Latin American Economic Outlook 2026

Overview

Global transformations are creating new development opportunities for Latin America and the Caribbean

Latin America and the Caribbean (LAC) is well positioned to benefit from the profound transformations reshaping the global economy. The green transition is increasing demand for renewable energy, low-emissions fuels and critical minerals; artificial intelligence (AI) is changing how economies produce and innovate, while increasing demand for reliable and affordable energy; rising food demand is reinforcing the importance of reliable suppliers; and demographic change is creating new opportunities around care and ageing. At the same time, a more fragmented international landscape creates new opportunities for LAC to diversify its partnerships, position itself as a reliable partner and play a more prominent role in advancing global agendas.

These transformations can create new sources of investment, productivity and quality employment. Turning them into development gains will require stronger productive and technological capabilities, greater domestic value addition and policies that ensure the resulting benefits are widely shared.

The green transition can turn LAC’s natural endowments into new sources of competitiveness

The green transition is increasing global demand for renewable energy, low-emissions fuels and critical minerals, areas in which LAC holds significant strategic advantages. Renewable technologies accounted for 92.5% of new global power-generation capacity in 2024, while investment in clean-energy technologies and infrastructure is expected to reach USD 2.2 trillion in 2026, around twice the amount invested in fossil fuels. Declining renewable energy costs are further driving this transformation. In this context, LAC is well positioned to benefit from two major assets: abundant renewable energy resources and large reserves of critical minerals. The challenge is to translate these endowments into investment, productive capabilities, jobs and broader development gains, while ensuring their use remains environmentally and socially sustainable.

LAC already has one of the cleanest electricity mixes globally, supported by growing investment in clean energy over the past decade. Clean-energy investment has increased by almost 25% since 2015. Meanwhile, renewable sources generated 64.3% of the region’s electricity in 2024, more than twice the global average of 31.9%. Hydropower accounted for 42.5% of regional generation, complemented by wind (9.2%), solar (7.8%) and other renewable sources (4.4%). However, the broader energy system remains significantly more dependent on fossil fuels, particularly in transport and other non-electric uses (Figure 1, Panel A).

LAC’s abundant natural renewable energy resources represent a strategic opportunity, as firms increasingly seek access to reliable, competitively priced and low-carbon electricity. Specifically, these endowments can attract electricity-intensive activities seeking to reduce their carbon footprint, including mineral processing, green steel and fertilisers, or data centres. Similarly, LAC’s sustainable electricity matrix can become a source of higher domestic competitiveness and resilience. To that end, it can reduce exposure to fossil-fuel price volatility, strengthen energy security, and support lower and more stable energy costs. Finally, the region has significant potential to produce and export low-carbon energy, including green hydrogen and its derivatives. However, high capital costs, infrastructure gaps and still-emerging global demand constrain development of these industries.

Realising these opportunities will require complementary investment in electricity grids, storage and cross-border interconnections, as well as stable regulatory frameworks that can mobilise long-term investment. Ensuring that benefits are broadly shared will also be important. Renewable energy development can support better access to affordable and reliable electricity, create jobs and local business opportunities, and strengthen domestic value creation. At the same time, projects must be supported by strong environmental governance and meaningful community engagement, particularly where they create pressures on land, biodiversity or water resources.

Figure 1. LAC combines a clean electricity matrix with major reserves of minerals needed for the energy transition

Note: In Panel A, World category “Other” refers to geothermal and biogas.

Source: Panel A: OLACDE (2026[1]), Sistema de Información Energética de América Latina y el Caribe (SIELAC), Energy balance matrix and electricity generation by source, Latin American and Caribbean Energy Organization (OLACDE), https://sielac.olade.org/; Panel B: ECLAC (2024[2]), Critical minerals for the energy transition and electromobility: Economic development opportunities and socioenvironmental challenges, https://www.cepal.org/en/insights/critical-minerals-energy-transition-and-electromobility-economic-development-opportunities.

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LAC can also become a strategic supplier of critical minerals for the global green transition. International demand for lithium is projected to triple between 2025 and 2040, while demand for graphite could double and copper demand could increase by around 30%. LAC is well positioned to respond: in 2023, it held 48% of global lithium reserves, 36.6% of copper reserves, 35% of molybdenum reserves, 34.5% of silver reserves and almost 25% of graphite reserves (Figure 1, Panel B). The region supplies around 35% of the world’s lithium, led by Argentina, the Plurinational State of Bolivia (hereafter “Bolivia”) and Chile. Meanwhile, Chile and Peru are among the leading international copper producers, accounting for 40% of global production.

