Post-China Boom Development: Policy Priorities for Latin America in the Way Out of the Middle-Income Trap

Research  Collaborator  at  the  University  of  Costa  Rica’s  International  Politics  Observatory.

Abstract

The middle-income trap (MIT) is the situation in which a country's economic development decelerates after reaching middle income levels, hence referring to the difficulty of countries to undertake a process of structural changes towards the improvement of their growth. Trade and investment between China and Latin America became a key driver of economic performance in many of the region’s countries, and compared to other commodity booms, income windfalls from the China boom (2003-2013) in Latin America were unprecedented. However, despite these windfalls, the region showed a weak economic and social performance, due to the lack of capital investment into the economies, as well as deficiencies in the capture of tax and royalty revenues, masking the need to make urgent advancements on pending competitiveness and development gaps. This chapter aims to discuss how the region can leverage from a post-commodity boom development strategy with China, as it transforms itself towards a more consumption-based economy, in order to generate a long-run productive and competitive growth in the region adequate to overcome the MIT in a socially inclusive manner, offering policy prospects in innovation based on human capital accumulation and advanced technological infrastructure. Furthermore, it offers some possibilities in which the Sino-Latin American economic relationship can be redesigned based on new areas both parties can work on, focusing on innovation capabilities instead of trade of primary commodities.

Keywords: Middle-income trap, China, Latin America, innovation policies.