This chapter examines the enabling conditions that Latin America and the Caribbean must strengthen to deepen regional integration and enhance its participation in the global economy. It explores how closing infrastructure and connectivity gaps, advancing regulatory convergence and reducing non-tariff barriers can support the development of larger and more integrated regional markets. The chapter also considers how stronger skills systems, labour-market institutions and strategic financing instruments can help workers and firms adapt to technological change, invest and move into higher value-added activities. Finally, it examines how regional co-operation and strategic international partnerships can expand access to markets, technology, knowledge and finance, supporting a more competitive, resilient, inclusive and sustainable integration into the global economy.
Latin American Economic Outlook 2026
Abstract
Integrating into a rapidly changing global economy requires Latin America and the Caribbean (LAC) to strengthen a set of enabling conditions that shape the ability of workers, firms and governments to compete, innovate and adapt. Digitalisation, artificial intelligence (AI), the green transition, demographic change and geopolitical tensions are reshaping production systems, labour demand and sources of competitiveness worldwide, creating new opportunities for productivity growth, technological upgrading and economic diversification (see Chapter 1). At the same time, deeper regional integration, stronger participation in global value chains and greater investment linkages can help the region strengthen productive capabilities, reduce vulnerability to global shocks, and support long-term growth (see Chapter 2).
Capturing these opportunities in ways that generate sustainable and inclusive development will depend on the region’s ability to strengthen key enabling conditions and address persistent structural constraints. Infrastructure gaps and high transport costs continue to weaken connectivity across countries and subregions. Regulatory fragmentation limits the emergence of larger and more integrated regional markets. Persistent skills deficits, high informality and limited access to financing constrain technological adoption, innovation, investment and productivity growth. At the same time, access to technology, financing, knowledge, investment and markets increasingly depends on engagement with both traditional and emerging partners. Consequently, fully realising the region’s potential will require stronger international co‑operation and strategic partnerships.
This chapter focuses on five enabling dimensions that are particularly relevant for strengthening LAC’s integration into the global economy. It first examines infrastructure and connectivity challenges that continue to constrain trade and economic integration. It then analyses opportunities to deepen regional integration through greater regulatory convergence and reduction of non-tariff barriers. The chapter subsequently explores how skills systems can help workers and firms adapt to technological change and participate in increasingly knowledge-intensive activities. It also assesses the role of strategic financing instruments and institutions in mobilising investment for integration and productive development. Finally, it examines how strategic partnerships can support access to markets, technology, knowledge and finance.
Infrastructure gaps and high transport costs constrain trade
Quality infrastructure and efficient logistics are essential for strengthening both intraregional and extraregional trade in LAC. By reducing transport costs, improving connectivity and increasing reliability, sound infrastructure and logistics enhance export competitiveness and facilitate integration into regional and global markets. Regional integration depends not only on trade agreements, but also on efficient customs systems, well-functioning cross-border logistics, and reliable physical and digital connectivity (Martínez-Moya et al., 2025[1]). In an increasingly uncertain geopolitical environment, resilient transport and logistics systems have become as important as infrastructure itself, allowing supply chains to absorb disruptions while maintaining access to regional and global markets.
Despite the importance of infrastructure and logistics, significant gaps continue to constrain connectivity across the region. Transport networks remain fragmented, multimodal integration is limited, and connectivity between countries and subregions faces persistent bottlenecks. These physical constraints are compounded by institutional and operational weaknesses that affect the efficiency of customs procedures and logistics services, limiting the capacity of firms to access regional and international markets. The impact of all these shortcomings is compounded by the region’s vast size: about 20 million square kilometres.
LAC records lower scores than North America across key dimensions of infrastructure and logistics performance. Although some improvements have been observed since 2010, progress has been modest. Performance gaps remain sizeable compared with the United States and Canada across infrastructure quality, customs efficiency and logistics services, highlighting the persistence of both physical and institutional barriers to trade (Figure 3.1). These shortcomings weaken connectivity, increase trade frictions and limit the region’s integration into regional and global markets.
Note: The graph shows the gap in three components of the Logistic Performance Index for each region as a gap relative to the value for the Canada-US average, for years 2010 and 2023. The index and its components are measured on a scale from 1 to 5. Levels for the Canada-US average for infrastructure, customs and logistics are 4.09, 3.69 and 3.95 for 2010, and 4.10, 3.85 and 4.05 for 2023. Regional groupings are defined as follows: The Caribbean includes Anguilla, Antigua and Barbuda, Aruba, the Bahamas, Barbados, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, Cuba, Curaçao, Dominica, the Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, and the Turks and Caicos Islands; South America includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay and Venezuela; and Mexico and Central America includes Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama.
Source: Authors’ elaboration based on World Bank (2025[2]), Logistic Performance Index, https://lpi.worldbank.org/en/home.
One of the most tangible consequences is persistently high transport costs. Weak transport networks, poor intermodal connections and inefficiencies at critical nodes such as ports, airports and border crossings increase both the cost and the time required to move goods. Limited complementarities between transport modes further reduce efficiency, constraining cost-effective long-distance transport and last-mile delivery. The organisation and quality of logistics services also affect prices and reliability, reinforcing the region's connectivity challenges (Cont et al., 2024[3]).
International transport and insurance costs are also significantly higher in LAC than in North America, when measured relative to the value of traded goods. These costs, measured by CIF–FOB margins, remain elevated for both intraregional and extraregional trade (Figure 3.2). While trade within the region is relatively more costly than trade with external partners, costs remain elevated across all subregions. The gap is particularly pronounced in South America, as this region exhibits the highest intraregional cost and the largest gap between intra- and extra-regional costs. Similar, although less marked, patterns are evident in Mexico and Central America and the Caribbean. These high transport costs reduce competitiveness, discourage participation in regional and global value chains, and constrain the potential for deeper regional and extraregional integration.
Note: Bars indicate the relative percentage difference in transport costs for each region compared to North America (US and Canada). Estimates are derived from a semi-logarithmic regression of the cost, insurance and freight – free on board (CIF-FOB) margin on regional fixed effects, controlling for product categories (CAF, 2026[4]). Coefficients β ̂ were transformed via (e^β ̂ -1) to represent the percentage change relative to the base category. Regional groupings are defined as follows: The Caribbean includes Anguilla, Antigua and Barbuda, Aruba, the Bahamas, Barbados, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, Cuba, Curaçao, Dominica, the Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, and the Turks and Caicos Islands; South America includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay and Venezuela; and Mexico and Central America includes Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama.
Source: Authors’ elaboration based on OECD (2026[5]), International transport and insurance costs of merchandise trade (ITIC).
Closing these infrastructure and logistics gaps could generate substantial trade gains. Estimates suggest that narrowing half of the infrastructure gap with advanced economies could increase exports by up to 30% (Machado and Moreau, 2024[6]). Achieving these gains will require a significant scaling up of infrastructure investment. Recent estimates indicate that LAC should invest around 3.1% of gross domestic product (GDP) annually in infrastructure through 2030 to meet its development needs. However, actual investment stood at only 1.5% of GDP in 2023 (ECLAC, 2026[7]). Bridging this investment gap, while simultaneously improving logistics performance and trade facilitation systems, is essential for strengthening competitiveness, expanding market access and advancing regional integration. This will demand substantial investments over extended periods, in a context of limited fiscal space. Therefore, the involvement of regional and national development banks is crucial, as is exploring innovative financing sources.
Limited integration of transport modes reduces efficiency and market access
Transport mode composition varies across LAC. South America relies predominantly on maritime transport, which accounts for around 95% of its total extraregional trade, while Mexico and Central America exhibit a more balanced distribution between maritime and road transport. The picture changes for trade within the region, where road transport plays a more prominent role. In South America, for example, road transport accounts for nearly half of trade with neighbouring countries, although this remains below levels observed in North America (CAF, 2026[4]). The effectiveness of road transport in the region, however, is often constrained by inadequate infrastructure, low network density and congestion. These limitations increase travel times and logistics costs, reducing market access and weakening supply chain reliability, particularly for time-sensitive goods and production processes (Hummels, 2007[8]; Pascual et al., 2025[9]).
At the same time, the limited development of alternative transport modes restricts opportunities to improve efficiency and connectivity. Rail networks remain underdeveloped across much of the region, with low coverage and a limited role in freight transport. This reduces competitiveness for long-distance and bulk shipments. Air connectivity also lags behind advanced economies, constraining both passenger mobility and high-value cargo flows. As a result, firms face fewer transport options and reduced flexibility in organising supply chains (Haar, 2023[10]).
These challenges are compounded by weak integration between transport modes. Efficient multimodal systems can combine the advantages of different modes, such as rail for long-distance transport and road for last-mile delivery, lowering costs and improving reliability. However, complementarities between modes remain largely underexploited in LAC due to insufficient infrastructure connections, operational bottlenecks and co‑ordination failures. This limits the potential efficiency gains from multimodal transport, particularly for remote and dispersed producers, and constrains firms’ participation in regional and global value chains (Martínez-Moya et al., 2025[1]). Strengthening intermodal connectivity would therefore play a key role in reducing transport costs, expanding market access and supporting deeper regional integration.
Integrated connectivity strategies can unlock trade potential
Integrated connectivity strategies can unlock trade potential by facilitating deeper integration into regional and global markets. Realising this potential, however, requires moving beyond standalone infrastructure projects toward a more co-ordinated approach to transport and logistics. Expanding transport networks alone is insufficient. Larger gains depend on strengthening intermodal linkages, improving border management and deploying digital systems that enhance the efficiency, reliability and resilience of supply chains (OECD, 2018[11]).
In Latin America and the Caribbean (LAC), advancing integrated connectivity requires a subregional approach. The region comprises highly heterogeneous subregions with distinct geographic, economic and institutional characteristics, which call for differentiated transport and logistics strategies. Strengthening connectivity within and across Mexico and Central America, the Caribbean and South America is therefore a necessary step toward building a more integrated regional market (ECLAC, 2026[12]; Saade Hazin, 2026[13]).
In practice, integrated connectivity requires aligning transport infrastructure investments with logistics, trade facilitation and digital connectivity policies and prioritising investments to address bottlenecks along strategic corridors. Such an approach extends the role of infrastructure beyond the efficient movement of goods to the promotion of productive integration. By connecting industrial clusters, logistics platforms, ports, border crossings and consumer markets, and by complementing physical infrastructure with efficient logistics services and digital solutions, countries can strengthen regional value chains and productive complementarities rather than operating through fragmented national systems (ECLAC, 2026[12]; Saade Hazin, 2026[13]).
Logistics corridor-based planning has emerged as an important tool for implementing integrated connectivity strategies. By co-ordinating infrastructure investment, logistics services and trade facilitation measures along strategic transport axes, corridor approaches can help address bottlenecks and connect production centres with domestic and international markets. Their purpose extends beyond improving physical connectivity to fostering productive integration, strengthening regional value chains and facilitating trade across territories.
Several initiatives across the region already illustrate the application of logistics corridor approaches. Central America’s Regional Mobility and Logistics Master Plan 2035 combines multimodal infrastructure development with co‑ordinated border management, digital logistics information systems and regional co‑operation. Similarly, the Brazil-led South American Integration Routes project seeks to strengthen connectivity through five multinational multimodal corridors which combine infrastructure investments, institutional co‑ordination and logistics development. Mexico’s Interoceanic Corridor of the Isthmus of Tehuantepec follows a comparable strategy by integrating ports, railways, industrial development and logistics services to improve connectivity between the Pacific and Atlantic oceans while promoting regional value chains (ECLAC, 2026[12]; Saade Hazin, 2026[13]; CAF, 2026[14]).
Given its insular geography, the Caribbean illustrates a different model of integrated connectivity, centred on maritime gateways and regional logistics hubs. Countries such as Jamaica, Barbados and Trinidad and Tobago are investing in port modernisation, logistics services and economic zones to strengthen their positions as regional logistics hubs. Combined with improvements in digital port infrastructure, these initiatives aim to improve maritime connectivity, reduce transport costs and deepen the region’s integration into global trade routes (OECD/IDB, 2024[15]; Saade Hazin, 2025[16]).
