BINDING CONSTRAINTS TO GROWTH IN LATIN AMERICA: AN OVERVIEW
offshore banking facilities), but especially in manufacturing and retail commerce. Market Failure: Coordination and Self-discovery Issues Many of the 13 countries have not been able to discover new comparative advantages, as have, for example, the fast-growing Asian countries (Korea, Taiwan, Singapore, Hong Kong, Malaysia, Thailand and, more recently, China and Vietnam). The self-discovery obstacle involves two separate market failures that must be solved by collective action. One is the paucity of investments to build new comparative advantages, because of the externalities involved in successfully developing new products for exports. The other market failure is the absence of coordination needed to establish new activities. Any self-discovery requires the coordination of private sector activities (especially those producing non-tradables) and the provision of sector-specific public goods, without which those activities simply cannot occur. Many Latin American countries have not been successful in dealing with these two dimensions of policies to promote growth and competitiveness. In others, the primary constraint—often institutional—does not even allow them to try policies of this nature. Why Latin American countries have been unable to solve these market failures and Asian countries have again harks back to political economy issues not dealt with directly in the HRV framework. Most indicators of governance tend to be better in the Asian countries that export manufactures than in Latin American countries, at least as measured by the widely used World Bank database constructed by Kaufmann, Kraay and Mastruzzi (2006). This is another source of interdependence between constraints that is difficult to disentangle and ultimately translate into useful policy prescriptions. Self-discovery is not an easy problem to solve in countries that are poorly positioned in the world product space. That is, many, if not most, Latin American countries produce and export goods (primary commodities with little processing or low-value garments assembled
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