospects.
Claudio Loser is a Senior Fellow at the Inter-American Dialogue and former Head of the Western Hemisphere Department at the International Monetary Fund.