Across these different approaches, digital connectivity plays an increasingly important role in integrating transport networks and improving logistics performance. Digital infrastructure and interoperable logistics platforms have become critical components of modern transport systems. Port community systems facilitate real-time information exchange among customs authorities, ports, shipping lines and logistics operators, reducing transaction costs and improving co-ordination. Digital twins further support efficiency by enabling ports to simulate operations, anticipate disruptions, and optimize infrastructure use. Together, these technologies can strengthen supply chain resilience, improve trade facilitation, and support multimodal integration (Saade Hazin, 2025[16]; UNCTAD, 2021[17])
Regional integration in LAC has produced an extensive network of institutions, agreements and co‑operation mechanisms. Over six decades, integration efforts have evolved in response to changing economic conditions, political priorities and external shocks. While these initiatives have progressively expanded market access and established regulatory frameworks across a range of policy areas, they have not yet translated into a fully integrated regional market. Today, the principal challenge is no longer tariff liberalisation, but reducing the regulatory and procedural fragmentation that continues to impede cross-border economic activity.
Six decades of regional integration (1960‑2026)
The current landscape of regional integration in LAC is the result of successive phases of regionalism, each reflecting the region’s evolving economic priorities, political dynamics and engagement with the global economy (Table 3.1) (ECLAC, 2020[18]). The first wave of regionalism, spanning from 1960 to 1980, was driven by the objective of overcoming the limitations of small domestic markets through state-led industrialisation. During this period, countries established the main building blocks of the regional architecture, including the Latin American Free Trade Association (LAFTA), the Central American Common Market (CACM), the Andean Pact and the Caribbean Community (CARICOM). These initiatives sought to promote industrial development, expand regional markets and reduce development asymmetries among member countries.
Following the debt crisis of the 1980s, regional integration entered a phase of “open regionalism” between 1990 and 2005. Integration efforts became increasingly oriented towards improving the region’s participation in the global economy through trade liberalisation and market-oriented reforms. Major developments included the creation of the Southern Common Market (MERCOSUR), the Andean Free Trade Area, the entry into force of the North American Free Trade Agreement (NAFTA) and the transformation of the Andean Pact into the Andean Community. These developments viewed regional integration as a complement to the opening of global markets rather than as an alternative to it.
Between 2005 and 2015, integration agendas broadened beyond trade and market access. The emergence of the Union of South American Nations, the Community of Latin American and Caribbean States (CELAC), and the Pacific Alliance reflected efforts to strengthen regional political and economic autonomy while expanding co‑operation into areas such as infrastructure, energy and social development. At the same time, growing political and economic diversity across the region contributed to the proliferation of overlapping initiatives and institutional arrangements.
The period between 2015 and 2019 was characterised by growing recognition of the costs associated with this increasingly fragmented landscape. Against a backdrop of slowing growth following the end of the commodity supercycle, several initiatives sought to promote convergence among existing mechanisms. This included dialogue between MERCOSUR and the Pacific Alliance, renewed efforts through the Latin American Integration Association and initiatives aimed at strengthening regional production integration. While these efforts reflected a shared recognition that fragmentation was limiting the benefits of integration, they produced limited institutional consolidation. Political polarisation, divergent development strategies and the declining salience of regional integration as a collective policy priority constrained progress towards greater coherence.
From 2020 onwards, regional integration has evolved under the pressure of successive global shocks. The COVID-19 pandemic redirected attention towards crisis management, logistics and trade facilitation. Meanwhile, growing geopolitical tensions, supply chain disruptions and concerns over economic security reshaped the external environment. Existing regional mechanisms continued to provide platforms for dialogue and co‑operation. However, integration increasingly took the form of pragmatic and issue-specific co‑ordination rather than ambitious institution-building. At the same time, the emergence of “weaponised interdependence” (Farrell and Newman, 2019[19]; 2025[20]) has renewed interest in regional integration as a means of strengthening resilience, reducing external vulnerabilities and supporting a more secure insertion into the global economy.
The cumulative result of these successive waves of regionalism is a dense but fragmented institutional landscape. Multiple integration mechanisms coexist, often with overlapping memberships, objectives and regulatory frameworks. While this architecture has generated significant progress in market opening and regulatory co‑operation, important barriers to regional economic integration remain. Assessing progress across the main integration mechanisms helps identify both the achievements and the remaining obstacles to a more integrated regional market.
Source: Authors’ elaboration based on ECLAC (2021), table II.1.
From market access to market integration: Reducing regulatory fragmentation
Reducing regulatory fragmentation can increase the effective size and attractiveness of regional markets. While formal market access is a necessary condition for regional integration, it is not sufficient. Divergent regulations, technical requirements and administrative procedures can prevent firms from scaling up operations, sourcing inputs regionally and managing supply chains efficiently across countries. Greater regulatory compatibility, together with improved connectivity, can create a larger and more predictable operating environment, reduce transaction costs, facilitate cross-border production and investment, and allow firms to exploit economies of scale across a broader regional market (OECD et al., 2025[26]).
Countries can address regulatory fragmentation through different forms of international regulatory co‑operation (IRC). These range from information exchange and co-ordination among regulators to equivalence, mutual recognition and, where appropriate, harmonisation (OECD, 2021[13]). The objective is not necessarily to establish uniform regulations across countries, but to reduce unnecessary regulatory differences and improve compatibility among regulatory systems (OECD, 2021[21]). The OECD supports these efforts through policy standards, technical assistance and co-operation with regional integration mechanisms, including the Pacific Alliance and SIECA (OECD, 2026[22]).
The institutional landscape of regional integration in LAC reflects substantial progress. The Andean Community, the Central American Common Market (CACM), MERCOSUR, CARICOM and the Pacific Alliance have all achieved high or very high levels of liberalisation in trade in goods. Beyond tariff reduction, these integration mechanisms have established regulatory frameworks in a wide range of areas, including services, investment, trade facilitation, technical standards and, increasingly, digital trade. These developments show that regional integration in LAC has evolved beyond preferential tariff arrangements to encompass several of the regulatory dimensions required for deeper economic integration (Table 3.2).
Note: i) Protocol on intra-MERCOSUR Investment Cooperation and Facilitation; ii) National treatment applies to the procurement of services by government agencies or public entities (Andean Community, “Decision 439: General Framework of Principles and Rules and for Liberalizing the Trade in Services in the Andean Community”, 1998 [online] http://www.sice.oas.org/Trade/Junac/decisiones/dec439e.asp. No commitments on goods have been negotiated; iii) MERCOSUR Public Procurement Protocol signed in December 2017, entered into force for Brazil and Uruguay (2024) and Argentina (2026); iv) Protocol Procurement for the Caribbean Community signed in February 2019, not yet in force; v) MERCOSUR Agreement on Trade Facilitation (Decision CMC No. 29/19) signed in December 2019, in force between Argentina and Brazil (February 2026); vi) Agreement on Electronic Commerce of MERCOSUR (Decision CMC No. 15/21) entered into force in January 2026.
Source: Authors’ elaboration based on official information from the respective mechanisms for integration.
Progress in some regulatory areas has continued over the past decade. The Pacific Alliance and CACM maintain established regulatory frameworks for public procurement. In MERCOSUR, the Public Procurement Protocol signed in 2017 has entered into force partially, initially between Brazil and Uruguay in 2024 and for Argentina as of January 2026. Progress has also been observed in trade facilitation. The Andean Community, CACM, CARICOM and the Pacific Alliance operate established regulatory frameworks in this area. In MERCOSUR, the Agreement on Trade Facilitation signed in 2019 entered into force bilaterally between Argentina and Brazil in February 2026. The MERCOSUR Agreement on Electronic Commerce, signed in 2021, also officially entered into force in January 2026.
Remaining regulatory differences are particularly costly in sectors characterised by cross-border production processes. Differences in sanitary and phytosanitary requirements, technical regulations, conformity assessment procedures and labelling requirements increase compliance costs, limit regional sourcing opportunities and constrain the development of regional value chains. These barriers tend to affect SMEs disproportionately, as they often lack the resources required to comply with multiple regulatory regimes across markets (ECLAC, 2020[18]).
Despite progress, the existence of regional regulatory frameworks does not necessarily translate into effective regulatory integration. Although the main integration mechanisms have established arrangements covering services, investment, trade facilitation and technical standards, economic outcomes have not always kept pace with these institutional advances (OECD et al., 2025[23]). Implementation remains uneven, and firms can continue to face different national requirements, certification procedures and administrative processes even where regional frameworks formally exist. Closing the gap between the formal establishment of regulatory frameworks and their implementation in practice is therefore essential for moving from regulatory co-operation towards a regional market in which firms can operate more seamlessly across borders (ECLAC, 2020[18]).
Regulatory frictions become particularly costly when production is distributed across countries, especially in LAC. Intermediate inputs can cross borders at different stages of production, causing trade and regulatory costs to accumulate along value chains. Differences in technical standards, certification procedures and conformity assessment requirements can therefore affect not only trade in final goods, but also firms’ decisions about where to source inputs and how to organise production. In LAC, overlapping rules and standards can reduce the benefits of existing preferential trade arrangements and constrain participation in cross-border production networks. Reducing these frictions can facilitate regional sourcing, strengthen production linkages across countries, and create more favourable conditions for the development of regional value chains (Cadestin, Gourdon and Kowalski, 2016[24]; OECD et al., 2025[23]).
Moving from market access to effective market integration requires a pragmatic approach to regulatory convergence. The appropriate form of regulatory co-operation will depend on the sectors and countries involved, as information exchange, regulatory co-ordination, equivalence, mutual recognition and harmonisation entail different institutional requirements and costs (Blyde, 2024[25]). The objective should not necessarily be regulatory uniformity, but rather to reduce unnecessary differences, improve compatibility across regulatory systems and strengthen the practical implementation of existing regional frameworks. Regional convergence should also remain compatible with global markets, including through the use of international standards where appropriate, so that deeper regional integration complements rather than constrains LAC’s global integration (Blyde, 2024[25]).
Beyond tariffs: Reducing non-tariff barriers to deepen regional integration
As tariffs within LAC have declined, non-tariff measures (NTMs) have become an increasingly important source of trade costs and one of the main obstacles to deeper regional integration. Recent estimates indicate that the average ad valorem equivalent (AVE) of NTM protection reaches 13% across all sectors in the region (ECLAC, 2026[7]). These barriers are particularly restrictive in agricultural and livestock products, where the AVE reaches 36%, and in non-energy mining, where it stands at 22%. Significant levels of protection also persist in food and beverages (15%), transport equipment (13%) and chemicals (7%) (Figure 3.3).
Note: Ad valorem equivalents (AVEs) are expressed as a percentage of intraregional imports. Latin America and the Caribbean comprises 20 countries. AVE values for bilateral trade were re-estimated using, as a weighting measure, the sectoral trade structure from the GTAP 12 database, which uses 2023 as its reference year. The GTAP 12 database and the Non-Tariff Measures database are included in GTAP 11.
Source: Estimates are based on Nicita and Koloskova (2025[26]), Non-tariff measures at the border, a GTAP level analysis, https://unctad.org/publication/non-tariff-measures-border-gtap-level-analysis.
Many of these costs stem from sanitary and phytosanitary requirements, technical regulations, conformity assessment procedures and labelling requirements. While often pursuing legitimate public policy objectives, differences in their design and implementation can increase compliance costs and limit firms’ ability to serve multiple markets from a single production platform. These burdens tend to affect SMEs disproportionately, given their more limited capacity to comply with multiple regulatory regimes across countries (ECLAC, 2020[18]).
Reducing these barriers requires a gradual process of regulatory convergence and trade facilitation. Simulation exercises suggest that a modest reduction scenario that removed 30% of the total level of protection (tariffs plus NTMs) would reduce average regional protection by 4.3 percentage points (Table 3.3). A more ambitious intermediate scenario involving a 60% reduction in the total level of protection would reduce average regional protection by 8.7 percentage points (ECLAC, 2026[7]). Achieving such reductions could require moving beyond information-sharing towards mutual recognition and regulatory equivalence arrangements, where appropriate.
Successful integration into the global economy depends on adequate skills, productive firms and labour-market institutions that support both adaptability and protection. In LAC, unequal access to quality education and training, high informality and low productivity continue to constrain the region’s capacity to adopt new technologies and move into higher value-added activities. Strengthening skills, upgrading firms and adapting social protection systems are therefore essential for ensuring that productive transformation translates into better jobs, higher productivity and more inclusive growth. As Generative Artificial Intelligence (GenAI) reshapes labour markets, countries in the region must invest in human capital and digital skills while ensuring adequate protection for workers in emerging forms of employment (ILO, 2022[27]; OECD, 2023[28]).