Capturing the development benefits of this mineral wealth will require moving beyond extraction. In 2025, LAC countries refined, on average, only around 20% of the key energy minerals they extracted, excluding lithium. LAC exports a larger share of raw materials than any other major resource-rich region. Primary products account for approximately 62% of the region’s critical mineral exports, while semi-processed goods represent only 38%. This contrasts with Africa and Oceania, where semi-processed goods account for 58% and 60% of critical mineral exports, respectively (Figure 2).

Figure 2. Composition of critical mineral exports by degree of processing, 2019-2023

Source: Authors’ elaboration based on ECLAC (2025[3]), Foreign Direct Investment in Latin America and the Caribbean, 2025, https://www.cepal.org/en/publications/83116-foreign-direct-investment-latin-america-and-caribbean-2025.

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Realising the development potential of critical minerals will require a comprehensive policy approach that strengthens domestic value addition, mobilises investment and supports industrial development, while ensuring that mineral wealth translates into broad-based economic and social benefits. Key priorities include fostering regional co‑operation across strategic value chains, developing local supplier capabilities and skills, and promoting innovation and technology transfer. Increasing domestic value creation will require investment in processing and refining where economically viable, but also more funds for engineering, logistics, digital services, research and specialised suppliers. Stronger links between mining projects and domestic firms can support technology transfer, develop local capabilities, and create more and better jobs. Regional co‑operation can help countries combine complementary strengths, including lithium extraction in the Southern Cone, Andean copper production, Brazilian processing capabilities and Mexican manufacturing integration.

Greater productive upgrading must go hand in hand with responsible mineral development. Governments will need to strengthen environmental governance, transparency and community engagement to ensure responsible and inclusive development. Effective management of resource revenues and macroeconomic risks, including through fiscal frameworks and economic diversification strategies, will also be critical to maximise long-term development gains and avoid the adverse effects often associated with commodity dependence.

Digital transformation and AI offer new opportunities for LAC to attract investment and transform production

The digital transformation, with AI at its heart, is reshaping how economies produce, innovate, trade and deliver services. For LAC, digital technologies offer opportunities to raise productivity, develop new activities, and improve access to markets and public services. LAC can benefit both by attracting the physical infrastructure underpinning the digital economy and by applying digital technologies and AI to its productive strengths and development needs.

LAC’s geography, climate and renewable energy endowments could help attract digital infrastructure, such as data centres. Global demand for data centres is projected to grow 19‑22% annually through 2030. LAC’s data centre market is projected to nearly double in value, from USD 5‑6 billion in 2023 to around USD 10 billion by 2029. Yet the region accounts for only about 0.4% of global hyperscale data centre capacity. In comparison, the United States and the People’s Republic of China (hereafter “China”) together host around one-third of global data centre capacity. The number of hyperscalers operating in LAC is expected to increase from 2 to as many as 15 between 2025 and 2032.

Attracting this infrastructure could bring foreign direct investment (FDI), strengthen computing capacity and digital resilience, and create new opportunities for local firms and workers. However, capturing these benefits will require more than attracting capital. Reliable electricity and connectivity; appropriate regulatory frameworks; skills; and policies that foster links between data centres and domestic firms, research institutions and digital ecosystems will be essential. Given the substantial electricity, water and land requirements of data centres, their expansion will also need to be supported by credible environmental standards and careful planning. The extent to which data centres will contribute to broader development objectives in the region will depend on the generation of productive linkages with local firms, the reinforcement digital ecosystems and the support of local capability development, while ensuring that their high demand for electricity and water is managed sustainably.

Another major opportunity lies in moving from digital consumption towards productive adoption and innovation. Rather than competing directly at the frontier of general-purpose AI, LAC can adapt digital technologies and AI to sectors in which it already possesses capabilities and comparative advantages, and also use it to address longstanding productive weaknesses. Applications in agriculture, mining, renewable energy, logistics, financial and digital services, and public administration could raise productivity, improve decision making and support development of new products and services.

