The Latin America and Caribbean (LAC) region faces structural bottlenecks and low levels of innovation, leaving economies vulnerable and reliant on a narrow range of exports. Yet, with abundant resources and emerging innovation ecosystems, it has the ingredients for production transformation. Achieving this requires inclusive, low-carbon, high-skilled growth, backed by domestic and international investment and partnerships. Such a shift is vital to building resilience, reducing inequality and driving sustainable development.
Latin American Economic Outlook 2025
Promoting and Financing Production Transformation
Tackling economic, social and environmental challenges in isolation has shaped LAC’s current production model, marked by low productivity, a high prevalence of informal employment and dependence on non-renewable resources. To move towards a more productive, more inclusive and greener model, these priorities – economic, social and environmental – must be rethought together. This requires a systemic approach that addresses the root causes of these challenges, acknowledges their interdependence and promotes policy coherence in the design and implementation of the new production model.
Economic growth is decelerating in LAC, in line with developments in the global economy. Gross domestic product (GDP) per capita growth has stabilised near its potential growth (Figure 1). In addition, persistent inflation, fiscal vulnerabilities, geopolitical tensions and climate-related disruptions continue to pose risks, which differ significantly across the region due to varied economic structures, export compositions, climate vulnerabilities and institutional capacities.
External financial flows to the region exhibit high volatility. Portfolio investments sharply declined over the last decade, while foreign direct investment (FDI) stagnated amid uncertainty about global trade dynamics, although levels remain relatively high in comparison with other regions. Reduced trade and investment threaten both short-term and long-term output.
The region’s economic challenges centre around persistently low productivity, underpinning insufficient growth and weak convergence with advanced economies. Labour productivity, driven by limited total factor productivity, grew only 0.9% annually from 1991 to 2024, compared to 1.2% in OECD countries. Productivity gains have been particularly poor in the services sector, exacerbated by informal employment and unsustainable practices.
Note: Gross domestic product per capita, constant prices, purchasing power parity; 2021 international dollar. Simple averages of different economic groups. Commodity export-dependent economies have more than 60% of their merchandise exports as commodities (Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Guyana, Jamaica, Paraguay, Peru, Suriname, Uruguay, Venezuela). Service-export-dependent economies have more than 45% in service trade (Antigua and Barbuda, the Bahamas, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines). Economies in the top 60 on the Economic Complexity Index (Costa Rica, the Dominican Republic, Mexico, Trinidad and Tobago) are categorised as diversified with high economic complexity; the remaining economies (Barbados, El Salvador, Guatemala, Haiti, Honduras, Nicaragua, Panama) are categorised as diversified with low complexity.
Source: Authors’ elaboration based on (IMF, 2025[1]).
LAC’s economic structure remains heavily dependent on primary and low-tech exports, limiting opportunities for upgrading and productivity enhancement. Only a few economies, notably Costa Rica, the Dominican Republic and Mexico, have diversified into medium- and high-tech sectors (Figure 2). Strengthening intraregional trade, which is currently limited compared to global benchmarks, could enhance diversification and enable deeper regional integration into value chains, bolstering competitiveness.
Socio-economic conditions are also complex in the region, with persistent and widespread labour informality. In 2023, one worker out of two was informally employed in LAC (55.1%). However, the share has been declining since 2009 (62.5%), for countries for which data are available over time (ILO, 2025[2]). Women, youth and older workers are particularly impacted by labour informality. Between 2013 and 2022, the only group in which informality intensified was youth aged 15-24, while higher employment rates for women came together with higher incidences of informal work (ECLAC, 2024[3]).
Note: Tech-intensity manufacturing groups are based on the OECD Technology Classification in ISIC Rev.3. Commodity export-based economies have more 60% of their merchandise exports as raw commodities and resource-based products (Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Guyana, Jamaica, Paraguay, Peru, Suriname, Uruguay, Venezuela) (UNCTAD, 2023[4]). Service export-based economies exceed 45% in service trade (Antigua and Barbuda, the Bahamas, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines). Economies in the top 60 on the Economic Complexity Index (Costa Rica, the Dominican Republic, Mexico, Trinidad and Tobago) are categorised as diversified with high economic complexity (Harvard Growth Lab, 2023[5]); the remaining ones (Barbados, El Salvador, Guatemala, Haiti, Honduras, Nicaragua, Panama) are categorised as diversified with low complexity.