LAC labour markets are characterised by unequal low skills and low-productivity traps
LAC workers often lack the skills required to thrive in increasingly knowledge-intensive, digital and technology-driven labour markets. Using the Programme for International Student Assessment (PISA) as a proxy for foundational skills, the evidence points to large and persistent human-capital deficits that constrain productive transformation and adoption of new technologies across LAC economies. Within the region, 14 countries participated in PISA 2022. Results placed LAC in the lower half of the global distribution in mathematics, reading and science. On average, students in the region lagged behind the OECD average in mathematics by the equivalent of around five years of schooling. Meanwhile, all participating LAC countries, except Chile in reading, scored below OECD benchmarks. These outcomes confirm that weak foundational skills are not a marginal issue, but rather a structural constraint on productivity, social mobility and future labour-market inclusion (Arias Ortiz et al., 2023[29]; OECD, 2023[30]; Saavedra and Regalia, 2023[31]).
Note: Panel A uses OECD Education GPS / PISA 2022 country-note data for the 14 Latin American and Caribbean (LAC) participants in PISA 2022. The mean mathematics score is the average PISA mathematics score for 15-year-old students on the common PISA proficiency scale. In PISA, Level 2 is the baseline level of proficiency in mathematics; students scoring at or below Level 1 are considered low performers. The simple LAC average shown in Panel A is the unweighted average across the 14 LAC countries.
Panel B reports the share of low performers in mathematics among socio-economically disadvantaged students (bars) and socio-economically advantaged students (diamonds). In the PISA framework, socio-economic background is captured by the PISA Index of Economic, Social and Cultural Status (ESCS), a composite index built from information on parental education, parental occupations and home possessions, and resources related to learning and family wealth. Advantaged students generally refer to students in the top quarter and disadvantaged students to those in the bottom quarter of socio-economic status.
Definitions: low performers are students proficient at or below Level 1 of the assessment; top performers are students at Levels 5 or 6; resilient students are disadvantaged students who perform in the top quarter internationally after accounting for socio-economic status.
Source: Estimates based on OECD (2019[32]), PISA 2018, https://www.oecd.org/en/data/datasets/pisa-2018-database.html; OECD (2023[33]), PISA 2022, https://www.oecd.org/en/data/datasets/pisa-2022-database.html.
The region’s skills challenge is reflected not only in low average performance, but also in large cross-country disparities and slow improvement in learning outcomes. Performance levels vary widely across countries in the region. Chile and Uruguay are among the best performers. Several others, including Mexico, Peru, Brazil, Colombia and the Dominican Republic, recorded substantially lower scores across mathematics, reading and science (Figure 3.4, Panel A). Yet even the strongest performers remain significantly below OECD benchmarks. Moreover, recent trends suggest the region is not closing these gaps. Between 2018 and 2022, the share of students below minimum proficiency in mathematics increased in most participating LAC countries. Although Peru has recorded notable improvements over time, progress elsewhere has often stalled or reversed. This highlights the persistence of foundational skills deficits across the region (OECD, 2023[30]).
Inequalities in skills acquisition are a defining feature of the region’s overall skills deficit. Socio-economic background remains one of the strongest predictors of learning outcomes across LAC. On average, 88% of disadvantaged students are low performers in mathematics, compared with 55% among their more advantaged peers (Figure 3.4, Panel B). Socio-economic gaps in performance are substantial across countries, although somewhat below the OECD average in several cases. However, narrower gaps in some countries should not be interpreted as greater equity; rather, they often reflect uniformly low performance across the distribution. While a small share of disadvantaged students demonstrate academic resilience, these proportions remain too limited to offset the region’s broader learning deficits (OECD, 2023[30]).
Persistent gender and school-system differences continue to shape skills acquisition and learning outcomes in LAC. Boys tend to outperform girls in mathematics, while girls outperform boys in reading across the region. In Chile, boys scored 16 points higher than girls in mathematics; the gap was more than 10 points in Mexico, Peru and Uruguay. Reading gaps run in the opposite direction. At the same time, several LAC systems combine weak performance with institutional fragilities: grade repetition remains high in Uruguay (24%), Brazil (22.1%), Chile (17%) and Peru (13%). Meanwhile, countries such as Brazil, Chile, Peru and Uruguay were reported as being poorly prepared for remote instruction before the pandemic. In Mexico, Peru and Brazil, the gap in preparedness for digital learning between public and private schools was especially large.
Evidence from adult skills reinforces the diagnosis that LAC lags behind in the information-processing skills that underpin productivity, employability and wages. Results from the first cycle of the Programme for the International Assessment of Adult Competencies (PIAAC), conducted between 2014 and 2018 in Chile, Ecuador, Mexico and Peru, placed these countries near the bottom of the participating-country distribution. In the 2022-23 cycle, in which Chile was the only participating LAC country, its adult skills scores remained below the OECD average. Meanwhile, Peru recorded particularly low proficiency levels, with more than half of adults either opting out of the digital problem-solving assessment or being unable to take it because they lacked basic readiness in information and communication technologies (ICTs). Adult skills data also reveal strong educational and intergenerational inequalities, suggesting that weaknesses in education systems continue to constrain social mobility and lock many workers into low-productivity trajectories (ECLAC, 2025[34]). In Chile, according to the 2023 assessment, tertiary-educated adults scored 39 points higher in literacy than adults with upper secondary education, while those with upper secondary education scored 49 points higher than adults who had not completed that level. In Ecuador, Mexico and Peru, proficiency declines steadily with age, reflecting the relatively recent expansion of secondary and tertiary education. In Peru, gaps associated with educational attainment and parental background are particularly large (OECD, 2023[35]; OECD, 2024[36]).
Overall, the evidence suggests that skills deficits remain a major constraint on productive transformation in LAC. Weak foundational skills, low adult proficiency and persistent inequalities limit the capacity of workers and firms to adopt new technologies and participate in higher value-added activities. These shortcomings are becoming increasingly costly as digitalisation, automation and AI raise demand for cognitive, technical and adaptive skills. Without stronger investments in human capital and technology adoption, the region risks remaining trapped in a cycle of low skills, low productivity and high informality that constrains growth and competitiveness (Gmyrek, Winkler and Garganta, 2024[37]; OECD, 2026[38]).
Skill requirements are changing as technology reshapes labour demand
As LAC countries seek to strengthen their participation in regional and global value chains, the skills required in labour markets are evolving. Digitalisation, automation and AI are increasing demand for workers capable of performing cognitive, analytical and non-routine tasks, while routine and manual activities are becoming relatively less important. Workers equipped with strong foundational, digital and adaptive skills are more likely to benefit from technological change and access higher value-added activities. These capabilities are increasingly important not only for productivity growth, but also for firms’ ability to innovate, upgrade and compete in more sophisticated segments of production (OECD, 2023[39]; OECD et al., 2025[23]).
LAC countries need to develop the skills demanded by new technologies and ensure that workers and firms can adopt and use them effectively. Recent advances in GenAI reinforce the growing importance of cognitive, digital and adaptive skills. While previous waves of automation primarily affected routine tasks, newer technologies increasingly complement information-processing and cognitive activities. This raises the premium on workers who can combine technical knowledge with problem-solving, communication and digital skills (Noy and Zhang, 2023[40]; OECD, 2023[41]; Autor, 2024[42]). In LAC, jobs with high digital-task content remain relatively scarce and digital adoption by firms is uneven (OECD et al., 2025[23]). As a result, almost half of the jobs that could potentially benefit from GenAI-related productivity gains are constrained by insufficient use of digital technologies in the workplace (Gmyrek, Winkler and Garganta, 2024[37]). The digital divide therefore acts as a bottleneck, slowing the diffusion of new technologies and limiting their contribution to productivity growth, productive upgrading and participation in higher value-added activities (OECD, 2026[38]).
The structure of employment further shapes the region’s capacity to benefit from technological change. Workers in informal employment remain disproportionately concentrated in occupations characterised by manual tasks and lower skill requirements. Routine and non-routine manual tasks account for 64% of jobs among informal workers, compared with 36% among formal workers. Meanwhile, cognitive tasks represent only 24% of employment among informal workers and 53% among formal workers (Figure 3.5). Informal workers are also heavily concentrated in low- and medium-low-skill occupations, particularly in countries such as El Salvador, Guatemala and Peru (Lewandowski et al., 2020[43]; OECD, 2025[44]). These patterns reflect the persistence of production structures characterised by lower productivity and fewer opportunities for technological upgrading.
Percentage of workers aged 15 or more in each group
Note: The definition of informality follows the guidelines of ILO (2018[45]). Data are presented for the latest year available (see Annex 2.A for more details). “Non-routine cognitive analytical” refers to jobs requiring creative, problem-solving tasks; “non-routine cognitive personal” refers to jobs requiring interpersonal tasks requiring judgement; “routine cognitive” refers to jobs requiring codifiable, repetitive information-processing tasks; “routine tasks” refers to jobs with repetitive physical tasks in structured, machine-paced environments; “non-routine manual” refers to jobs requiring physical tasks in changing environments requiring dexterity, adaptation or spatial judgement.
Source: Estimates based on Lewandowski et al. (2020[43]), Aging of routine jobs in Europe, https://doi.org/10.1016/j.ecosys.2020.100816; OECD (2025[44]), Key Indicators of Informality based on Individuals and their Households (KIIbIH), https://www.oecd.org/en/data/datasets/main-informality-indicators.html.
The distribution of tasks and skills across workers has important implications for exposure to technological change. Occupations relying heavily on routine and manual work tend to be more exposed to traditional automation, while occupations involving cognitive and information-processing tasks are more likely to be affected by recent advances in AI technologies (Acemoglu and Restrepo, 2019[46]; Acemoglu and Restrepo, 2020[47]; Agrawal, Gans and Goldfarb, 2019[48]). Estimates distinguish between these two forms of technological exposure (Box 3.1). Overall, around 27% of workers in LAC are employed in occupations facing high traditional automation risks compared with only 3% exposed to high AI-related displacement risks. Traditional automation risks are particularly concentrated among informal workers, with 32% employed in occupations at high risk compared with 21% among formal workers. Exposure to AI, by contrast, is concentrated among more educated, formal and urban workers, reflecting their greater participation in cognitive and technology-intensive activities (Lassébie and Quintini, 2022[49]; OECD, 2023[28]; Gmyrek, Winkler and Garganta, 2024[37]).
Percentage of workers aged 15 or more in each group
Note: Occupations considered to be at high risk of automation if they have a significant share of important skills and abilities (more than 25%) that are highly automatable, following Lassébie and Quintini (2022[49]). Occupations are considered to be at high risk of AI automation if they fall within the highest exposure gradient (Gradient 4), characterised by high average task exposure and relatively low variability in exposure across tasks, following Gmyrek et al. (2025[50]). The definition of informality follows the guidelines of ILO (2018[45]). Data are presented for the latest year available.
Source: Estimates based on Lassébie and Quintini (2022[49]), What skills and abilities can automation technologies replicate and what does it mean for workers?: New evidence, https://doi.org/10.1787/646aad77-en; Gmyrek et al. (2025[50]), Generative AI and Jobs: A Refined Global Index of Occupational Exposure, https://doi.org/10.54394/hetp0387; OECD (2025[44]), Key Indicators of Informality based on Individuals and their Households (KIIbIH), https://www.oecd.org/en/data/datasets/main-informality-indicators.html.
The main challenge facing LAC is not widespread displacement by AI, but rather the limited availability of workers and firms capable of fully benefitting from technological change. Traditional automation remains a greater source of risk for workers concentrated in routine and manual activities, many of whom also face higher levels of informality, vulnerability and weaker social protection (OECD/ILO, 2019[51]; Aleksynska and Kolev, 2021[52]; OECD et al., 2023[53]). At the same time, the productivity gains associated with AI are more likely to accrue to workers possessing stronger foundational, digital and cognitive skills (Autor, 2024[42]; Brynjolfsson, Li and Raymond, 2025[54]; Dell’Acqua et al., 2026[55]).
The risk of automation can be assessed based on a wide range of methodological choices.