The potential economic gains are significant. Conservative estimates suggest that AI could generate USD 565 billion in additional economic output in LAC between 2025 and 2030. This would be equivalent to approximately 1.03% of the region’s projected cumulative gross domestic product (GDP) over the same period (Figure 3). This contribution would result from spending on AI solutions; the indirect effects of AI services across other economic sectors; and complementarities between AI and cloud computing, including greater cost efficiency, new product development and support for start-ups.

Figure 3. Latin America: Projected impact of artificial intelligence, 2025‑2030

Note: Latin America calculations include: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru and Uruguay. This aggregate economic contribution of AI to output (GDP) breaks down as follows: (i) spending on AI (as measured by the revenues of AI service providers); (ii) the indirect effects of AI services on the other sectors of the economy; and (iii) the indirect effects of complementarities between AI and the use of cloud computing on the economy, measured by the benefits from AI in terms of cost efficiency, new product development, support for start-up incubation and the like.

Source: Jung and Katz (2026[4]), Impacto económico de la inteligencia artificial en América Latina: transformación tecnológica y rezago en materia de inversión y capacidades laborales, https://www.cepal.org/en/node/68349.

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LAC is already an active user of AI but has yet to translate this widespread adoption into comparable levels of investment and value creation. The region accounts for around 14% of global visits to AI solutions, but only 1.12% of global AI investment, despite representing 6.6% of global GDP. Spending on AI was estimated at USD 11.59 billion in 2023, equivalent to 3.7% of global expenditure in AI solutions and services. Moreover, only 23% of organisations in the region report generating any economic value from AI, and just 6% report significant value creation. This suggests that widespread use has yet to translate into productivity gains and new productive capabilities at scale.

Capturing these benefits will require closing gaps in infrastructure, skills, firm capabilities and innovation. Nearly one-third of the regional population does not use the Internet regularly, while only 45% possess basic digital skills, 22% intermediate skills and 14% advanced skills. These gaps constrain the ability of workers and firms to adopt cloud computing, AI and other advanced technologies. Digital and AI agendas should therefore be closely aligned with productive development policies. This would enable investment in connectivity, data and computing to translate into higher firm productivity, stronger domestic ecosystems and greater participation in digital value chains. Regional co‑operation can complement national efforts by pooling talent, data, research and computing capacity, and by developing shared standards and interoperable systems.

Rising global food demand and demographic change are creating additional development opportunities

Rising global food demand can reinforce LAC’s role as a major and reliable agrifood supplier. Global consumption of agricultural and aquatic food products is projected to increase by around 12.5% by 2035. LAC already accounts for around 14% of global agricultural and fisheries production and 18% of global agrifood exports. Meanwhile, its agricultural output is sufficient to feed an estimated 1.3 billion people, more than twice its own population.

LAC’s net agricultural trade surplus is projected to increase from approximately USD 109 billion in 2024 to USD 126 billion in 2035, while deficits deepen in several parts of Africa, Asia and the Middle East (Figure 4). The greatest development gains, however, will come not simply from exporting more commodities, but rather from increasing productivity, value addition and climate resilience. Agricultural innovation, digital technologies, resilient logistics, and regional co‑operation on standards and traceability can improve access to markets and reinforce LAC’s reliability as a supplier.

Figure 4. Net agricultural trade of main agricultural commodities by region, in constant values

Note: Net trade (exports minus imports) of commodities covered in the Agricultural Outlook, measured in constant 2014-2016 United States dollars.

Source: OECD/FAO (2026[5]), OECD-FAO Agricultural Outlook 2026-2035, https://doi.org/10.1787/47874669-en.

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Export competitiveness must also be reconciled with domestic food security. In 2024, undernourishment affected 5.1% of LAC’s population, while 25.2% experienced moderate or severe food insecurity. Stronger links between small producers, value chains and markets, together with improved access to healthy diets, will be essential to ensure that agricultural potential supports inclusive development.

Demographic change will create new economic opportunities even as it increases pressure on labour supply, public finances and social protection. Life expectancy increased from 72.5 years in 2005 to 76 years in 2025. Meanwhile, the share of the population aged 65 and over rose from 6% to around 10% and could approach 20% by 2050. Fertility rates are falling rapidly in the region, accentuating these pressures. In 2024, the total fertility rate in LAC stood at 1.8 children per woman, significantly below the replacement level, usually set at around 2.1 children per woman. This means that, on average, the number of births is below the level required to keep the population size stable, leading to population ageing and eventually a decline in total population unless offset by immigration. The working-age share of the population is expected to begin declining after 2030 (Figure 5).