Source: Authors’ calculation based on (WITS, 2025[6]).
The current rates of informal employment in LAC highlight the urgency of production transformation. Limited sectoral dynamism and the concentration of informal firms in low-productivity activities constrain the creation of quality jobs. Consequently, positions requiring advanced technological and digital skills remain rare, limiting the region’s capacity to compete in knowledge-intensive markets (Figure 3, Panels A and C). In the latest available year for which data are available, jobs with high and medium-high technological intensity represented only 2.1% of total employment, compared to 7.7% in OECD countries, while those with high digital intensity stood at 15%, compared to 21% in the OECD. Inclusive production transformation requires strategic investment in sectors with strong potential to create quality jobs, as wage premiums are substantial. In LAC countries, jobs with high technological and digital intensity command wages well above the national average, offering a clear pathway to raising incomes and improving job quality (Figure 3, Panels B and D).
Selected LAC countries, 2023 or latest available year
Note: Data for Argentina, Brazil, Colombia, El Salvador and Peru refer to 2023; for Chile and Guatemala to 2022; for the Dominican Republic and Uruguay to 2018. Technological intensity is defined using the OECD Taxonomy of Economic Activities Based on R&D (Research and Development) Intensity. Industries are classified according to five quintiles of the value or R&D investment relative to the value added. Panel A shows data on the distribution of employment in industries with an intensity ranging from medium to high. Digital intensity is defined using the OECD Taxonomy of Digital-Intensive Sectors. Industries are classified in four quartiles of the digital inputs used in their production. Panel C shows data on the distribution of employment in industries with high, medium (which corresponds to medium-high and medium low in the taxonomy) and low digital intensity.
Source: (OECD, 2024[7]), Key Indicators of Informality based on Individuals and their Households (KIIbIH) database, based on (Galindo-Rueda and Verger, 2016[8]) and (Calvino et al., 2018[9]).
The current production model in LAC must evolve to become both more inclusive and environmentally sustainable. While the region’s contribution to greenhouse gas emissions remains still similar to its contribution to total population, in the past decades production strategies in the region have contributed significantly to environmental degradation. Between 1990 and 2023, greenhouse gas emissions in LAC rose by 69% across all sectors under the prevailing model. Comparative trends highlight the urgency of change. From 1990 to 2022, East Asia and the Pacific recorded the highest increase in emissions (+165%), while Europe and Central Asia achieved a 28% reduction. LAC’s trajectory mirrors that of sub-Saharan Africa, where emissions from agriculture and energy-related activities grew by 81% and 80%, respectively. In contrast, Europe and Central Asia reduced agricultural emissions by 33% and energy-related emissions by 26%, demonstrating viable pathways for low-carbon transitions (Figure 4).
Note: LAC includes data available from 33 countries. The energy sector includes emissions from electricity and heat production, transportation, buildings, manufacturing and construction, other fuel combustion and fugitive emissions. MtCO₂e denotes million tonnes of carbon dioxide equivalent.
Source: Authors’ elaboration based on (Climate Watch, 2025[64]).
Moving forward, production transformation must deliberately integrate both social equity and environmental sustainability, hand in hand with economic growth. Without these considerations, the burden of transformation risks eroding the provisions of critical ecosystem services to the economy, falling unevenly on specific communities, deepening existing inequalities and potentially weakening public support for much-needed reforms.
Effective productive development policies can enhance productivity and diversification while also fostering a more sustainable, inclusive and resilient economy. For policies to promote higher value-added activities and exportable products, greater diversification, increased technological sophistication, more inclusive employment generation and environmentally responsible production methods, policy makers must pay particular attention to the implementation stage of new productive development policies, working closely with the private sector to tackle bottlenecks in productivity, infrastructure, skills, regulation and the business environment.
