How to advance investment policy in Latin America and the Caribbean: An OECD perspective

LAC countries are increasingly placing emphasis not only on attracting greater volumes of FDI, but also on attracting investment that supports their development priorities. With FDI inflows averaging around 3% of GDP over the past two decades, the region does not face a volume problem. The challenge lies in attracting and retaining foreign investment that contributes to the region’s development priorities and makes FDI flows more even among LAC countries. This emphasises a shift from quantity to quality.

The recently published OECD report Assessing the Socio-Economic Impact of Foreign Direct Investment in Latin America and the Caribbean offers an in-depth assessment of the contribution of FDI to sustainable development in the region.

FDI supports structural transformation and value upgrading in LAC, with around 30% of greenfield investment targeting medium- and high-technology and knowledge-intensive sectors. It also contributes to the region’s green and digital transitions. Investment in digital activities now accounts for around 13% of FDI, reflecting a shift from telecom to digital services, while renewable energy investment, driven by EU investors, has more than doubled over the past two decades, reaching 17% of total greenfield FDI.

FDI is an important source of employment. Between 2003 and 2024, greenfield FDI generated around 5.5 million jobs, about 4.4% of total employment in LAC and 12% of global FDI-related jobs. Job intensity is relatively high, at around 3 000 jobs per billion USD invested. Digital sectors account for around 20% of FDI-related jobs, largely driven by investments from the United States and the European Union, while renewable energy, though still smaller at around 3%, has seen job creation nearly double.

FDI also contributes positively to job quality. Foreign firms tend to offer higher wages and more stable contracts and employ a higher share of women overall. However, this does not extend to leadership positions, and many of the sectors attracting the most investment remain male-dominated.

However, investment impact is not automatic. The transformative potential of FDI depends significantly on complementary domestic policies, particularly in infrastructure and skills development. Stronger public-private partnerships are not an ancillary consideration; they are the mechanism through which strategic ambitions translate into measurable outcomes.

EU investment in LAC plays an important role in advancing the region’s sustainable development priorities. EU investors bring environmental and social standards, training and knowledge transfer alongside capital. The EU-LAC Global Gateway Investment Agenda provides a structured framework for this partnership, combining financial instruments, technical co-operation and policy dialogue under a "Team Europe" approach that aligns public and private actors toward shared objectives.

Rather than competing for FDI on the basis of cost, LAC countries would benefit from positioning themselves as complementary nodes within integrated regional value chains. Costa Rica's achievements in advanced manufacturing and semiconductors were underpinned by long-term policy consistency, credible incentive frameworks and sustained investment in education and institutional capacity. The broader lesson is that strategic specialisation, rather than homogeneous competition, offers a more sustainable path to capturing greater value from global investment flows.

The semiconductor sector illustrates what effective co-ordination can deliver, enabling countries collectively to move up the value chain in ways that no single economy could achieve alone. The inverse is equally instructive. The continued absence of harmonised technical and vocational education and training standards across the region leaves many countries poorly positioned to attract and absorb diversified investment. This represents one of the more tangible costs of co-ordination failure in the LAC investment landscape.

The recent EU-Mercosur agreement shows that two-way FDI flows, with LAC offering natural resources and renewable energy potential, and the European Union contributing capital, represent a significant and underexplored source of mutual growth that merits greater analytical and political attention.

The OECD engagement with LAC countries on investment policies has advanced reforms across the region. Adherence to OECD investment standards continues to function as an external anchor for reforms and an opportunity for peer learning. For Peru and Paraguay, engagement with OECD instruments has provided an external structure and legitimacy needed for advancing domestic reforms that governments already recognised as necessary but struggled to prioritise. Their experience, in turn, has encouraged additional LAC countries, such as Panama and the Dominican Republic, to move closer to the OECD and make use of its investment instruments.

Peru's experience with its adherence to the Codes of Liberalisation illustrates this concretely, triggering the removal of 188 redundant or discriminatory administrative procedures, the harmonisation of regulatory frameworks, and improvements to public-private partnership rules. Paraguay is using the adherence process to the Declaration on International Investment and Multinational Enterprises to identify institutional gaps and structure its reform agenda to improve its investment framework. Panama has expressed its intention to undertake an OECD Investment Policy Review as a roadmap for aligning its regulatory environment with international standards.

The private sector perspective underlined that in capital-intensive industries, legal certainty and regulatory predictability are critical. OECD frameworks, provide a form of institutional credibility that unilateral policy commitments cannot readily replicate.

The underlying challenge, turning sound frameworks into concrete policy change, remains the hardest part. The analytical evidence, the institutional instruments and the partnership structures are in place. Progress will ultimately depend on sustained political commitment and institutional capacity at the country level. This is where the next phase of OECD-LAC engagement must direct its focus.

This article is based on the Side Event of the LAC Investment Initiative and the Investment Committee held on April 2026.