Figure 5. Evolution of population shares by groups of age in LAC, 2005-2050

Source: Authors’ elaboration based on UN (2024[6]), World Population Prospects: The 2024 Revision, https://population.un.org/wpp/.

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The silver and the care economy are particularly relevant for LAC. The silver economy will generate growing demand for healthcare, long-term care, pharmaceuticals, housing, tourism, financial services and age-related technologies, offering opportunities for job creation and investment. The silver economy already generates roughly USD 22 trillion annually worldwide, and LAC could capture a growing share of that value as its older population expands. The care economy also offers a particularly important opportunity. Investment in care policies across 23 LAC countries could create around 31.3 million jobs, with approximately 88% in the formal economy. Expanding childcare and long-term care could also enable more women to participate in paid work, making care systems both a social investment and a source of employment and growth.

A changing global order creates opportunities for more diversified partnerships

Multilateralism and international development co‑operation are facing heightened geopolitical tensions, weaker consensus-based governance and greater volatility in trade, finance, technology and environmental policy. For LAC, while this can increase uncertainty for long-term development strategies, it also creates opportunities for countries able to build coalitions, facilitate dialogue and contribute to global agenda-setting.

LAC has maintained a strong commitment to multilateralism and has played an active role in global governance, particularly on sustainable development, climate change and financing for development. By 2025, 32 of the region’s 33 countries had submitted at least one Voluntary National Review. LAC countries have also taken leadership and convening roles in the UN, G20, BRICS (Brazil, Russian Federation, India, China, South Africa, Egypt, Ethiopia, Iran, Saudi Arabia, the United Arab Emirates and Indonesia) and climate, biodiversity and financing-for-development processes. However, internal fragmentation and divergent policy positions limit the region’s ability to translate this engagement into sustained collective influence.

International co‑operation is increasingly combining development objectives with trade, investment, technology and geopolitical interests. This creates opportunities for LAC to attract investment, technology and expertise in strategic sectors, particularly those linked to the green and digital transitions. South-South and triangular co‑operation also remain important, supporting knowledge exchange, technical assistance and institutional strengthening. For a predominantly middle-income region with limited access to concessional finance, these partnerships can help mobilise resources for production transformation and sustainable development.

The European Union is a leading example of this evolving approach through the EU-LAC Global Gateway Investment Agenda, which combines investment mobilisation with policy dialogue, technical assistance and institutional strengthening. Its initiatives in areas such as renewable energy, digital connectivity and electricity integration show how international partnerships can support production. The European Union is also a major investment partner, accounting for nearly one-third of greenfield FDI-related jobs in LAC, and supporting export diversification and greener, more knowledge-intensive activities.

Maximising the development impact of these partnerships will require more than mobilising finance. FDI and other investment flows need to be accompanied by technology transfer, skills development, stronger links with domestic firms and institutional capacity building so they contribute to productive diversification and higher-value activities. At the same time, limited concessional finance and growing debt-service pressures reinforce the importance of improving the quality and catalytic impact of finance through instruments such as blended finance and stronger collaboration among multilateral development banks, national development banks and private investors. Stronger regional co‑ordination will be essential for LAC to leverage its international partnerships and shape a changing system of global co‑operation.

These opportunities can help the region overcome longstanding development challenges amid a complex global context

These emerging opportunities are particularly important as LAC’s current growth trajectory remains insufficient to deliver meaningful income convergence. GDP per capita has remained at around one-third of the OECD average for much of the past two decades, reflecting weak productivity growth, limited investment and insufficient productive transformation. These longstanding challenges are being compounded by geopolitical tensions and climate-related shocks. Conflict in the Middle East, including recent hostilities involving Iran, has disrupted energy supplies, pushed up commodity prices and heightened global uncertainty. Meanwhile, the phenomenon of El Niño affects agricultural production, fisheries, infrastructure and hydropower generation. Together, these shocks could weaken growth, revive inflationary pressures and complicate the policy response.