This chapter assesses two types of technical exposure (or susceptibility) to automation that relate to different waves of technical innovations. They are both relevant for LAC labour markets, which are basically hit by two different mega trends in innovation, affecting different occupations and sectors.
The first type aims at capturing the extent to which specific tasks required for a job can be fully substituted by the waves of automation occurring up to the early 2020s. This includes innovations of industrial robots and AI technologies based on data computations, predictions and technical assistance in decision making.
The second is focussed on the frontier of generative AI technologies. It explicitly considers the expanding capabilities of these systems beyond text and large language models. This includes voice, image and video generation, which increase the potential exposure of some occupations, especially in media- and web-related work.
For the first exercise, the chapter follows the methodology of Lassébie and Quintini (2022[49]), which was further replicated in the OECD Employment Outlook. It allows to compute, for each occupation, the share of important skills and abilities that are highly automatable and the share that remain bottlenecks to automation. The resulting occupation-level indicators are subsequently used to assess which jobs are most exposed to automation and which groups of workers are most at risk (the latter group comprises those workers with at least 25% of tasks that can be technically automated).
For the second, the chapter follows the statistical approach of Gmyrek et al. (2025[50]), which measures the risk of AI displacement at the task level within each occupation code. It combines task-level information for nearly 30 000 tasks at the six-digit ISCO-08 level with human expert input and AI-based predictions. In this way, it can estimate the extent to which generative AI can perform the tasks that make up each occupation. Occupations are then classified into four exposure gradients based on their mean exposure score and the degree of task variability within the occupation. This reflects the idea that task automation does not automatically translate into full job displacement because some important tasks may remain non-automatable or require substantial human involvement. The last gradient – the one classifying occupations with high average task exposure, and sufficiently widespread across its tasks – is then considered to classify occupations at high risk of AI technical displacement potential.
Source: Lassébie and Quintini (2022[49]), What skills and abilities can automation technologies replicate and what does it mean for workers?: New evidence, https://doi.org/10.1787/646aad77-en; Gmyrek et al. (2025[50]), Generative AI and Jobs: A Refined Global Index of Occupational Exposure, https://doi.org/10.54394/hetp0387.
Prioritising sectors and industrial clusters with high growth and quality job potential for integration into a changing global economy
Successfully integrating into a rapidly changing global economy will depend on LAC’s ability to develop the skills demanded by high-growth, technology-intensive sectors. As global production systems are reshaped by digitalisation, AI, decarbonisation and demographic change, the skills needed for regional integration and participation in higher value-added activities are evolving rapidly. Prioritising investment in sectors and industrial clusters with strong growth prospects and the potential to generate better-quality employment should therefore be at the core of efforts to strengthen economic integration and productive upgrading (OECD et al., 2024[56]; OECD et al., 2025[23]) (see Chapter 2).
Identifying these sectors is not straightforward. From a skills and integration perspective, they should ideally combine three characteristics: i) strong growth potential; ii) increasing technological and digital intensity, including AI, automation, data, Internet of Things (IoT), digital platforms, traceability, smart infrastructure and tele-services; and iii) greater potential to generate productive, formal and higher-quality employment.
A comparison of evidence from multiple sources highlights several sectors that combine strong growth prospects, rising technological intensity and the capacity to generate better-quality jobs. Three broad conclusions emerge (Table 3.4). First, the sectors with the strongest potential for regional integration and participation in higher value-added activities are those linked to the green transition, digitalisation and knowledge-intensive production. These include energy, transport, batteries and critical minerals, agribusiness and the bioeconomy, health services, life sciences and ICT-enabled services. Second, technological upgrading is reshaping traditionally digital sectors, as AI, automation, data and other technologies become embedded in activities ranging from energy and mining to tourism. Third, capturing these opportunities requires skills beyond technological expertise, combining technical and digital capabilities with transversal skills such as problem solving, adaptability, teamwork and communication (ECLAC, 2023[57]; ECLAC, 2024[58]; IDB, 2023[59]; IDB, 2023[60]).
Note: AI/ML = artificial intelligence/machine learning; CRM = customer relationship management; ESG = environment, social and governance; EV = electric vehicle; ICT = information and communication technology; IoT = Internet of Things; OSH = occupational safety and health; R&D = research and development. This matrix was built by i) taking ECLAC’s strategic sectors as the initial long list; ii) cross-checking them with ILO and IDB evidence on employment creation, job quality and skills; iii) assessing technological and digital intensity using IDB Invest and OECD material; and iv) selecting the final ten sectors only when they combine growth potential, digital/technological upgrading and stronger prospects for job quality. The occupations listed in the matrix are representative roles likely to face stronger demand if these sectors expand under the transition pathways described in the literature; they are not vacancy counts. They were inferred from the occupational and skills signals explicitly mentioned in the source material (e.g. telehealth and health information management in health; environmental services and green skills in agribusiness and green sectors; EV maintenance and systems integration in transport; digital operations and data roles in energy and ICT-enabled services). The skills column combines three layers of evidence: technical/domain skills specific to the sector; digital and information-processing skills; and transversal skills such as problem solving, adaptability, teamwork and communication, which OECD and ILO repeatedly identify as critical for the digital and green transitions. The table is a regional analytical matrix. It does not imply that all sectors are equally relevant in every LAC country, nor that job quality is automatically high in all of them.
Source: ECLAC (2019[61]), Towards a sustainable bioeconomy in Latin America and the Caribbean: Elements for a regional vision, https://www.cepal.org/en/publications/44994-towards-sustainable-bioeconomy-latin-america-and-caribbean-elements-regional; ECLAC (2022[62]), The Care Society: A Horizon for Sustainable Recovery with Gender Equality, https://www.cepal.org/en/publications/48362-care-society-horizon-sustainable-recovery-gender-equality; ECLAC (2023[57]), Economic Commission for Latin America and the Caribbean (ECLAC), https://sdgs.un.org/un-system-sdg-implementation/economic-commission-latin-america-and-caribbean-eclac-54128; Alfonso, Azuara and Mondragón (2022[63]), Green jobs and skills in Latin America: A look at LinkedIn data, https://publications.iadb.org/publications/english/document/Green-jobs-and-skills-in-Latin-America-A-look-at-the-LinkedIn-data.pdf; IDB (2023[60]), How New Technologies Are Transforming Energy in Latin America and the Caribbean, https://idbinvest.org/en/publications/how-new-technologies-are-transforming-energy-latin-america-and-caribbean; IDB (2023[59]), How New Technologies Are Transforming Transport in Latin America and the Caribbean, https://idbinvest.org/en/publications/how-new-technologies-are-transforming-transport-latin-america-and-caribbean; OECD (2023[39]), OECD Skills Outlook 2023: Skills for a Resilient Green and Digital Transition, https://doi.org/10.1787/27452f29-en; ILO (2024[64]), Navigating the Future: Skills and Jobs in the Green and Digital Transitions, https://doi.org/10.54394/VGNR3350; ILO/ECLAC (2025[65]) The Care Economy and Decent Work: Scenarios and Recommendations for Latin America and the Caribbean, https://www.ilo.org/es/publications/economia-del-cuidado-y-trabajo-decente-escenarios-y-recomendaciones-para-america-latina-y-el-caribe; Manca and Eslava (2025[66]), Digital and AI skills in health occupations: What do we know about new demand?, https://oecd.ai/en/ai-publications/digital-and-ai-skills-in-health-occupations.
The skills required in these sectors extend well beyond science, technology, engineering and mathematics (STEM) disciplines alone. Activities increasingly shaped by AI, digitalisation and decarbonisation demand a combination of technical skills. These include skills in engineering, coding, digital tools and process control; information-processing skills, such as data analysis, cybersecurity, interoperability and traceability; and transversal skills, such as problem solving, communication, teamwork, adaptability and lifelong learning. In practice, successful participation in increasingly technology-intensive regional and global value chains will depend on both technical expertise, and on workers’ ability to combine domain knowledge with digital fluency and continuous learning (OECD et al., 2021[67]; ILO, 2024[64]).
Improvements in job quality are not automatic. Several sectors with strong growth potential, particularly the circular economy, tourism, agribusiness and the care economy, can either become engines of productive and inclusive employment or remain characterised by high levels of informality and low productivity. Outcomes depend on a range of enabling factors identified throughout the literature, including effective productive-development policies, strong skills systems, adequate digital and physical infrastructure, well-functioning labour institutions and financing mechanisms that can support domestic capacity building rather than enclave-type growth.
Aligning sectoral development strategies with skills policies is therefore essential. Preparing workers for emerging opportunities requires action at three complementary levels: strengthening foundational, digital and STEM skills through initial education; expanding high-quality technical and vocational education and training that responds to sector-specific demand; and scaling up work-based learning and on-the-job training so that firms can adopt new technologies while upgrading their workforce. Green, digital and AI-intensive sectors require increasingly sophisticated combinations of technical, digital and transversal competencies. Meeting this demand also depends on institutions capable of anticipating changing skills needs and translating them into relevant curricula, certification systems and lifelong learning opportunities (ECLAC, 2022[68]; IDB, 2024[69]).
The growing importance of these sectors also highlights the need to strengthen lifelong learning systems across the region. As digitalisation, AI, demographic ageing and the green transition reshape labour markets, LAC faces less an AI-specific skills shortage than a broader lifelong learning challenge. Such a challenge is characterised by unequal access, fragmented systems, inadequate financing and weak integration between skills policies and economic development strategies. AI-related competencies are increasingly valuable, but they generate the greatest benefits when complemented by strong foundational cognitive and socio-emotional skills, recognised qualifications and inclusive lifelong learning institutions (ILO, 2026[70]).
Access to quality learning opportunities remains highly unequal, with participation concentrated among workers in formal employment, higher-skilled individuals and employees of larger firms, while informal, low-skilled and vulnerable workers have significantly fewer opportunities to upskill or reskill. Evidence from the region also indicates that employers are increasingly demanding “rounded” skills profiles rather than narrow technical expertise. Analysis of online vacancy data from Brazil and Uruguay shows that digital and AI-related competencies are most valued when combined with foundational cognitive and socio-emotional skills such as problem solving, critical thinking, communication, teamwork and adaptability. As a result, the principal challenge for LAC is twofold. On the one hand, it must develop advanced digital capabilities. On the other, it needs to create inclusive lifelong learning systems that can equip workers with a balanced mix of technical, cognitive and behavioural skills throughout their working lives.
Skills policies alone will be insufficient if firms face weak incentives to formalise, train and hire. A comprehensive approach is needed that combines targeted financial incentives, such as hiring and training subsidies, innovation support, and blended-finance and risk-sharing instruments for early-stage investment. In addition, labour regulations should facilitate job creation in emerging sectors while safeguarding workers’ rights. This is particularly important for non-standard forms of work, which are expanding in digital, care and platform-based activities. In such areas, legal uncertainty around employment status, social protection coverage and training obligations can discourage both investment and job quality.
Other policy domains are also critical. These include digital and logistics infrastructure, standards and certification systems, competition and regulatory frameworks, local supplier development and stronger co‑ordination across ministries of economy, labour, education, energy, transport and social development. Investment is most likely to scale when sector strategies are embedded in a whole-of-government approach. This should reduce business uncertainty, build capabilities and ensure that new jobs are productive, formal and adaptable to technological change (OECD, 2024[71]; OECD et al., 2025[23]).
Building the skills needed for regional integration and participation in a changing global economy
Building the skills needed for regional integration and participation in a changing global economy requires more than education policies alone. As labour demand evolves alongside the digital and green transitions, education, labour-market and productive-development policies need to become more closely aligned. Strengthening technical and vocational education and training; expanding lifelong learning opportunities; and improving links between training systems and employers can help workers acquire the capabilities needed to access emerging sectors and more knowledge-intensive activities (ECLAC, 2023[72]; ECLAC, 2024[58]; ILO, 2024[64]).
Skills development is also closely linked to the structure of labour markets. High levels of informality continue to limit workers’ access to training opportunities, career progression and social protection, while reducing firms’ incentives to invest in human capital. In many cases, workers remain trapped in low-productivity activities with limited opportunities to acquire new competencies, making it harder to adapt to technological change or benefit from deeper economic integration. Expanding access to formal, productive and protected employment therefore remains essential for developing the skills base required in a more integrated and competitive economy (IDB, 2024[69]; OECD, 2024[73]; ECLAC, 2025[34]).