A comprehensive approach to effective productive development policies should incorporate several innovative elements to achieve production transformation effectively. Robust governance mechanisms are essential to ensure sustained stakeholder participation beyond political cycles. Institutional capability frameworks – grounded in technical, operational, political and prospective capacities – are crucial for translating plans into tangible outcomes. Place-based strategies can harness territorial assets and competitive advantages while maintaining national coherence. Finally, the prioritisation of strategic sectors is key to mobilising resources at the scale needed to drive transformative change.
Inclusive and sustainable productive development policies require a combination of horizontal policies – such as well-designed research and development (R&D) incentives, tax credits and entrepreneurship support – and vertical policies that move beyond static comparative advantages to prioritise sectors capable of driving structural transformation towards higher value-added, knowledge-intensive activities. In 2022, LAC countries allocated less than 0.5% of GDP to explicit productive development policies (excluding infrastructure and general education), far below the OECD average of 3%. Most funding targeted horizontal policies, and financing remains volatile today, often shifting with political cycles and economic conditions. This undermines the long-term vision needed for successful production transformation. Experiences from Brazil, Chile and Mexico show that successful transformation hinges on both horizontal and vertical policies and requires strong institutional co‑ordination, robust multistakeholder governance and effective sector prioritisation.
Note: The graph illustrates the fragmentation of government agencies responsible for overseeing PDPs in LAC. Institutions intervening in PDPs are divided into four categories, depending on their level of specialisation: i) Sectoral ministries: Ministries dedicated exclusively to a specific sector or function related to productive development (e.g. tourism or employment). ii) Multisectoral ministries: Ministries that operate across multiple areas connected to productive development (e.g. a ministry responsible for both tourism and agriculture). iii) Supra-ministries: Ministries that, in addition to managing at least one area of productive development, also perform broader functions that extend beyond this sphere, such as addressing social, macroeconomic, or other cross-cutting issues. iv) Specialised bodies: Technical institutions (such as agencies, services, or institutes) focused on specific aspects of PDPs.
Source: (ECLAC, 2024[10]).
Institutional co‑ordination remains a challenge in LAC, where 197 ministerial bodies across 33 countries are involved in productive development policies spanning agriculture, tourism, trade, innovation, information and communications technology (ICT), employment, and micro, small and medium-sized enterprises (MSMEs). In around two-thirds of LAC countries, five or six ministries are involved in productive development policies, increasing the risk of misaligned priorities, fragmented spending, weak governance and unclear institutional roles (Figure 5). Establishing a lead agency for productive development – with a strong political mandate, clear co‑ordination authority and operational capacity – could help to address co‑ordination challenges and multistakeholder governance.
While capacities for effective sector prioritisation vary by country, renewable energy, sustainable agriculture, digital industries and the care economy have been consistently identified as key sectors by the Latin American Economic Outlook throughout the years. Digital transformation, skills development and productive articulation initiatives, such as clusters, are critical levers for fostering the production transformation of strategic sectors.
In the region’s mosaic of productive development strategies, four patterns stand out. Brazil and Colombia are following a state-led, sector-focused model, with governments actively promoting strategic industries. Costa Rica, the Dominican Republic and Mexico are pursuing an approach oriented around trade and FDI, prioritising integration into global markets. Chile and Uruguay are adopting a market-driven model with selective intervention, targeting specific sectors such as green hydrogen and lithium (Chile) or agri-tech, ICT services and sustainable agriculture (Uruguay). Since 2023, Argentina has embraced a liberalisation model, sharply reducing state involvement, eliminating subsidies, lowering trade barriers and privatising state firms in order to prioritise macroeconomic stability.
In LAC, the greening of production must be central to strategic prioritisation. The region’s natural resource wealth offers a path towards leadership of global green value chains – if productive development policies foster innovation, safeguard the environment and ensure fair benefit sharing. As shown by co‑operation between Argentina and Brazil in automotive value chains, which has created complementarities and economies of scale, regional co‑ordination is key to avoiding zero-sum competition and building synergies.