Persistent labour-market and social gaps could prevent new sources of growth from producing broad-based improvements in living standards. More than half of workers remain in informal employment, frequently without access to social insurance or adequate labour protection. Gender, age, and territorial and educational disparities continue to shape access to quality jobs, while poverty and inequality remain high. Green industries, digital services, care activities and new agrifood opportunities could support formalisation and quality job creation. However, their benefits will depend on complementary policies to develop skills, raise firm productivity, strengthen social protection and broaden access to finance and infrastructure.

Realising their full potential will also require mobilising substantial investment at a time when fiscal space is tight. Governments have limited room to support the infrastructure, human capital and productive transformation needed to underpin new engines of growth. Tax revenues average just 21.7% of GDP in LAC, compared with 34.1% in OECD member countries, while high debt-servicing costs absorb scarce public resources and further constrain public investment.

Deeper regional and global integration will be essential to harness global transformations, and strengthen growth and resilience

Deeper integration within the region and with the global economy can help LAC build the capabilities and scale needed to seize emerging opportunities and become more competitive in global markets. Regional markets and value chains can enable firms to expand production, combine complementary capacities and share infrastructure, knowledge and technology, while stronger global integration can broaden access to markets, investment, advanced technologies and specialised inputs. By facilitating greater domestic value addition and the development of higher-value activities, these two dimensions of integration can strengthen the region’s competitiveness and resilience to external and climate-related shocks, while supporting stronger, more sustainable and more inclusive economic growth. Realising this potential, however, will require addressing the limited diversification, weak regional linkages and persistent barriers that continue to constrain LAC’s integration.

Greater and more diversified participation in global trade and investment can strengthen LAC’s position in the global economy

LAC has become more integrated into global trade, but diversification and productive upgrading remain limited. The region’s total trade increased from 39% to 50% of GDP between 2000 and 2024. However, commodities, resource-based products and low-technology manufactures account for 62% of goods exports. For their part, high-technology manufactures represent only 17% of goods exports, compared with 33% in economies of the Association of Southeast Asian Nations and 28% in the European Union (Figure 6). Limited diversification constrains productivity and participation in more sophisticated segments of global production networks, underscoring the need to diversify exports and upgrade production.

Figure 6. Structure of goods exports by technology intensity, selected regions, 2022-2024 average

Note: ASEAN = Association of Southeast Asian Nations; EU = European Union.

Source: Authors’ elaboration based on UN Comtrade (2024[7]), UN Comtrade, https://comtradeplus.un.org/.

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Trade complementarity points to opportunities for LAC to deepen trade with established partners and expand into markets with untapped potential. On average, LAC’s export basket shows the strongest complementarity with the European Union (22%), followed by Africa (21%), the United States (20%), ASEAN (19%) and China (18%) (Figure 7). Yet ASEAN and Africa account for only 2.9% and 1.7% of LAC’s goods exports, respectively, suggesting considerable scope to expand trade with these markets. These opportunities vary across subregions. Mexico and Central America show the highest levels of complementarity with most partners, particularly the United States (29%), China and ASEAN. South America stands out for its complementarity with Africa (24%) and also records relatively high levels with the European Union (22%). In the Caribbean, lower levels of complementarity point to opportunities to diversify exports and strengthen trade links with international partners. Building on these different strengths, LAC economies could expand trade across a range of sectors, including agrifood, critical minerals, industrial inputs, digital services and more technologically sophisticated manufacturing, such as vehicles, machinery, chemicals, pharmaceuticals and medical devices. Strengthening trade with these partners could support export diversification and productive upgrading, particularly in economies with more diversified manufacturing capabilities.

Figure 7. Export complementarity of LAC subregions with external regions, 2020 to 2024 average

Note: ASEAN = Association of Southeast Asian Nations; EU = European Union.

Source: Authors’ elaboration based on UN Comtrade (2024[7]), UN Comtrade, https://comtradeplus.un.org/.

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Increasing participation and moving into higher-value segments of global value chains (GVCs) can support productive upgrading in LAC. By connecting firms to foreign inputs, technologies and markets, GVCs can help diversify exports, increase domestic value creation and generate more and better-quality jobs. Yet LAC remains less integrated than other regions. Yet LAC remains less integrated into global value chains than other regions. Backward participation, which measures the use of imported inputs in exports, accounts for 3% of GDP in LAC, compared with 13% in East and Southeast Asia and 21% in the European Union. Forward participation, which measures the contribution of domestic value added to other countries’ exports through intermediate goods and services, accounts for 5% of GDP in LAC, compared with 9% and 14%, respectively, in those regions.