At the same time, skills policies need to be connected to broader economic opportunities. Strategic sectors such as renewable energy, electromobility, the bioeconomy, ICT-enabled services, life sciences, medical devices, sustainable tourism and the care economy offer significant potential for productivity growth, technological upgrading and job creation. Many of these activities are closely linked to regional and global value chains and are expected to experience growing demand as the global economy adapts to climate change, demographic shifts and digitalisation (ECLAC, 2022[62]; ECLAC, 2024[58]; IDB/ILO, 2020[74]; IDB, 2023[75]; OECD et al., 2022[76]; OECD et al., 2024[56]). Ensuring that workers possess the skills required in these sectors will be critical for enabling the region to capture new opportunities for investment and trade.
Skills development must also be accompanied by labour-market institutions that support worker mobility and adaptation. As digital, platform-based and other non-standard forms of employment expand, workers increasingly require opportunities to update their skills throughout their careers while maintaining access to training and social protection. Policies that promote skills recognition, apprenticeships, labour intermediation services and portable benefits can help workers adapt to technological change while facilitating transitions towards more productive and formal employment (ECLAC, 2023[72]). Targeted hiring incentives, training subsidies and measures supporting women’s labour-market participation through childcare and care systems can further broaden access to better-quality employment and expanding economic opportunities (ECLAC, 2022[62]; OECD et al., 2025[23]).
Expanding the supply of skills alone is unlikely to generate substantial gains unless firms also have incentives and capabilities to innovate, adopt technologies and integrate into more sophisticated regional and global production networks. Skills policies therefore need to be complemented by investments in infrastructure, digital connectivity, innovation, supplier development and access to finance. Stronger co‑ordination across ministries responsible for education, labour, innovation, infrastructure and productive development can help ensure that skills investments translate into productivity gains and greater participation in regional and global value chains (IDB, 2014[77]; ECLAC, 2025[34]; OECD et al., 2025[23]).
Finally, social protection systems play an important role in supporting labour-market adaptation. The prevalence of informal and mixed households means that a significant share of the population remains weakly connected to contributory protection systems, while labour markets alone do not provide adequate security for many workers. As economic integration, technological change and labour-market transitions accelerate, social protection systems will need to provide effective coverage across diverse employment situations. These should combine contributory and non-contributory instruments while supporting incentives for skills upgrading and formalisation (ECLAC, 2023[72]; OECD, 2024[73]; OECD/OISS, 2024[78]). Such systems can help workers manage periods of transition while reducing the risks associated with structural change.
Ultimately, the challenge for LAC is not simply to create more jobs, but to equip workers and firms with the skills and capabilities to participate in a changing global economy. Labour inclusion will increasingly depend on the region’s capacity to move workers and firms from low-skill, low-productivity and informal activities into more knowledge-intensive, technology-enabled and internationally connected activities. Achieving this objective requires a combined agenda of skills development, labour-market adaptation, technological adoption and social protection. This, in turn, should enable a broader share of workers and firms to benefit from deeper regional integration and participation in higher value-added segments of regional and global value chains (ECLAC, 2024[58]; ECLAC, 2025[79]; OECD et al., 2025[23]).
LAC has an opportunity to strengthen both its regional integration and its positioning within the changing global economy by mobilising new sources of financing aligned with emerging development priorities. Traditional financing channels – including domestic resource mobilisation, capital market development and international public finance – remain essential. However, new financing opportunities are emerging in response to global trends such as the green and digital transitions, the changing landscape of official development assistance (ODA) and the growing role of private capital in sustainable development. Within this broader context, innovative thematic debt instruments and the co‑ordinated action of development banks and export credit agencies are becoming increasingly important in mobilising investment across borders. These instruments not only help address financing constraints but also create incentives to support shared regional priorities, including climate action, infrastructure and sustainable development. At the same time, they strengthen LAC’s capacity to engage with evolving global investment and financing dynamics.
Thematic debt instruments can align investments with regional integration objectives
Debt-for-nature and resilience swaps can help unlock financing for shared public goods and support co-ordinated resilience investments
Innovative debt swaps are emerging as powerful tools to mobilise investment in sustainable activities and shared public goods. Recent debt-for-nature swaps illustrate how large-scale operations can generate both national and regional environmental benefits. Ecuador’s 2023 Galápagos transaction converted USD 1.6 billion of debt into a structure that channels around USD 12 million annually to marine conservation (GGGI, 2023[80]). As part of the Eastern Tropical Pacific marine corridor, the Galápagos ecosystems support migratory species shared with neighbouring countries, generating regional ecological spillovers (OECD et al., 2023[53]; OECD et al., 2024[56]). In 2023, Peru’s debt-for-nature swaps – such as the USD 20 million agreement focussed on Amazon conservation –channel resources into forest protection, biodiversity and sustainable land use, with implications for the wider Amazon basin shared by multiple countries (WWF, 2023[81]).
In the Caribbean alone, debt-for-nature swaps have mobilised over USD 450 million for marine conservation, highlighting their growing role as catalysts for sustainable investment (OECD/IDB, 2026[82]). Country-level operations such as Belize’s 2021 debt-for-nature swap – restructuring around USD 550 million (about 30% of GDP) and unlocking roughly USD 180 million for marine conservation. By protecting the Belize Barrier Reef, part of the wider Mesoamerican Reef system, the operation supports biodiversity, fisheries and tourism value chains beyond national borders. The Caribbean Debt-for-Resilience Initiative is led by institutions such as the Inter-American Development Bank (IDB), Development Bank of Latin America and the Caribbean (CAF) and the Caribbean Development Bank (CDB). It uses multi-guarantor structures to scale up debt-for-resilience operations, generate fiscal space and channel financing towards climate resilience and disaster risk management (OECD/IDB, 2026[82]). By aligning multiple stakeholders and embedding a regional public goods component in each transaction, the initiative aims to mobilise private capital, lower financing costs and support co‑ordinated resilience investments across countries (CDB, 2025[83]).
Despite their growing potential, debt-for-nature swaps face important limitations that should be considered when assessing their scalability and applicability across different country contexts. These transactions are inherently complex, involving multiple stakeholders, legal arrangements and financial instruments. This can make them costly and time-consuming to structure (OECD et al., 2023[53]; OECD et al., 2024[56]). Their success also depends on the availability of a credible credit enhancement or guarantor instrumental in making the transactions viable. In addition, debt-for-nature swaps require strong institutional co‑ordination among international and domestic actors, including governments, creditors, the private sector and civil society, to ensure effective design and implementation. Finally, because environmental commitments extend over lengthy time horizons, these operations depend on sustained political commitment, institutional continuity and sound fiscal management to deliver their intended conservation and development outcomes. Effective supervision and monitoring of these commitments, supported by robust sustainable finance frameworks, are therefore also crucial.
GSSSB bonds can mobilise large-scale capital for infrastructure and regional public goods and value chains, while aligning investments with sustainability objectives
Between 2014 and 2025, the international green, social, sustainability, sustainability-linked and blue (GSSSB) bond market in LAC reached a cumulative value of USD 181.9 billion, underscoring its rapid expansion as a key source of sustainable finance in the region (Figure 3.7, Panel A) (OECD, 2024[84]; OECD et al., 2025[23]; ECLAC, 2026[85]). In 2025, corporate GSSSB bond issuance in international markets led with 39.7%, followed by supranationals at 27%, sovereigns at 18.6%, quasi-sovereigns at 11.3% and sub-sovereigns at 3.4% (Figure 3.7, Panel B). Issuance trends have been volatile: the share of GSSSB bonds rose from 9.3% of total LAC issuance in 2020 to a peak of 35.0% in 2023, before declining sharply to 9.4% in 2025. This recent contraction reflects reduced sovereign participation, alongside a shift towards plain-vanilla instruments amid macroeconomic uncertainty, volatile US Treasury yields and tariff-related risks. Additional factors include transitional adjustments to sustainable finance taxonomies and reporting standards, as well as heightened investor scrutiny of sustainability-linked bonds (SLBs) (ECLAC, 2026[85]).
Note: Panel A: GSSSB = green, social, sustainability, sustainability-linked and blue. Panel B: the sub-sovereign category includes a single GSSSB bond issuance by the city of Bogotá, a USD 598 million green bond. The quasi-sovereign category includes state-owned entities.
Source: Authors’ elaboration based on Velloso and Perotti (2023[86]), Sustainable bond issuances in international markets, 2014-2022: Characteristics, trends and greenium in Latin America and the Caribbean, https://www.cepal.org/en/publications/68789-sustainable-bond-issuances-international-markets-2014-2022-characteristics-trends; OECD et al. (2025[23]), Latin American Economic Outlook 2025: Promoting and Financing Production Transformation, https://doi.org/10.1787/80e48de5-en; ECLAC (2026[85]), Capital Flows to Latin America and the Caribbean: 2025 Year-in-Review and Early 2026 Developments, https://repositorio.cepal.org/server/api/core/bitstreams/bf9d91c9-2bdb-4bf5-b270-276b33203eec/content.
Despite a decline in issuance in 2025, GSSSB bonds have consolidated their role as a key instrument for sustainable finance mobilisation in the region. Rather than indicating a structural weakening of sustainable finance in LAC, this recent decline reflects a cyclical shift in priorities. Sovereigns and corporates are expected to return to GSSSB bond markets as conditions stabilise (ECLAC, 2025[87]).
GSSSB bonds can become important tools for financing large-scale infrastructure in transport, energy and digital connectivity, helping to reduce connectivity barriers and support more integrated economies. Use-of-proceeds bonds, including green, social and sustainability bonds, can earmark funds for eligible infrastructure projects, while SLBs can link financing conditions to sustainability targets that support more sustainable and connected regional economies (OECD, 2024[84]). Multilateral development banks such as CAF demonstrate the potential of these instruments by mobilising resources through green and sustainable finance frameworks for projects across the region in areas such as railway modernisation, clean transport and renewable energy. This helps reduce logistics costs and strengthen connectivity across LAC. Similarly, Chile’s pioneering issuance of green and sustainability-linked sovereign bonds has supported transport and energy investments that contribute to improved connectivity (Velloso and Perroti, 2023[86]). However, further efforts are needed to scale up these instruments and promote greater co‑ordination across countries, ensuring that sustainable finance can support cross-border infrastructure networks.
Beyond infrastructure, GSSSB bonds also have the potential to strengthen regional value chains in sectors such as agro-industry, manufacturing and renewable energy by expanding productive capacity, enhancing climate resilience and promoting standards harmonisation. In LAC, these bonds have already financed a broad range of productive activities. This shows they can do more than fund isolated green projects: they can also support the assets, technologies and firms that anchor cross-border production networks (OECD et al., 2025[23]). By channelling long-term capital into sectors with strong regional linkages, GSSSB bonds can help suppliers upgrade, improve resilience to climate shocks, and meet common environmental and reporting standards across markets. This can lower co‑ordination costs and further strengthen investor confidence (Velloso, Perrotti and Sobreira, 2025[88]).
Scaling up GSSSB bond issuance and mobilising development finance through these instruments will require broader market access. Improving market access involves addressing key barriers faced by potential issuers, particularly those with limited capacity. These barriers include gaps in technical knowledge, difficulties in developing eligible green project pipelines and the absence of standardised monitoring frameworks (Velloso and Perroti, 2023[86]; OECD, 2024[84]). In addition, complex issuance procedures (including definitions of sustainability), as well as demanding reporting and impact measurement requirements, continue to constrain participation. Strengthening cross-border co‑ordination, in turn, will depend on aligning GSSSB bond issuances more closely with regional strategies that identify shared bottlenecks, link complementary sectors and support investments with cross-border impact. International co-operation will be key to addressing these challenges. Initiatives such as the EU’s Global Green Bond Initiative Fund will be instrumental in supporting issuers in designing and issuing bonds in the region. The Fund is a new public‑private investment tool to mobilise up to EUR 20 billion in private capital for sustainable infrastructure projects in low- and middle-income countries (European Commission, 2026[89]).