Improved domestic resource mobilisation will be essential to support the financing of production transformation. While public expenditure in the region remains skewed towards current spending, tax revenues are still low in several LAC countries, and overly reliant on consumption and corporate income taxes. This limits both equity and the capacity to fund long-term production transformation. Relatively high corporate tax rates in LAC may dampen competitiveness and deter investment in key sectors. Although the region’s average statutory corporate income tax (CIT) rate in 2023 (21.1%) was close to the OECD average (23.7%), effective tax rates in LAC countries in 2021 were considerably higher: LAC’s effective average tax rate reached 23.9% compared to 21.9% in the OECD and 17.1% in other emerging regions, while effective marginal tax rates averaged 13.8% in LAC – almost double the OECD average of 7.6% (Figure 6).
Note: The LAC average only includes countries with a positive corporate income tax statutory tax rate. Therefore, The Bahamas and Belize are not included. The “Other countries” includes data from Emerging Europe, the Middle East and Central Asia, Emerging Asia, and sub-Saharan Africa.
Source: (Hanappi et al., 2023[11]).
CIT incentives need better design to help mobilise domestic and foreign investment. CIT incentives have been widely used in LAC to attract investment, support job creation and promote innovation. However, they carry high fiscal, economic and equity costs, including foregone revenue, distortions, windfall gains and disproportionate benefits for large firms. CIT incentives absorb significant resources – averaging 0.9% of GDP across 18 LAC countries (CIAT, 2025[12]). Income-based incentives, such as tax exemptions, remain the most common form of CIT incentive in the region and are found in all ten LAC countries covered by a recent analysis (Gascon et al., forthcoming[13]). Sectoral conditions are the main eligibility criteria, with around 80% including a sector requirement. Sector targeting varies widely across countries, with renewable energy, tourism, and ICT among the most frequently promoted sectors across the region (Figure 7). Overlapping sector targeting suggests that countries could benefit from streamlining their incentive policies. Improving the design of CIT incentives requires clear policy objectives and ex-ante assessments of their benefits, costs, and risks. Strong inter-agency co-ordination and a central role for the Ministry of Finance can help ensure transparency and alignment with development goals. Favouring expenditure-based instruments – such as investment tax credits or allowances – can help reduce inefficiencies, avoid distortions, and better align incentives with development objectives (OECD, forthcoming[14]).
Note: The figure only includes incentives that have a sector condition. The figure uses the ISIC classification from the United Nations.
Source: (Gascon et al., forthcoming[13]).
Low public trust in institutions poses a major challenge to financing production transformation, as it undermines the fiscal contract and reduces tax compliance. Tax morale – people’s intrinsic willingness to pay taxes – is shaped by perceptions of fairness, quality of services and public spending, as well as by socio-demographic factors like age, gender and education. While most citizens in LAC condemn tax evasion, the share has declined since 2011, and only 25% believe that they receive fair value in return for taxes. Although 60% recognise the role of taxes in sustainable development, just 33% feel that tax revenues are well spent (IFAC/ACCA, 2024[15]). This gap between theoretical support and dissatisfaction with service delivery reflects a fractured fiscal contract. Strengthening tax morale requires improving public services, enhancing transparency, investing in taxpayer education and involving citizens in tax policy design. Green productive development policies offer a way to rebuild trust by visibly linking tax contributions to sustainability goals – an approach supported by nearly 80% of citizens in LAC.
National development finance institutions (DFIs) in LAC show significant heterogeneity in financial capacity. The size of their assets, equity and loan portfolios varies widely across and within countries. While the region’s largest DFIs reach around 7.4% of GDP in Mexico and 6.9% in Brazil, smaller institutions in Argentina and Brazil represent less than 0.1%.
This heterogeneity extends to national DFI mandates, instruments and operational capacity. Some institutions focus on specific areas, such as MSMEs, agriculture, housing or infrastructure, while others operate under broader mandates (Figure 8). A wide range of instruments is used, tailored to national needs and capacities. These include loans, guarantees, venture capital and green bonds. However, many national DFIs face institutional challenges, such as weak risk management, limited financial sustainability, poor governance and staffing constraints. These limitations hinder the effectiveness of national DFIs in advancing co‑ordinated and large-scale production transformation across the region.
Note: The dataset covers 73 development finance institutions across 22 countries in LAC (Antigua and Barbuda, Argentina, the Bahamas, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Curaçao, the Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay and Peru).
Source: Authors’ calculations based on (Jiajun et al., 2025[16]).