Services can become an important driver of export diversification and value creation in LAC. Specifically, knowledge-intensive services offer opportunities to diversify into higher-value activities across the region. Services also strengthen the competitiveness of goods exports. Transport, logistics and finance facilitate trade and access to international markets, while research and development, engineering, design and digital services help firms produce more sophisticated goods and increase their value added. In seven LAC economies, services account for almost 30% of the value embodied in manufactured exports, close to levels in the United States (31%) and the European Union (36%), with domestic services contributing 18 percentage points. Strengthening services could help LAC economies diversify exports, improve competitiveness and capture more value from international trade. Services exports are particularly important for many Caribbean economies, where tourism plays a central role.

FDI can play a fundamental role in deepening LAC’s participation in GVCs and supporting a shift towards higher-value production. Multinational enterprises provide capital, technology, managerial expertise and access to foreign markets, while linkages with foreign firms can increase demand for domestic inputs and help local suppliers meet international standards. Empirical evidence confirms this potential: a 10% increase in FDI is associated with a 0.045 percentage-point rise in backward GVC participation (measured by the foreign value added in exports) and a 0.16 percentage-point increase in forward participation (measured as domestic value added embodied in foreign final demand) particularly in medium-high levels of technology manufacturing and services. FDI is also associated with greater domestic value added in intermediate exports, although not in total exports (Figure 8). LAC is already a major destination for foreign investment, with net FDI inflows equivalent to 2.7% of regional GDP in 2025, compared with 0.9% in South Asia, and 1.3% in East Asia and the Pacific. Enterprises from the European Union and the United States accounted for 28% and 25%, respectively, of announced greenfield investment in primary and manufacturing activities between 2015 and 2025. Meanwhile, technology activities at both medium-high and high levels represented 78.9% of inflows in Costa Rica, 56.3% in Mexico, 38.1% in Brazil and 36.5% in Colombia.

Figure 8. Foreign direct investment impact on GVC participation and domestic value added

Note: The figure displays the estimated percentage-point impact of a 10% increase in capital investment from announced greenfield FDI projects. For methodology, please refer to Box 2.1.

Source: Authors’ calculations based on OECD (2024[8]), Trade in Value Added (TiVA), https://www.oecd.org/en/topics/sub-issues/trade-in-value-added.html; Financial Times (2026[9]), fDi Markets, http://www.ftlocations.com/products-and-services/fdi-markets.

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Regional integration can unlock domestic development potential and support stronger global positioning

A more integrated LAC region will be better positioned to navigate global transformations. Stronger regional markets and value chains can help firms gain the scale, capabilities and resilience needed to thrive in a changing global landscape. In turn, deeper engagement with global markets can drive regional integration by increasing demand for scale, efficiency, regulatory alignment and resilient supply chains, encouraging countries to reduce barriers, harmonise standards and strengthen cross-border infrastructure.

Regional trade integration remains modest. Intraregional exports represented only 14% of LAC’s total exports in 2024, lower than in 2000 (18%) and well below Africa (17%), Asia (59%) and the European Union (67%). Integration is constrained by tariff and non-tariff barriers, regulatory and customs frictions, and infrastructure and logistics gaps. Overlapping production structures limit opportunities for regional trade. In 2024, the typical LAC country's export basket matched less than one-fifth of the region’s import demand, although complementarities exist across specific countries and in medium- and high-technology manufacturing. Yet there is potential for expanding intraregional trade, which on average remains six percentage points of GDP below its estimated structural potential. Better implementation of existing integration frameworks, harmonised rules of origin and input cumulation could help address these barriers.

There is potential to deepen regional integration by strengthening regional value chains (RVCs). By linking firms through intermediate inputs, RVCs can support specialisation and productive capability development. RVCs are insufficiently developed in LAC, accounting for only 13% of the region’s GVC participation, compared to 49% in the European Union, and 52% in East and Southeast Asia. Yet there is scope to deepen these linkages. Across seven LAC economies, intraregional intermediate exports are more diversified and technologically sophisticated than extraregional exports, highlighting the potential of regional markets to support productive diversification and upgrading. In Brazil, Colombia and Peru, primary products account for 65-75% of extraregional intermediate exports, while medium-technology manufactures represent 51-68% of intraregional trade. Costa Rica has a more diversified structure, but high-technology manufactures account for 19% of its intraregional intermediate exports, compared with only 6% of its extraregional exports (Figure 9).