National and multilateral development banks, including export credit agencies, can play a key role in financing intraregional trade, integrating service markets and supporting project preparation
Trade finance institutions in LAC form a fragmented but increasingly interconnected ecosystem that blends traditional export credit agencies, development banks, and specialised guarantee and insurance providers to support regional and international trade. Rather than operating as isolated actors, these institutions collectively address different segments of the trade finance chain. These range from pre- and post-shipment credit and working capital support to risk mitigation through guarantees and export insurance. They also include targeted financing for strategic sectors such as agro-industry and infrastructure. A small number of entities (notably Bancomext, Bancóldex and Banco de Inversión y Comercio Exterior) function as core export credit agencies. Meanwhile, a broader set of development finance institutions – such as national development banks (NDBs) in Brazil, Colombia, Ecuador and Peru – play hybrid roles that combine long-term investment financing with trade-related instruments. Complementing these institutions are specialised guarantee agencies, including the Brazilian Agency for Guarantee Funds and Guarantees and Trust Funds for Rural Development (FIRA) in Mexico, which help crowd in private capital by absorbing commercial and political risk. Taken together, this ecosystem reflects both functional complementarity and institutional overlap. It has significant potential to deepen regional value chains if co‑ordination, instrument coverage and transparency practices are further strengthened.
The financial and technical capacity of NDBs in LAC varies considerably across countries and institutions, as do the mandates, resources and mobilisation capacity of multilateral development banks (MDBs). The largest NDBs, particularly in Mexico and Brazil, hold assets equivalent to around 7% of GDP, while the smallest represent less than 0.2% of GDP; disparities in equity and lending capacity are equally wide (OECD et al., 2025[23]). Regional MDBs also differ substantially in their mandates, financial resources and ability to mobilise financing. This highlights the importance of accounting for institutional heterogeneity when assessing their contribution to regional integration and development finance. Drawing on their distinct mandates and institutional capacities, MDBs, including CAF and the IDB, can complement national efforts by providing trade finance instruments, risk-sharing mechanisms and project-level guarantees across countries.
Note: ECA = export credit agencies; EXIM = export-import banks; PPP = public-private partnership; SME = small and medium-sized enterprise.
Source: Authors’ own elaboration.
NDBs and MDBs can enhance intraregional trade and strengthen regional value chains by deploying targeted financial instruments
Across LAC, NDBs and other national development finance institutions (DFIs) use a layered mix of trade finance and credit instruments across the export-import cycle, including pre- and post-shipment financing, letters of credit, import financing, working capital and investment loans, guarantees, and factoring (Figure 3.8). In terms of target beneficiaries, 67% of these instruments serve both MSMEs and large firms, while 25% are targeted exclusively at MSMEs. Pre-shipment finance – provided by institutions such as Banco de Inversión y Comercio Exterior in Argentina (BICE), Banco do Nordeste do Brasil S.A (BNB) and Banco de la República Oriental del Uruguay (BROU) – supports production and input acquisition. Meanwhile, post-shipment instruments – including export financing, forfaiting and discounting of shipping documents (notably Banco de la Nación Argentina) – help exporters manage liquidity and payment delays. Letters of credit (L/Cs), widely used by Banco de la Pampa (Argentina), Bancóldex (Colombia) and Bancomext (Mexico), reduce counterparty risk and facilitate transactions, particularly for micro-, small- and medium-sized enterprises (MSMEs). Import financing from entities such as Banco de la Nación Argentina and BanReservas (Dominican Republic) ensures access to foreign inputs. Complementing these instruments are working capital and investment loans (e.g. Bancóldex, BANDEX, BNB) and guarantees (e.g. Bancóldex, Institute for Agricultural Development [INDAP] in Chile). Factoring services are also widely offered across the region, which collectively provide liquidity, mitigate risk and strengthen firms’ export capacity. Examples include BICE and Banco de la Nación Argentina (Argentina); Bancóldex and Fondo para el Financiamiento del Sector Agropecuario (Colombia); BANDEX (Dominican Republic); and the National Development Bank, Bancomext and FIRA (Mexico).
Note: The database covers 38 national and subnational public DFIs in 13 LAC countries: Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Mexico, Paraguay, Panama, Peru and Uruguay.
Source: Authors’ elaboration based on public data (annual and sustainability reports) accessed in 2023 from 38 public DFIs in 13 LAC countries.
Different trade finance instruments can complement one another to strengthen regional integration by reducing risks, enabling firm participation in value chains, and facilitating access to inputs and scaling capacity across countries. Letters of credit and export credit can be particularly effective in mitigating transaction and counterparty risk, thereby facilitating regional trade, especially for MSMEs. Pre- and post-export financing instruments can support firms throughout the production and payment cycle. This is critical for sectors such as agro-industry and light manufacturing, where inputs and outputs move across borders. Import financing can further enable access to intermediate and capital goods, reinforcing vertical integration across countries. Investment finance and working capital loans can allow firms to scale production and upgrade capabilities. Guarantees, while less widely used, can play an important role in crowding in private finance and expanding intraregional trade if applied more systematically. Finally, factoring and regional confirming mechanisms can help address liquidity constraints by enabling firms to receive immediate payment on cross-border receivables. For example, a Colombian exporter selling to Peru can access early payment despite longer buyer terms, thereby reducing cash flow risks and supporting SME participation in regional markets.
MDBs play a critical complementary role in strengthening trade finance ecosystems in LAC by expanding risk-sharing capacity, providing cross-border instruments and reinforcing the work of NDBs and export credit agencies (ECAs). Institutions such as CAF and the IDB operate at a regional scale, offering trade finance instruments, guarantees, and sovereign and private sector lending that support integration across multiple countries. Through mechanisms such as the IDB’s Trade Finance Facilitation Program (TFFP), MDBs help de-risk transactions and indirectly enhance the capacity of national ECAs in LAC (IDB, 2006[90]). IDB Invest further extends this role by providing structured guarantees and private-sector trade finance instruments, while CDB fills a critical gap for small island developing states with limited or no domestic capacity as ECAs. At the subregional level, institutions such as the Central American Bank for Economic Integration and the Plata Basin Financial Development Fund (FONPLATA)complement these efforts by financing integration infrastructure, offering political risk mitigation, and supporting production investment across Central America and the Southern Cone. Collectively, these MDBs function as system-level anchors that crowd in private capital, reduce cross-border risk, and enhance the effectiveness of national and subregional trade finance institutions.
A growing frontier in regional finance lies in the structured co‑ordination between MDBs, commercial banks, institutional investors and capital markets. Together, these institutions enable mobilisation of large-scale capital for cross-border development and trade-enabling infrastructure. In practice, syndicated financing structures allow MDBs to anchor long-term infrastructure investments – such as ports, corridors and logistics hubs – by sharing risk with commercial lenders and thereby improving bankability. For example, CAF and the IDB have participated in syndicated and co-financed operations for transport corridors and port modernisation projects that facilitate regional trade flows across the Andes and the Southern Cone. Similarly, blended-finance mechanisms – combining concessional funding, guarantees and commercial lending – have become central to making high-risk regional investments viable, particularly in energy integration and climate adaptation. The IDB’s “Amazonia Forever” programme and CAF’s climate-aligned infrastructure financing illustrate how grants and concessional resources can be layered with sovereign and private lending to support cross-border renewable energy grids, resilient transport systems and adaptation infrastructure (IDB, 2023[91]; CAF, 2026[14]). These approaches are further reinforced by commercial banks participating under MDB risk umbrellas, which reduces perceived credit risk and expands lending capacity. Collectively, these instruments demonstrate how co‑ordinated financing structures can transform fragmented national investments into integrated regional development platforms.
NDBs and MDBs can also support the integration of service markets and the development of regional payment systems
NDBs can play an important role in advancing the integration of service markets by financing domestic firms and digital ecosystems that support cross-border payments, e‑commerce and fintech innovation. Currently, fintech activity remains concentrated in a few of the region’s larger economies, while digital banking services are predominantly consumer-oriented, with a more limited focus on businesses. Through targeted credit lines, venture support and technical assistance, NDBs help scale local fintechs and digital service providers so they can operate regionally and connect to broader payment platforms. They can also contribute to improving technical interoperability by aligning domestic financial infrastructure with regional standards. For example, Bancóldex in Colombia has supported fintech expansion into regional digital payments in collaboration with multilateral partners. For its part, Bancomext in Mexico finances digital exporters seeking to access cross-border markets. Looking ahead, the growing use of AI in banking operations is likely to create opportunities to improve service delivery, risk assessment and operational efficiency, while also raising challenges related to data governance, cybersecurity and regulatory compliance. NDBs can help promote responsible AI adoption while managing these risks, ensuring that digital financial innovation supports more integrated and inclusive regional service markets.
MDBs, in turn, act as system-level enablers by providing cross-border infrastructure, risk-sharing mechanisms and co‑ordination frameworks that connect national markets. The IDB, for instance, supports the development of regional digital payment ecosystems. Examples include its work on fast payment systems and cross-border interoperability, as well as IDB Invest financing for fintech companies operating across Latin America (Marajh and Gallagher, 2023[92]; IDB Invest, 2025[93]). It also provides guarantees and technical assistance to reduce risks in cross-border digital transactions. Similarly, CAF has financed digital infrastructure and regional connectivity projects, including broadband expansion and digital ecosystem development, while co-financing regional digital hubs with NDBs to support innovation and e‑commerce integration (CAF, 2020[94]). In the Caribbean, CDB has supported digital transformation and payment system modernisation projects to facilitate remittances and financial inclusion in small island developing states (CDB, 2025[95]). By combining financing, guarantees and policy support, MDBs play a central role in linking fragmented domestic systems into integrated regional service markets.
NDBs and MDBs can also support bankable projects through project preparation
NDBs and MDBs can also play a crucial role in making projects viable by providing financing, risk mitigation and technical support for high-impact initiatives. Turning investment into tangible development outcomes requires stronger institutional capacity, better data systems and improved project preparation. Across Latin America and the Caribbean, the IDB’s Project Preparation Facility (PPF) supports governments in developing, structuring and de-risking projects to make them more attractive to private investors. The ONE Caribbean Project Preparation Coordination Mechanism further illustrates this approach, providing support throughout the project cycle, from early-stage planning and feasibility studies to financial structuring and risk mitigation (IDB, 2025[96]; OECD/IDB, 2026[82]). Similar approaches are used by other MDBs in co‑operation with NDBs. In Colombia, CAF provided non-reimbursable technical assistance to Financiera de Desarrollo Nacional under the PAPIC programme to support pre-feasibility studies and project preparation for infrastructure concessions (OECD/AFD, forthcoming[97]). Together, these initiatives illustrate how development finance institutions can help transform project ideas into bankable, investment-ready operations.
The Global Gateway Investment Agenda (GGIA) advances EU-LAC economic integration through investment in strategic sectors
LAC is a key partner within the Global Gateway
The EU Global Gateway strategy represents a shift in the bi-regional EU‑LAC co‑operation towards investment, economic transformation and strategic partnerships. Deeper integration into the global economy will require not only stronger domestic capabilities and regional integration, but also strategic partnerships capable of mobilising investment, technology, expertise and market access. In this context, the EU Global Gateway provides an overarching framework for combining co‑operation, trade and investment to support production transformation and regional integration in LAC. Operationalised through the Global Gateway Investment Agenda in LAC, it moves beyond traditional donor recipient models towards an investment-based partnership model centred on mutual self‑interest, economic transformation and the EU’s pursuit of strategic autonomy (European Commission, 2026[98]; Da Costa, 2025[99]; Manservisi and Pezzini, 2025[100]).
The EU Global Gateway Strategy is particularly relevant for LAC. Development challenges coexist in the region with strong market potential and a growing strategic role in areas such as climate action, biodiversity, critical raw materials and digital infrastructure (OECD et al., 2023[53]; OECD et al., 2024[56]). In LAC, the Global Gateway has focused on sectors closely linked to Europe’s green and digital transitions, including renewable energy, green hydrogen, critical raw materials, digital connectivity, transport corridors and health resilience (European Commission, 2026[98]).
LAC is an important destination within the Global Gateway strategy. Between 2021 and 2024, the initiative mobilised around EUR 31.5 billion (bn) in the region, placing LAC in the middle tier of regions in terms of total Global Gateway investment mobilisation. The region was below sub‑Saharan Africa (EUR 80.0 bn) and Middle East and North Africa (EUR 77.2 bn), and somewhat behind Asia‑Pacific (EUR 47.9 bn). However, it was broadly in line with the Eastern Neighbourhood (EUR 28.5 bn) and the Western Balkans (EUR 27.0 bn) (European Commission, 2024[101]). Countries such as Brazil, Mexico, Colombia, Chile, Argentina and several Caribbean economies feature prominently due to their market size, geopolitical relevance and concentration of projects with regional spillovers, particularly in energy, logistics, digital infrastructure and health (European Commission, 2024[101]; OECD et al., 2025[23]). Of the 46 flagship projects endorsed for 2025, around one-quarter are directly linked to LAC. These include initiatives focused on digital connectivity, green hydrogen, regional energy integration, sustainable transport and health resilience (Council of the European Union, 2024[102]; European Commission, 2026[103]).
