Deeper In­te­gra­tion Vi­tal for Growth in Latin Amer­ica and the Caribbean, World Bank Re­port Says

The Star (St. Lucia) - - REGIONAL -

Adeeper eco­nomic in­te­gra­tion among Latin Amer­i­can and Caribbean coun­tries will make the re­gion more com­pet­i­tive in in­ter­na­tional mar­kets and boost long-term growth, ac­cord­ing to a new World Bank re­port.

‘Bet­ter Neigh­bors: To­ward a Re­newal of Eco­nomic In­te­gra­tion in Latin Amer­ica,’ ar­gues that a re­newed in­te­gra­tion strat­egy that takes ad­van­tage of the com­ple­men­tar­i­ties be­tween re­gional and global eco­nomic in­te­gra­tion can con­trib­ute to growth with sta­bil­ity. This is par­tic­u­larly rel­e­vant for a re­gion that is just com­ing out of two years of re­ces­sion.

“In to­day’s world, re­gional eco­nomic in­te­gra­tion of­fers a way for­ward to re­ac­ti­vate the eco­nomic growth needed for re­duc­ing poverty and boost­ing shared pros­per­ity,” said Jorge Fa­mil­iar, World Bank Vice Pres­i­dent for Latin Amer­ica and the Caribbean. “A more ro­bust in­trare­gional in­te­gra­tion will make us more com­pet­i­tive in the global arena. Ef­fec­tive in­te­gra­tion will re­quire in­vest­ment in in­fra­struc­ture, con­nec­tiv­ity and lo­gis­tics, which will of­fer an ad­di­tional boost in eco­nomic growth.”

Since the 1960s, the re­gion has been pur­su­ing re­gional in­te­gra­tion, with ef­forts in­ten­si­fy­ing since the mid-1990s. Still, in­trare­gional ex­ports in Latin Amer­ica re­main at a per­sis­tent 20 per­cent of to­tal ex­ports, much less than the 60 and 50 per­cent in­trare­gional ex­ports in the Euro­pean Union and East Asia Pa­cific, re­spec­tively.

There­fore, the re­port pro­poses an “open re­gion­al­ism” that reaps un­ex­ploited syn­er­gies be­tween re­gional and global eco­nomic in­te­gra­tion, on the premise that pro-growth in­te­gra­tion with the world can­not be achieved with­out first strength­en­ing the re­gion’s own neigh­bor­hood.

To do so, the re­port lays out a five-pronged in­ter­de­pen­dent strat­egy:

1. Fur­ther re­duce ex­ter­nal tar­iffs. This can stim­u­late lo­cal eco­nomic ac­tiv­ity, at­tract for­eign in­vest­ment, en­able knowledge-shar­ing among re­gional neigh­bors, and ul­ti­mately fa­cil­i­tate col­lec­tive en­try into global ex­port mar­kets.

2. Deepen eco­nomic in­te­gra­tion be­tween South Amer­ica, Cen­tral Amer­ica, the Caribbean, and Mex­ico. Through new pref­er­en­tial trade agree­ments (PTAs), th­ese sub re­gions can bet­ter ben­e­fit from their com­ple­men­tar­i­ties and ob­tain ad­di­tional gains from trade. This will be par­tic­u­larly rel­e­vant for small economies when in­te­grat­ing with larger ones.

3. Har­mo­nize rules and pro­ce­dures. Al­low­ing firms to use ma­te­ri­als from other coun­tries with­out los­ing pref­er­en­tial ac­cess, as tends to hap­pen with rules es­tab­lished by ex­ist­ing PTAs, can help the re­gion at­tain higher gains from th­ese agree­ments. Har­mo­niz­ing reg­u­la­tory stan­dards can also help the re­gion fully cap­i­tal­ize on the already significant progress to­ward an in­te­grated en­ergy grid.

4. Fo­cus ef­forts to re­duce high trade costs. Lack of qual­ity in­fra­struc­ture and chal­leng­ing to­pog­ra­phy make dis­tance much costlier to Latin Amer­ica’s trade. The share of un­paved roads in the re­gion is around 70 per­cent, caus­ing land trans­port to drive up trade costs. Low port ef­fi­ciency also makes the re­gion’s con­nec­tiv­ity to global mar­itime and air trans­port net­works com­par­a­tively weaker and more costly.

5. In­te­grate la­bor and cap­i­tal mar­kets. There is room for im­prov­ing re­gional ef­fi­cien­cies through freer mi­gra­tion and cap­i­tal flows in Latin Amer­ica. La­bor mar­ket in­te­gra­tion across borders can help coun­tries be­come more pro­duc­tive and boost growth through cross­bor­der knowledge trans­fers. The 2011 Mer­cado In­te­grado Lati­noamer­i­cano (MILA) that sought to unite the stock mar­ket ex­changes of Colom­bia, Chile, Mex­ico and Peru is also a step in the right di­rec­tion, seek­ing to im­prove the in­vest­ment cli­mate for all.

The re­port con­cludes that in or­der to be suc­cess­ful, the re­gion will need to de­sign and im­ple­ment th­ese smart but com­plex poli­cies to en­hance in­trare­gional eco­nomic in­te­gra­tion while also low­er­ing bar­ri­ers to in­ter­na­tional trade with the rest of the world. While it will not be sim­ple, the re­port ar­gues that the time is ripe to bring th­ese ef­forts to the fore­front.

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