GVC integration in Latin America and the Caribbean

The sectors a country specializes in shape how it integrates into GVCs.7 Countries specializing in advanced manufacturing and services have the greatest degree of backward GVC participation—the share of imported inputs used in production for export. Countries specializing in commodities have the lowest backward GVC participation. Countries in the limited manufacturing group have more than commodity-specializing countries, while countries in the innovation group have slightly less because they depend less on imported inputs.

Countries with abundant natural resources and agriculture have high forward GVC participation—the share of domestic value added that their bilateral trading partners reexport (rather than consuming it themselves)—typically using the commodities in processes that cross several further borders.8 Countries in the limited manufacturing group have lower forward GVC participation: though they export commodities less than high commodity exporters, they export manufactured goods—such as garments— unlikely to be inputs for further production and export. Countries in the “advanced manufacturing and services” and “innovation” groups have the highest forward GVC participation (World Bank 2020b).

Both backward and forward GVC participation are linked to economic growth (Constantinescu, Mattoo, and Ruta 2019; Pahl and Timmer 2020; Stolzenburg, Taglioni, and Winkler 2019; World Bank 2020b). The gains are larger for less-developed countries (Pahl and Timmer 2020) and countries that break into limited manufacturing (World Bank 2020b).9

The Latin America and Caribbean region shows low backward GVC integration on average, which goes hand in hand with its specialization in commodity and limited manufacturing GVCs. Backward GVC participation represented, on average, 16 percent of total exports across the region’s countries in 2015, whereas that share was 20 percent in East Asia and Pacific and 30 percent in Europe and Central Asia (figure 1.9, panel a). Latin America and the Caribbean’s average backward GVC participation has remained unchanged over the past 15 years, whereas that of Europe and Central Asia increased and that of East Asia and Pacific declined.10

Average forward GVC participation in the region was only 19 percent of total exports in 2015, below the 28–29 percent in Europe and Central Asia and East Asia and Pacific (figure 1.9, panel b). The low Latin America and Caribbean average is unexpected, given the large number of countries specialized in commodity GVCs (see table 1.1). It suggests that other countries in the region have very low forward GVC participation, particularly those specialized in limited manufacturing GVCs, which export final rather than intermediate goods, contributing to the region’s lower average participation.