The composition of flagship projects also reflects the strategic priorities underpinning the EU‑LAC Global Gateway Investment Agenda (Figure 3.9). Projects are concentrated in sectors directly linked to production transformation. Climate and energy account for the largest share, alongside significant investments in transport, health, digital connectivity, and education and research.
Note: The size of each rectangle is proportional to the number of flagship projects identified. Projects are classified according to their primary area of focus. The figure presents project counts only and does not reflect the financial value of projects. The flagship projects presented do not capture the full extent of Team Europe engagement in the region.
Source: Authors’ elaboration based on European Commission (2026[103]), Global Gateway – EU-Latin America and the Caribbean flagship projects, https://international-partnerships.ec.europa.eu/publications-library/global-gateway-flagship-projects-infographics_en.
The Global Gateway Investment Agenda enhances regional integration and production transformation
The Global Gateway Investment Agenda has increasingly prioritised regional integration and cross-border connectivity in LAC. This shift reflects a broader recognition that production transformation in the region depends not only on national investments but also on stronger regional markets, infrastructure networks and value chains. Tangible achievements include the scaling‑up of blended finance through the European Fund for Sustainable Development Plus (EFSD+), support to regional value chains (e.g. renewable hydrogen, pharmaceuticals, digital infrastructure) and a clearer push towards regionalisation rather than fragmented bilateral projects – an important corrective to LAC’s long‑standing integration deficits (OECD et al., 2023[53]; OECD et al., 2025[23]). Recent initiatives explicitly target regional public goods, including the EllaLink submarine cable extension, Andean electricity interconnections (Peru‑Chile), Central American power market integration, green maritime corridors, and regional mechanisms for vaccine production and procurement. These investments go beyond national infrastructure by fostering shared standards, interoperable systems and economies of scale, emphasising regional co‑operation as a lever for productivity, resilience and inclusion (OECD et al., 2025[23]). In this respect, LAC represents a testing ground for the Global Gateway Strategy to operationalise regionalisation with concrete investments.
The approach has generated additional benefits. It has contributed to repositioning the European Union as a long-term strategic partner in the region, while raising the profile of Europe as a long‑term partner offering an alternative to more transactional or primarily debt‑intensive investment models (CONCORD, 2025[104]; European Parliament, 2026[105]). It has also encouraged co‑ordination across EU institutions, member states, DFIs and MDBs under the Team Europe approach and helped shift co‑operation towards economic sectors critical for structural change rather than stand‑alone projects (European Commission, 2024[101]; OECD et al., 2024[56]). Importantly, Global Gateway has reinforced a narrative of mutually beneficial partnerships and co‑investment, resonating with many LAC governments seeking alternatives to shrinking ODA while avoiding over‑dependence on single external actors (Da Costa, 2025[99]; OECD et al., 2025[23]). The emphasis on standards; environment, social and governance (ESG) principles and local value‑added content is also a differentiating element. If fully implemented, this can support more inclusive and sustainable development pathways in the region (CONCORD, 2025[104]; European Parliament, 2026[105]). For LAC countries, maximising the benefits of these investments will depend on their ability to support technology transfer, skills development, stronger local supplier linkages and institutional strengthening. In this way, the investments would contribute more effectively to production transformation and long-term development outcomes.
Strengthening implementation can scale up the impact of the Global Gateway Investment Agenda in LAC
The Global Gateway has established a solid strategic framework and a credible investment platform for re‑engaging with LAC, while recent political discussions have identified areas where implementation could be further strengthened (European Parliament, 2026[105]). Awareness of the Global Gateway among partner‑country stakeholders in LAC remains uneven. Access to information on project pipelines, implementation status and development impacts could be improved to better demonstrate results and development impact on the ground (CONCORD, 2025[104]; European Parliament, 2026[105]).
The Global Gateway 360‑degree approach seeks to combine investment with policy reform, regulatory co‑operation, social inclusion, skills development and governance. However, the integration of these dimensions remains uneven in practice, with social sectors, inequality reduction and local capacity building often receiving relatively less emphasis than large‑scale infrastructure investments (OECD et al., 2024[56]; CONCORD, 2025[104]). Yet, several flagship initiatives illustrate the potential of a more integrated approach. The Renewable Hydrogen initiative in Chile, BELLA II and the Central America Electricity Market Integration initiative, for instance, demonstrate how financial support can be complemented with measures to strengthen enabling conditions, productive capabilities, human capital, institutional partnerships, and sustainability and inclusion (Figure 3.10). While the mix of instruments varies according to each initiative’s sectoral focus, these three experiences extend beyond infrastructure financing to incorporate regulatory and technical assistance, skills development, knowledge exchange and regional co-operation. This underscores the importance of aligning investment with the institutional, social and environmental conditions needed to advance sustainable and inclusive development.
Note: The figure provides an illustrative mapping of intervention instruments identified across three selected Global Gateway flagship initiatives, based on publicly available project and programme documentation from European institutions, implementing partners, national authorities and regional organisations. It does not assess performance or compare projects. The dimensions are informed by, but do not reproduce, an official classification of the Global Gateway 360-degree approach.
Source: Authors’ elaboration based on multiple sources including (BELLA II, 2026[106]); (Delegation of the European Union in Chile, 2026[107]); (European Commission, 2025[108]).
Governance and financing arrangements can be strengthened. From a governance perspective, existing mechanisms for joint priority-setting, including through the EU-CELAC frameworks, could be further reinforced to strengthen country ownership and ensure that Global Gateway initiatives are designed and implemented in close partnership with LAC stakeholders throughout the project cycle. This would enhance the alignment of investments with national and regional development priorities, while supporting broader civil society participation, which currently varies significantly across countries (Da Costa, 2025[99]; European Parliament, 2026[105]). Regarding financing, Global Gateway investments in LAC could build on progress made through guarantees and blended finance under EFSD+. Simplifying instruments, clarifying additionality, strengthening monitoring of development outcomes and improving accessibility for partner countries could all help scale up the impact of financing (OECD et al., 2023[53]).
The next phase of implementation and scaling up of Global Gateway offers an opportunity to increase the quality, targeting and development impact of Global Gateway investments in LAC. Placing a stronger focus on the systematic measurement of development impact, including job creation, skills upgrading, territorial cohesion and environmental outcomes, would help better align investment choices with LAC’s structural transformation priorities. At the same time, greater transparency on leverage effects, stronger monitoring of development outcomes and enhanced participation of local actors in project identification and design, would help ensure that Global Gateway delivers both strategic assets for Europe, and also measurable social, economic and environmental returns for LAC societies (Da Costa, 2025[99]; OECD et al., 2025[23]). Taken together, these elements point to three main areas of action to strengthen the impact of the Global Gateway Investment Agenda in LAC, notably: deepening implementation of its integrated development approach, strengthening local ownership and participation, and enhancing the transparency, measurement and communication of development results.
The EU‑MERCOSUR trade agreement deepens economic integration between Europe and South America
The EU‑MERCOSUR trade agreement marks a major step in strengthening economic integration between Europe and South America. The agreement, between the European Union and several MERCOSUR members (Argentina, Brazil, Paraguay and Uruguay), creates one of the world’s largest free trade areas. To that end, it covers more than 700 million consumers and a combined GDP of around USD 25 trillion, with bilateral trade exceeding USD 100 billion annually (Di Sario, 2026[109]). MERCOSUR alone represents around 60% of South America’s GDP and more than 300 million people (ECLAC, 2025[110]). The agreement comprises two separate instruments: an interim Trade Agreement (iTA), provisionally applied since 1 May 2026, and a broader EU–MERCOSUR Partnership Agreement (EMPA), which also covers political dialogue and co-operation and is subject to a separate ratification process. The iTA aims to increase trade and investment flows by reducing tariff and non-tariff barriers, while creating more stable and predictable rules for trade and investment. Tariff reductions follow product-specific implementation schedules, while preferential access for certain sensitive agricultural products is subject to limited tariff-rate quotas. The agreements also include provisions on intellectual property, food safety, competition, regulatory practices, labour rights, environmental protection, climate action, critical raw materials and responsible business conduct (European Commission, 2026[111]).
The partnership expands market access and deepens economic integration between both blocs. The agreement eliminates over 90% of tariffs on bilateral trade and extends beyond goods to include services, investment, public procurement and regulatory co‑operation. Before the agreement, the European Union applied an average tariff of around 4% on MERCOSUR imports, while MERCOSUR imposed tariffs close to 11% on EU goods. Under the new framework, these are expected to fall to around 2% and 1%, respectively (Banco de España, 2026[112]). MERCOSUR will liberalise broadly across sectors, while the European Union maintains higher protection in sensitive agricultural products.
The agreement is expected to generate strong gains in manufacturing, as well as improved access to agriculture products, critical minerals and key public procurement markets. European exporters will benefit from near zero tariffs in sectors such as machinery, pharmaceuticals, aerospace components and vehicles, while competitors from third countries continue facing tariffs of 15‑25% (Banco de España, 2026[112]). MERCOSUR exporters are also expected to gain improved access for agricultural products and critical raw materials, including lithium, copper, nickel and niobium, which are increasingly important for the green and digital transitions. In addition, expanded access to public procurement markets in infrastructure, energy and digital projects is expected to strengthen investment and business opportunities across both regions (Capuzzi, 2025[113]).
Estimates point to significant trade and growth gains from the EU‑MERCOSUR agreement. Analysis suggest that bilateral trade flows could increase by around 37%, with gains potentially reaching 70% under deeper regulatory alignment (Berganza et al., 2025[114]). Economic gains are projected across both regions, with GDP increases ranging from 0.61% in Uruguay to 0.26% in Argentina and 0.13% in Brazil over the implementation period (Latorre and Suárez-Cuesta, 2025[115]). At the aggregate level, the European Union is expected to experience a GDP increase of around 0.1%, while European firms could collectively save an estimated EUR 4 billion per year in import duties (LSE, 2021[116]).
Investment flows are expected to strengthen under the new framework. European multinationals, already among the main foreign investors in sectors such as banking, telecommunications, energy and infrastructure, are likely to expand their presence under a more transparent and predictable legal environment. Together with the updated agreements with Mexico and Chile, the framework extends preferential investment protections to economies representing around 95% of Latin American GDP, reinforcing incentives for long-term investment and regional business integration (Banco de España, 2026[112]).
Closer economic ties with the European Union are associated with higher-quality employment and skills development. Exports from six major Latin American economies to the European Union generate an estimated 4.3 million jobs. This represents around 11.4% of total export linked employment in those countries. In addition, exports directed to the European Union are associated with a higher share of skilled employment than exports to other major partners. Around 16.1% of jobs linked to EU-bound exports are classified as high skilled, compared with 15.4% for exports to the United States, 14.7% to the Association of Southeast Asian Nations and 13.9% to China (Banco de España, 2026[112]). This reflects the stronger presence of services and more advanced manufacturing activities in trade flows with the European Union.
The agreement could also support broader regional integration beyond MERCOSUR members. By encouraging regulatory convergence, greater alignment across rules of origin regimes and lower trade barriers, the agreement may strengthen incentives for deeper regional integration and development of complementary value chains across Latin America. This could also encourage stronger links with Pacific Alliance economies and support greater integration across subregions (Estevadeordal and Talvi, 2025[117]). For non-MERCOSUR economies, the agreement creates both competitive pressures and new opportunities. Improved access for MERCOSUR exports to the European Union may allow greater specialisation in manufacturing and services within the region, opening space for stronger regional complementarities. Countries such as Chile and Mexico, which already have updated agreements with the European Union, are well positioned to benefit from stronger EU‑LAC linkages, while Caribbean and Central American economies could expand opportunities in services exports, including tourism and professional services.