National DFIs already play a central role in advancing production transformation in LAC, but more can be done to expand their impact. National DFIs can enhance production transformation by aligning their financing more closely with strategic national and territorial priorities. This includes supporting firms in key sectors and public-good projects, as well as providing instruments that boost countries’ competitiveness in global markets. To maximise their impact, DFIs need clear mandates, strong alignment with development policies, active participation in governance, reinforced institutional capacities and a shared understanding of productive development objectives among stakeholders (Fernández-Arias, Hausmann and Panizza, 2019[17]).
Multilateral development banks (MDBs) and bilateral DFIs can provide key support to national DFIs in LAC, enhancing their impact on production transformation, financial inclusion and sustainable investment. They can reduce borrowing costs for smaller national DFIs through concessional loans and grants, offer risk-mitigation instruments to crowd in private capital, and support the creation of joint facilities to channel resources and build long-term institutional capacity. MDBs and bilateral DFIs can also foster co-ordination and knowledge sharing among national DFIs by creating platforms, peer-learning forums and harmonised taxonomies, while providing technical assistance, capacity building and policy guidance to align investment with climate, social and productive development objectives. Greater collaboration among MDBs, bilateral DFIs and other multilateral institutions can maximise joint impact, reduce duplication, and mobilise private and concessional capital. This is exemplified by initiatives such as the Kuali Fund, a pioneering Spanish investment fund launched in 2024 with financing from the Green Climate Fund, the European Union, the Development Promotion Fund (FONPRODE) of the Spanish Agency for International Development Cooperation (AECID), and private investors including GAWA Capital and COFIDES (LACIF, 2025[18]). Another example is the EUR 200 million partnership between the Development Bank of Latin America (CAF) and the French Development Agency (AFD), which combines non-earmarked funding, technical assistance, and expert exchanges to advance CAF’s goal of becoming the region’s green bank and to tackle climate and biodiversity challenges in LAC (OECD et al., 2024[19]). Both initiatives ultimately contribute to a more co-ordinated, resilient, and effective development finance ecosystem in the region.
Public and private capital markets are vital for financing productive development. By allocating capital efficiently, they enable scaling, innovation and modernisation – driving investment, productivity and growth. Yet LAC’s financial markets remain shallow and concentrated. In 2024, market capitalisation was 37.4% of GDP, versus 64.4% in OECD countries, with limited listings and dominance by a few large firms. Domestic bond markets in LAC are also underdeveloped. Domestic bond issuance is dominated by the public sector, which made up 81% of total issuances between 2015 and 2023, while corporate bonds represented just 19%, mainly in Brazil and Mexico. Venture capital is the most dynamic private capital segment, but it is concentrated in a few countries and in sectors like fintech and mobile apps, with little investment in manufacturing, agri-tech, healthcare or clean tech. Strengthening financial ecosystems and advancing regional integration are key to mobilising long-term capital, deepening markets and channelling investment into strategic sectors.
Regional financial integration offers an opportunity to deepen capital markets and enhance portfolio diversification through the development of key sectors. It can broaden the issuer base, increase liquidity and mitigate risks, thereby attracting investors and channelling resources into strategic areas (Bonita et al., 2020[20]; Bown, 2017[21]). The nuam exchange exemplifies this potential, aiming to connect the stock exchanges of Chile, Colombia, and Peru into a single market. Currently, they hold a combined market capitalisation of USD 516 billion and 415 issuers (Figure 9, Panel A). While they still operate as independent markets, they have adopted the same Nasdaq trading system, establishing a foundation for deeper integration. Sectoral composition varies across countries. In 2025, financial institutions accounted for 24–32% of market capitalisation, supporting broader access to finance, while industrials and utilities – which contribute to value-added production and renewable energy supply – represented around 16% in Chile and 17% for utilities in Colombia, and a smaller share in Peru (Figure 9, Panel B). This composition highlights complementarities across markets and areas where diversification could strengthen production transformation and investment portfolios.
Note: 2025 data refer to information available up to 31 August 2025. Panel B: Other includes consumer discretionary, communication services, healthcare, information technology and real estate. Sector classification follows the MSCI Global Industry Classification Standard (GICS).
Source: Authors’ elaboration based on (Nuam, 2025[22]).
