1.1 Export growth in relation to GVC participation during the COVID-19 pandemic

Latin American and Caribbean countries with higher forward global value chain (GVC) participation saw lower export growth in the first quarter of 2020, possibly reflecting severe lockdown policies in response to COVID-19 in third countries that use inputs from the region. During the first quarter of 2020, average annualized export growth fell across most countries in the East Asia and Pacific, Europe and Central Asia, and Latin America and the Caribbean regions (figure B1.1.1, panel a). As indicated by the negative bivariate regression line, lockdowns and reduced production in third countries seem to have affected Latin American and Caribbean countries with higher forward GVC participation more strongly—notably Bolivia, Brazil, Colombia, Jamaica, Peru, and República Bolivariana de Venezuela. Export growth declined less in countries with low forward GVC participation, including the Dominican Republic, Honduras, Mexico, Panama, and to lesser extent, El Salvador.

But the relationship between forward GVC participation and export growth turned positive during the second quarter of 2020, reflecting falling demand from consumer markets for final goods exports (figure B1.1.1, panel b). Although the relationship between forward GVC participation and export growth became positive (as shown by the positive bivariate regression line), this was not driven by a trade recovery in countries with high forward GVC participation (figure B1.1.1, panels a and b). In fact, Bolivia, Colombia, Ecuador, Peru, and República Bolivariana de Venezuela continued to show large drops in export growth.

Countries that specialized in final goods exports with low forward GVC participation— including the Dominican Republic, El Salvador, Honduras, and Mexico—experienced even larger declines in export growth, which could reflect falling demand from important consumer markets. Brazil, Chile, and Jamaica fared better, possibly because of their more diversified export baskets.

Latin American and Caribbean countries with higher backward GVC participation experienced higher export growth, though the most GVC-integrated countries suffered more as the pandemic progressed during the second quarter of 2020. A recent study shows that backward participation in GVCs increased exporting countries’ vulnerability to foreign shocks during the COVID-19 pandemic, but it also reduced vulnerability to domestic shocks (Espitia et al. 2021).

The relationship between export growth and backward GVC participation across the region’s countries was positive during both the earlier and later phase of the pandemic, as implied by the positive bivariate regression lines (figures B1.1.1, panels c and d). However, the dispersion was larger during the second quarter of 2020, with the most integrated countries—El Salvador, Honduras, and Mexico—showing export declines almost like those of countries with low backward GVC participation, including Bolivia, Colombia, and Haiti. This suggests that countries highly integrated into GVCs became more vulnerable to foreign shocks in the first half of 2020.

Continued