Latin America and the Caribbean (LAC) face stubborn productivity and inclusion gaps. On one hand, opportunities are abundant: LAC has vast renewable energy potential and growing digital industries that can create quality jobs, lower emissions, and build resilience. Yet implementation and financing bottlenecks mean that these resources are not being harnessed, despite expanding international flows. LAC must strengthen institutions, mobilise sustainable finance, attract quality investment in renewable and digital sectors, upgrade skills, and embed inclusion and sustainability principles.
Latin American Economic Outlook 2025
Promoting and Financing Production Transformation
Introduction
Key figures
55.1%
The percent of LAC workers in informal employment
0.5% GDP
The average percent of national budgets in LAC allocated to managing productive development policies
$ 164.4 bln
The cumulative issuance of green and sustainability bonds in LAC
LAC must overcome productivity challenges
If it does not, the region risks being locked into a low-productivity, low-inclusion cycle. Productivity growth remains low, limiting competitiveness and resilience. As of 2023, 55.1% of workers in LAC are in informal employment, reducing fiscal space and weakening social protection. Only 2.1% of jobs are in medium- to high-tech sectors, compared with 7.7% in OECD countries, restricting innovation capacity; international partnerships will be key to funding and developing new skills.
Partnerships can help transform production systems for inclusive and green growth
To drive inclusive and sustainable growth, LAC’s production transformation must be powered by international partnerships. Foreign direct investment (FDI), official development assistance (ODA), and blended instruments should be channelled into renewables, digital infrastructure, health tech, and sustainable agriculture. The finance mix is already shifting toward transformation enablers, with private finance concentrated in industry, transport and storage, and energy. Yet investment in skills, R&D, and technology adoption lags. LAC needs partnerships — among governments, development finance institutions (DFIs), and the private sector — that can build tech hubs and train workforces, emphasising co-operation to scale green, digital, and regionally-integrated production.
Improve implementation of productive development policies (PDPs)
PDPs aim to find inclusive ways to raise productivity and foster structural transformation and economic diversification. To succeed, they require collaboration across ministries, government, the private sector, civil society and international partners. In LAC, PDPs are essential to move economies up global value chains, create quality jobs, and advance inclusive and green growth. But poor coordination and insufficient budgets undermine implementation. Greater private sector and civil society participation and international partnerships are needed to ensure that PDPs target real economic opportunities.
Mobilise resources to close the financing gap while harnessing international cooperation and flows to LAC
LAC's public spending is skewed, with 80.7% going to current needs instead of capital investment. Tax revenues are low (21.3% of GDP vs. 34% in the OECD), and capital markets are shallow (37.4% of GDP market capitalisation in 2024 vs. 64.4% in the OECD). But international flows have potential. Green, social, and sustainability bonds now represent 27.2% of LAC’s total bond issuance in international markets. Stronger international partnerships can align international financing with the skills, technology, and infrastructure to drive low-carbon, inclusive growth. When applied to regional integration in energy and digital infrastructure, better international partnerships can improve costs and competitiveness.
What can governments do?
Make taxes fairer, reducing ineffective tax breaks, and grow capital markets, especially for GSSSB bonds.
Strengthen international partnerships to bring foreign investment into renewable energy, digital infrastructure, and advanced industries that create good jobs and spread new technologies.
International partnerships are key to expanding training and re-skilling efforts, and supporting research, innovation, and entrepreneurship - especially for small businesses.
Technology and innovation require stronger international collaboration. At the regional level, a shift to integrated systems such as a unified electricity market could accelerate LAC’s transition to a low-carbon, interconnected future.