The EU‑MERCOSUR agreement has faced substantial criticism, primarily centred on environmental risks, uneven regulatory standards and potential impacts on agriculture. Critics argue the deal could exacerbate deforestation, while exposing European farmers to unfair competition from producers operating under less stringent environmental and sanitary regulations. Concerns have also been raised about the non-binding nature of sustainability provisions and the risk that the agreement may undermine broader climate objectives in the European Union (Capuzzi, 2025[113]). In this context, the EU Deforestation Regulation (EUDR) is a landmark EU law that requires companies to ensure that certain products placed on or exported from the EU market are deforestation-free, legally produced, and traceable throughout their supply chains. The EUDR is a major initiative to reduce the environmental footprint of global supply chains and promote more sustainable trade.
However, recent analyses challenge several of these claims. They emphasise that the incremental trade effects of the agreement are likely to be limited. Notably, key commodities such as soy are already largely liberalised and beef imports are constrained by relatively small quotas, representing a marginal share of EU consumption and MERCOSUR production. From this perspective, the agreement is unlikely to be a major driver of deforestation or structural change in land use (Capuzzi, 2026[118]). Moreover, calls for strict regulatory “mirror clauses” are questioned on two grounds. First, production conditions differ across regions. Second, imposing identical standards may be neither economically efficient nor environmentally effective. Overall, these analyses suggest that environmental and distributional concerns are legitimate. However, they also argue the scale and mechanisms of the agreement are often overstated in public debate. Its actual impacts may be more limited and context-dependent than critics assume (Capuzzi, 2025[113]).
Ibero-American co‑operation is advancing a shared agenda for regional development
The Ibero-American Community comprises 22 Spanish- and Portuguese-speaking countries, including 19 from Latin America and 3 from Europe: Andorra, Portugal and Spain. The Ibero-American Community holds large strategic potential. The region’s renewable energy potential, biodiversity, food production capacity and critical mineral reserves create opportunities to attract investment, strengthen sustainable value chains and participate more competitively in international markets. At the same time, its role in climate action and natural-resource conservation gives Ibero-America growing influence in multilateral negotiations on sustainable development, biodiversity and climate change. These conditions also make Ibero-America a potential key actor for technological transformation, and for the development of AI and data centres (SEGIB, 2026[119]; SEGIB, 2026[120]). The region also benefits from strong cultural and linguistic ties, with Spanish and Portuguese facilitating technical, political and economic co‑operation across countries (SEGIB, 2026[119]).
Fully harnessing the potential of the Ibero-American Community requires enabling conditions to close structural gaps, strengthen institutional capacities and improve co‑ordination among countries. This is where Ibero-American Cooperation plays a distinctive role. Based on the principle of horizontality, it provides a unique regional mechanism for policy dialogue, shared public-policy agendas and collective solutions to common challenges. In doing so, it helps build trust, deepen regional integration and improve countries’ ability to participate in an increasingly interdependent global economy.
Ibero-American Cooperation contributes to sustainable development by building consensus around shared values such as peace, human rights, multilateralism, gender equality and environmental sustainability. These principles strengthen regional cohesion; provide a common normative framework for economic co‑operation and social inclusion; and enable co‑ordinated action on emerging challenges such as digital transformation, AI, the care economy and adaptation to climate change.
Ibero-American Cooperation operates primarily through its Programmes, Initiatives and Associated Projects (PIPA) and through Ibero-American Networks. These instruments support capacity building, knowledge transfer, innovation, regulatory convergence and public policy co‑ordination. They help reduce asymmetries among countries, generate economies of scale and create more favourable conditions for productive development, investment and regional competitiveness.
Within the PIPA framework, initiatives such as Programa Iberoamericano de Ciencia y Tecnología para el Desarrollo (CYTED), Programa Iberoamericano de propiedad industrial y Desarrollo (IBEPI) and the Programme for the Strengthening of South-South Cooperation promote knowledge generation, innovation, scientific and technological capacity building and co‑operation among countries and institutions. By doing so, they strengthen regional innovation ecosystems, support productivity growth, foster economic diversification and improve the region’s integration into global value chains (SEGIB, 2026[121]).
Ibero-American Networks complement these efforts by facilitating specialised technical co‑operation and knowledge exchange in strategic areas for sustainable development. They also contribute to greater legal certainty, lower regulatory barriers and stronger enabling conditions for regional integration. Relevant examples include the Ibero-American Conference of Water Directors, which supports sustainable water-resource management and resilience to climate change. Other key networks include the Ibero-American Register Network, the Ibero-American Guarantee Network and the Ibero-American Data Protection Network.
The strength of Ibero-American Cooperation also rests on an institutional architecture that provides continuity, predictability and long-term sustainability. The Ibero-American General Secretariat (SEGIB), together with the Organization of Ibero-American States, the Ibero-American Social Security Organization, the Conference of Ministers of Justice of Ibero-American Countries and the International Youth Organization for Ibero-America, helps co‑ordinate efforts, monitor commitments and promote long-term regional agendas.
The Ibero-American Summit of Heads of State and Government, organised and co‑ordinated by SEGIB, represents a strategic platform to co‑ordinate common responses and strengthen co‑operation among the 22 member countries of the Ibero-American Community. The Summit constitutes a key forum for transforming regional consensus into concrete initiatives. In so doing, it strengthens the region’s capacity to respond jointly to shared challenges and seize new opportunities for sustainable development (CEOE, 2026[122]; SEGIB, 2026[120]).
A further strength of Ibero-American Cooperation is its ability to translate high-level political mandates into concrete action. A clear example is the implementation of the Ibero-American Charter of Principles and Rights in Digital Environments, adopted at the XXVIII Ibero-American Summit in Santo Domingo in March 2023. The Charter promotes a people-centred, rights-based digital transformation aimed at reducing gaps in access to and use of technology, while strengthening the institutional foundations for more inclusive, innovative and competitive digital economies (SEGIB, 2026[123]).
Priorities advanced through the Ibero-American Summits have also supported progress in youth employment, mobility, inclusion and social protection. Initiatives such as the Ibero-American Youth Card and the Ibero-American Disability Card facilitate mobility, access to services and opportunities across the region, thereby strengthening social and economic integration.
Through its multi-stakeholder approach, Ibero-American Cooperation broadens participation beyond national governments. It brings together companies, universities, research centres, foundations, local governments, civil society organisations and parliamentary bodies. Platforms such as the Ibero-American Business Meeting, the Union of Ibero-American Capital Cities, the Ibero-American Civic Meeting and the Parliamentary Forum foster dialogue, partnerships, resource mobilisation and regional governance. This multi-actor architecture supports innovation, entrepreneurship and economic opportunity while building the trust networks needed for deeper regional integration.
A notable initiative is the adoption of the 4T Model – Talent, Territory, Transformation and Traction – aimed at improving competitiveness and integrating firms, particularly MSMEs, into more dynamic global value chains. This model provides a strategic framework to co‑ordinate actors, align public policies and guide investment towards shared objectives. Its value lies in addressing, in an integrated manner, some of the structural constraints that continue to limit regional development. These include informality, low productivity, financing gaps, weak business-support ecosystems and difficulties in joining regional and global value chains (SEGIB, 2025[124]).
In 2026, the XXX Ibero-American Summit in Madrid seeks to deepen co‑operation around strategic priorities for sustainable development. Key areas under discussion include the creation of an Ibero-American Network for Disaster Risk Reduction and Civil Protection; the development of an Ibero-American Digital Forum; a regional initiative on AI; the creation of AI models in Spanish and Portuguese; progress on the recognition of qualifications and academic mobility; and the preparation of an Ibero-American Charter on the Rights of Care. In parallel, work is under way on a new Ibero-American Cooperation Strategy to provide the system with a more strategic, co‑ordinated and globally oriented vision. Together, these initiatives aim to strengthen human capital, accelerate digital transformation, improve regional resilience and foster innovation, all essential to building a more integrated, competitive and globally engaged Ibero-America.
LAC faces a window of opportunity to strengthen its position in the global economy at a time when the green transition, digitalisation and growing geopolitical fragmentation are reshaping production networks, trade patterns and investment flows. However, benefitting from these shifts requires more than market access alone. Successful integration into regional and global value chains depends on a set of enabling conditions that allow firms to compete, innovate and upgrade into higher value-added activities. Despite important advances, persistent gaps in skills, infrastructure, financing and regulatory coherence continue to limit the region’s competitiveness. This constrains development of deeper and more integrated regional markets.
The analysis in this chapter highlights how these constraints are closely interconnected. Weak skills systems, low productivity and high informality limit the capacity of workers and firms to adopt new technologies and participate in emerging sectors linked to the digital and green transitions. Infrastructure and logistics bottlenecks continue to raise trade costs and reduce connectivity, while financing gaps constrain investment in productive transformation and regional public goods. At the same time, regulatory fragmentation and incomplete implementation of regional agreements continue to hinder the emergence of larger and more integrated markets that can support regional value chains and attract investment.
Addressing these challenges requires a comprehensive approach that combines domestic reforms with stronger regional co‑operation and strategic international partnerships. Investments in human capital, infrastructure and innovation must be complemented by efforts to mobilise long-term financing, advance regulatory convergence, and strengthen regional and extraregional partnerships. Together, these actions can help create more integrated, resilient and competitive economies, enabling the region to expand productive opportunities, strengthen its participation in regional and global value chains, and achieve more inclusive and sustainable growth. Realising this potential will require policy action across multiple dimensions and stronger co‑ordination among governments, regional institutions, development finance actors and international partners. The following key policy messages highlight priority areas for strengthening the enabling conditions that can support deeper regional integration and a more competitive, resilient and sustainable insertion of LAC into the global economy.
Skills and human capital for productive transformation
Strengthening foundational, digital and socio-emotional skills is essential for enabling workers and firms to benefit from the green and digital transitions.
Lifelong learning systems should become more inclusive and better aligned with evolving labour-market and productive-development needs.
Expanding access to quality technical and vocational education and training, apprenticeships and work-based learning can help address skills shortages in high-growth sectors.
Policies should promote adoption of new technologies while supporting workers through labour-market transitions and reducing the risks associated with displacement.
Reducing informality requires combining skills development with productive transformation, stronger labour-market institutions and expanded access to social protection.
Infrastructure and connectivity
Closing infrastructure gaps is critical for reducing trade costs, strengthening competitiveness and supporting regional value chains.
Investment strategies should prioritise multimodal transport systems, logistics services and digital infrastructure that improve regional connectivity.
Infrastructure planning should move beyond isolated projects towards integrated logistics corridors connecting production centres, transport networks, border crossings and markets.
Digital technologies, including interoperable logistics platforms and port community systems, can improve trade facilitation, efficiency and supply chain resilience.
Stronger regional co‑operation is needed to address cross-border infrastructure bottlenecks and support greater market integration.
Financing regional integration
Innovative financing instruments, including GSSSB bonds and debt-for-nature or resilience swaps, can mobilise resources for infrastructure, sustainability and regional public goods.
National and multilateral development banks should play a stronger role in supporting trade finance, productive transformation and regional integration projects.
Blended-finance instruments and risk-sharing mechanisms can help crowd in private investment and improve access to long-term financing.
Strengthening project-preparation capabilities is essential to transform regional priorities into bankable investment opportunities.
Financial instruments should be better aligned with regional development objectives and cross-border investment needs.
Regulatory convergence and market integration
Reducing non-tariff barriers should become a priority for deepening regional integration and strengthening intraregional trade.
Regulatory convergence, mutual recognition arrangements and harmonised standards can lower compliance costs and facilitate regional value chains.
Trade facilitation reforms and digitalisation of customs and border procedures can improve connectivity and reduce transaction costs.
Greater implementation and co‑ordination across regional agreements can help reduce fragmentation and create larger and more attractive regional markets.
Stronger regional integration can provide a platform for diversification, resilience and productive upgrading in an increasingly fragmented global economy.
Strategic partnerships for global integration
Strategic partnerships can complement regional integration by expanding access to markets, technology, finance and knowledge.
Initiatives such as the Global Gateway can support regional connectivity, productive transformation and development of strategic sectors linked to the green and digital transitions.
Trade and investment agreements should be leveraged to strengthen regional value chains, encourage technology transfer and support productive upgrading.
International partnerships should promote local capability building, skills development and stronger linkages with domestic suppliers.
Diversifying economic partnerships can enhance resilience to external shocks and support a more competitive integration of LAC into the global economy.
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