Figure 9. Intraregional and extraregional exports of intermediate goods, 2022

Source: Authors’ calculations based on OECD (2024[8]) Trade in Value Added (TiVA), https://www.oecd.org/en/topics/sub-issues/trade-in-value-added.html.

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There is considerable untapped potential to deepen intraregional trade linkages, particularly in technology-intensive sectors. Estimates suggest that between 2002 and 2024, intraregional exports of high-technology manufactures were around 75% below expected levels, compared with 45% for medium-low technology and 15% for low-technology manufactures. At the sectoral level, the largest untapped potential is found in computers, electronics and optical equipment (86%), medical instruments (71%) and transport equipment (62%), with significant opportunities also in machinery and electrical equipment (Figure 10). Beyond manufacturing, intraregional trade in metal ores was nearly 60% below expected levels, pointing to opportunities to connect the region’s mineral resources with downstream industries.

Figure 10. Gap between observed and expected intraregional trade in LAC by sector and technology level

Percentage below predicted exports, 2002-2024

Note: Sectors specified by ISIC Rev.4, 2-digit sectors, sections A, B and C. Values indicate the percentage of trade gap relative to their structural potential. Please refer to methodology Box 2.2.

Source: Authors’ calculations based on CEPII (2022[10]), CEPII Gravity Database, http://www.cepii.fr/CEPII/en/bdd_modele/bdd_modele_item.asp?id=8; CEPII (2025[11]), BACI: International Trade Database at the Product Level, http://www.cepii.fr/CEPII.

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Deeper RVCs could increase the value added generated within LAC. Analysis covering seven LAC economies suggests that almost 10% of intermediate inputs sourced outside the region could instead be supplied regionally. Opportunities span chemicals, iron and steel, agriculture and food, and technology-intensive manufacturing such as motor vehicles, machinery, electronics and electrical equipment. Sourcing up to 10% of extraregional inputs from within LAC could raise regional value-added content across all technology groups, particularly medium-high technology (1.4%) and medium-low technology manufacturing (1.1%) (Figure 11, Panel A), and increase domestic value added embodied in exports by an average of 0.47 percentage points of GDP (Figure 11, Panel B).

Figure 11. Effects on value added of increasing regional sourcing of intermediate inputs

Scenario reallocating up to 10% of extraregional intermediate sourcing towards regional suppliers

Note: For methodology, please refer to Box 2.3.

Source: Authors’ calculations based on OECD (2024[8]), Trade in Value Added (TiVA), https://www.oecd.org/en/topics/sub-issues/trade-in-value-added.html.

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Existing intra-industry trade also provides a basis for deeper regional production networks. Trade within the same industries points to existing productive capabilities and specialisation that can support deeper productive integration. Almost 80% of regional intra-industry trade is concentrated in a small number of bilateral corridors, including Argentina-Brazil, Brazil-Mexico and Guatemala-El Salvador (Figure 12, Panel A). Manufactures account for more than 70% of trade in the leading corridors, while medium-technology products represent close to two-thirds of trade in the five largest (Figure 12, Panel B). Deepening and extending these networks could integrate more small and medium-sized enterprises (SMEs) and local suppliers, spread technology and productivity gains, and strengthen LAC’s participation in GVCs.

Figure 12. Corridors of intra-industry trade in Latin America and the Caribbean, 2020‑2024

Note: Panel A shows the 14 largest bilateral corridors; each corridor appears on both sides with half its value, so that ribbon widths are proportional to two-way trade. Panel B decomposes each corridor by technology intensity, and figures in brackets indicate the corridor’s share in the regional total. The analysis covers 17 Latin American and Caribbean economies for which bilateral product-level trade data are available throughout the period.

Source: Authors’ calculations based on UN Comtrade via World Bank (2025[12]), World Integrated Trade Solution, https://wits.worldbank.org.

