Latin America and the Caribbean (LAC) is well placed to capitalise on technological, environmental and geopolitical shifts reshaping the global economy. Its strengths in renewable energy, critical minerals, agri‑food and AI create opportunities to attract quality investment, expand trade and move into higher‑value activities. Yet the region remains insufficiently integrated into the global economy, with weak regional linkages and gaps in infrastructure, finance, skills and regulation limiting its potential. Stronger regional integration and international partnerships can help unlock these opportunities, accelerating innovation, creating quality jobs and supporting more resilient and sustainable growth.
Latin American Economic Outlook 2026
Deepening Integration into a Changing Global Economy
Introduction
Key figures
64.3%
of LAC's electricity was sourced from renewables in 2024, providing a strong foundation for the green and digital transitions
6 pp
intra‑regional trade has room to grow by six percentage points of GDP to reach its structural potential
10%
of intermediate inputs imported from outside LAC could be supplied regionally
Latin America and the Caribbean can turn global transformations into new engines of development
LAC can benefit from global shifts: 64.3% of its electricity is renewable; it holds 48% of global lithium reserves and 36.6% of copper reserves, but processes only 20% of extracted minerals locally (excluding lithium). AI offers gains, yet LAC attracts just 1.1% of global AI investment. Its data centre market may nearly double by 2029, though it hosts only 0.4% of global hyperscale capacity. With 18% of global agri‑food exports and opportunities in the silver and care economies, LAC could diversify production, raise productivity and create quality jobs.
Deeper international integration and more diversified partnerships can unlock new opportunities
LAC is increasingly integrated into the global economy, but participation, diversification and productive upgrading remain limited. Backward and forward global value chain participation stand at 3% and 5% of GDP, well below other regions. Commodities, resource‑based and low‑tech products account for 62% of goods exports, while high‑tech manufacturing exports represent 17%. Underexplored markets, such as ASEAN and Africa, which absorbed only 2.9% and 1.7% of LAC’s goods’ exports in 2024, hold significant potential. Deepening GVC integration, diversifying partners and moving into higher‑value segments can support productivity and growth.
Foreign investment can play a key role in deepening LAC’s participation in global value chains and support a shift to higher‑value‑added activities
Multinational enterprises bring capital, technology, expertise and access to foreign markets, while linkages with local suppliers can foster knowledge transfer and productive upgrading. In LAC, higher levels of foreign direct investment (FDI) are associated with greater global value chain (GVC) participation and greater domestic value added in intermediate exports, particularly in medium‑high‑technology manufacturing. A 10% increase in FDI is linked with a 0.16 percentage point rise in the share of domestic value added reaching global markets.
Regional integration can build on LAC’s potential and provide a platform for stronger global positioning
Integration can help firms gain scale, strengthen resilience and move into higher‑value activities. Yet regional links remain limited. Intraregional exports accounted for just 14% of LAC’s total exports in 2024, below the shares in other regions. Similarly, only 13% of LAC’s participation in GVCs occurs through regional linkages, compared with 49% in the EU and 52% in East and Southeast Asia. However, there is untapped potential: intraregional trade in intermediate goods is more technologically sophisticated than trade with partners outside the region. Sourcing up to 10% of currently imported inputs from regional suppliers could increase regional value added in medium‑high‑tech manufacturing exports by around 1.4%, strengthening LAC’s position in global markets.
What can governments do?
Beyond attracting FDI, investment policies should seek broader domestic benefits by strengthening links between foreign investors, local suppliers and small and medium‑sized enterprises (SMEs), while supporting supplier development, technology transfer and workforce skills. Investment promotion can increasingly target sectors that complement domestic capabilities, support diversification and generate more productive and higher‑quality jobs.
Close infrastructure and connectivity gaps and reduce regulatory barriers through compatible standards and mutual recognition to facilitate trade and investment. Strengthen digital and technical skills, and mobilise strategic financing leveraging development finance institutions to expand and improve SME access to finance, support technology transfer and adoption and expand firm’s participation in value chains.
Leverage international partnerships to develop cross‑border infrastructure, align standards and strengthen regional value chains in strategic sectors. Build on initiatives such as the EU–LAC Global Gateway Investment Agenda and the EU–Mercosur Partnership Agreement to mobilise investment, deepen regional integration and support production transformation.