Green, social, sustainability, sustainability-linked and blue (GSSSB) bonds are emerging as powerful tools to finance LAC’s shift towards sustainable, resilient economies. Their share of international bond issuance grew from 9.3% in 2020 to 27.2% in 2024, driven by investor demand and regional sustainability goals (Figure 10, Panel A). Between 2014 and 2024, the GSSSB international bond market in LAC reached a cumulative issuance of USD 164.4 billion. Beyond sovereigns, which accounted for 51.6% of the total, the main issuers were the financial sector (11.5%), energy (9.6%), and construction and real estate (5.6%). Excluding sovereigns, the financial sector has shown the steadiest growth, as institutions increasingly align capital with sustainability goals to attract dedicated investors (Figure 10, Panel B). In 2024, however, the energy sector surged ahead to become the region’s top GSSSB bond issuer after sovereigns, with corporate bonds playing a central role in financing the energy transition and decarbonisation. Other sectors – including forestry, chemicals, and food and beverage – are also using GSSSB bonds to fund circular economy projects, low-carbon production and climate resilience. Expanding GSSSB markets to attract global capital for production and sustainable transformation in LAC will require more robust and harmonised sustainable finance frameworks. Strengthening regulatory and monitoring mechanisms can enhance transparency, credibility, and investor confidence, enabling long-term financing for sustainable development and decarbonisation.
Note: GSSSB refers to green, social, sustainability, sustainability-linked and blue bonds. Panel B: The category “Others” includes chemical industry (4.2%), transportation (3.1%), telecommunications and information technology (2.4%), construction and real estate (2.0%), and retail and consumer products (1.3%). The sovereign sector includes three sub-sovereign green bond issuances by Argentina’s provinces of La Rioja and Jujuy. The infrastructure sector includes four green bonds (totalling USD 6 billion) issued in 2016 and 2017 by the Mexico City Airport Trust to finance the construction of a new airport, but the project was cancelled in 2018.
FDI plays a pivotal role in advancing production transformation. In 2024, LAC attracted FDI inflows equivalent to 2.8% of GDP, accounting for 12.6% of global FDI – underscoring the region’s relevance as a destination for international capital (ECLAC, 2025[25]). FDI fosters structural change by enabling technological diffusion, boosting sectoral productivity and mobilising resources to expand industrial bases and develop strategic industries. It also generates positive spillovers for domestic firms through supply chain linkages, competition, imitation and knowledge transfers (OECD, 2019[26]; OECD et al., 2023[27]). Greenfield FDI has largely targeted sectors with intermediate and high technological intensity, underscoring its potential to support production transformation in the region. In LAC, a 10% increase in capital expenditure from announced greenfield FDI projects is associated with a 0.05 percentage point rise in the share of medium- and high-tech goods in total exports, a 0.04-point increase in the export diversification index and a 0.02 percentage point increase in manufacturing value added as a share of GDP (Figure 11).
Note: The figure displays the estimated percentage-point impact of a 10% increase in capital investment from announced foreign direct investment projects on the share of high- and mid-tech exports, on the export diversification index and on the share of manufacturing value added relative to gross domestic product (GDP), along with their 95% confidence intervals.
Source: Authors’ calculations based on (Financial Times, 2024[28]), (WITS, 2025[6]) and (World Bank, 2023[29]).
The evolving landscape of international development co-operation and partnerships, including new donors and instruments, offers both opportunities and complexities for countries in the region that are seeking to strengthen productive capacities. With global public resources under pressure, it is vital to target international financing flows and co-operation on three key enablers of production transformation: skills development, technology adoption and upgrading of regional infrastructure. At the same time, deepening regional integration and forging robust cross-border value chains will elevate value added across the region and boost its competitiveness.
While official development assistance (ODA) represents a limited share of total financing in LAC, it has gained relevance over the years as a catalyst for production transformation in LAC. Over the last ten years, one-third of these funds have supported renewable energy. ODA for the energy sector rose from 3% in 2000 to 24% in 2023, while the share of ODA to sectors such as agriculture has decreased significantly (Figure 12).
Note: “Other” includes trade policies and regulations. This figure is representative of the sectors selected as part of the production sectors for this report. Sectors correspond to those in the OECD CRS-database.
Source: (OECD CRS-Database, 2025[30]).
While ODA to the region continues to be limited – merely 1% of gross national income –, mobilised private finance for development has taken a larger role in recent years, emerging as a crucial source of finance for production transformation in LAC. In 2023, of total mobilised private finance for development, 51% (USD 9.8 billion) went to production sectors, which include agriculture, forestry, fishing, energy, construction, industry, mineral resources and mining, water and sanitation, transport and storage, and tourism.
Assistance from development co-operation partners reflects this shift. Most notably, European partners have become an important leader in mobilising private finance. In 2017, the European Fund for Sustainable Development (EFSD+) was established to facilitate investments for sustainable development using blending mechanisms, guarantees and other financial instruments. In July 2023, the EU-LAC Global Gateway Investment Agenda (GGIA) was launched in the context of the IIII EU-Community of Latin American and Caribbean States (CELAC) Summit. It aims to mobilise at least EUR 45 billion by 2027 for initiatives that focus on addressing the region’s infrastructure needs, creating local added value and promoting growth, jobs and social cohesion (OECD et al., 2024[31]). In light of this development, EU ODA now aims to serve primarily as a catalytic instrument to boost transformational impact in the sectors and actions prioritised by the EU-LAC GGIA, where concessional funds are blended with private capital to promote sustainable investments in energy, transport infrastructure, digital connectivity, health and social cohesion projects.
International co-operation can drive productive transformation through key enablers. Skills development, technology adoption and infrastructure development are key enablers for driving production transformation in LAC. Although international assistance for skills and training represents a relatively small share of overall ODA, it has been concentrated and strategically significant. Between 2014 and 2023, donors channelled nearly USD 1.9 billion to LAC in support of skills and training initiatives across diverse sectors such as ICT, energy, agriculture, water and sanitation, and environmental services. The European Union (EU Members and institutions) is the largest donor in absolute terms, followed by the United Kingdom, Canada, Switzerland and the World Bank (OECD CRS-Database, 2025[30]). This reflects a sustained European commitment to human capital development in the region, particularly through vocational training, education in ICT and technical fields, and teacher training. However, ODA allocation to skills education and training as a share of ODA to the region represents less than 0.05% of total ODA flows for most donors. The only exception is Australia: assistance directed to skills education and training accounts for almost 50% of its aid flows to LAC (OECD CRS-Database, 2025[30]).
The second key enabler for production transformation is technology and innovation. Enhancing international co-operation for technology transfer and innovation is critical to fostering mutually beneficial solutions and creating virtuous cycles of learning and capability building. For countries in LAC to transition towards more knowledge-intensive and competitive production structures, a strong focus on technology adoption and building robust R&D networks is required. In this context, the EU-LAC Digital Alliance, launched in 2023 with a budget of EUR 172 million, represents a pivotal initiative for accelerating human-centred digital transformation across the region (European Commission, 2025[32]).
Supporting infrastructure is a third critical enabler for production transformation in LAC. Better international co‑ordination is essential for upgrading regional infrastructure to reduce transaction costs and facilitate the movement of goods, services and knowledge via reliable transportation, energy and digital connections. A shift from isolated national strategies to a unified regional electricity market would allow LAC to fully harness its comparative advantages, lower the costs of transition and accelerate the shift towards a low-carbon and interconnected energy future. Initiatives for building regional electricity integration include SIEPA (Electrical Interconnection of Central America), SINEA (Andean Electrical Interconnection System), SIESUR (Energy Integration System of the Southern Cone Countries) and the Arco Norte (OLADE, 2024[33]).
A new generation of productive development policies in LAC requires strategic emphasis on regional co‑operation, with several interlinked pillars supporting integration and transformation. This will involve building partnerships that support regulatory harmonisation, integrated regional supply chains, skills development and R&D collaboration, technology adoption, and cross-border biodiversity protection and environmental resource management, as well as fostering rules-based international trade agreements (Figure 13).
Source: Authors’ elaboration based on (ECLAC, 2024[10]), (Ohnsorge, Raiser and Leiyu Xie, 2024[34]) and (Lebdioui, 2022[35]).
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