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Productive development policies can also play a central role in strengthening regional integration. Co‑ordinating national strategies around shared regional priorities can support cross-border production networks through cluster initiatives, common standards, compatible rules of origin and supplier-development programmes. Strategies such as Brazil’s Nova Indústria Brasil, Colombia’s Política Nacional de Reindustrialización, Mexico’s Plan México and Peru’s Política Nacional de Desarrollo Industrial, together with more than 475 cluster and productive articulation initiatives across 20 countries, provide a foundation for this approach. Greater co‑ordination among these efforts can increase scale and extend investment, technology and knowledge spillovers across the region.

Regional integration in LAC will need to extend beyond trade and investment to electricity, digital and financial markets. More interconnected electricity systems can improve use of renewable resources, reduce electricity costs, enhance energy security and support electricity-intensive investment. Existing initiatives provide a foundation for deeper integration, particularly the Central American Electrical Interconnection System, which combines cross-border transmission infrastructure with a regional electricity market, alongside initiatives in the Andean region and the Southern Cone. Integrated digital markets can similarly give firms the scale to compete and innovate. The eLAC Digital Agenda, co‑ordinated by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), provides a regional platform for convergence on digital infrastructure; data governance; digital skills; and emerging technologies, including AI. Financial integration can deepen capital markets, increase liquidity and expand access to investment. The Nuam exchange is advancing this agenda by bringing together the stock markets of Chile, Colombia and Peru through a common trading platform. Further progress in these areas depends on stronger institutions, regulatory convergence and interoperable systems, and can advance gradually at the subregional level.

Stronger enabling conditions can unlock deeper regional and global integration

The region has significant opportunities to deepen regional integration and strengthen its position in a rapidly evolving global economy. Seizing these opportunities requires a broader set of enabling conditions than market access alone. Firms need efficient connections to regional and global markets, as well as regulatory frameworks, that facilitate cross-border activity; workers need the skills to move into higher-value activities; and adequate financing is needed to support investment, innovation and upgrading. Strategic partnerships can reinforce these domestic and regional capabilities by expanding access to markets, technology, knowledge and capital. Together, these mutually reinforcing conditions can help LAC build larger and more integrated regional markets, develop more sophisticated value chains, and participate in the global economy on more competitive, resilient and inclusive terms.

Better connectivity can expand market access and unlock trade opportunities

Persistent infrastructure and logistics gaps continue to weaken LAC’s competitiveness and regional integration. Transport networks remain fragmented; multimodal connections are limited; and weaknesses in customs and logistics services increase the cost and time of trading. As a result, transport costs remain higher than in North America for both intraregional and extraregional exports, with particularly large gaps in South America. Closing half of the infrastructure gap with advanced economies could increase exports by up to 30%. However, infrastructure investment stood at only 1.5% of GDP in 2023, compared with estimated needs of around 3.1% annually through 2030. Addressing these constraints requires moving beyond isolated projects towards integrated connectivity strategies combining multimodal transport, efficient border management, digital logistics and strategic corridors. Linking production centres, ports, border crossings and markets would lower trade costs while helping firms participate more effectively in RVCs and GVCs (Figure 13).

Figure 13. Transport costs relative to North America for intraregional and extraregional exports, 2022

Note: Bars indicate the relative percentage difference in transport costs for each region compared to North America (United States 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[13]). Coefficients β ̂ were transformed via (e^β ̂ -1) to represent the percentage change relative to the base category.

Source: Authors’ elaboration based on OECD (2025[14]), International transport and insurance costs of merchandise trade (ITIC).

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Regulatory convergence can turn market access into a more integrated regional market

Six decades of regional integration have substantially reduced tariffs and created an extensive architecture of trade agreements, but regulatory fragmentation increasingly represents the binding constraint on deeper integration. Divergent technical standards, sanitary requirements, conformity assessments and administrative procedures raise the costs of operating across markets, particularly for SMEs and firms participating in cross-border production networks. Non-tariff measures now represent an estimated average ad valorem equivalent of 13% across sectors, reaching 36% in agriculture and livestock, and 22% in non-energy mining. Simulations suggest that reducing non-tariff measures by 60% could lower average regional protection by 8.7 percentage points. The next phase of regional integration should therefore prioritise practical regulatory convergence, mutual recognition, compatible standards and better implementation of existing agreements. This need not imply uniform regulation: the objective is to make national systems sufficiently compatible for firms to source, produce and sell more seamlessly across the region while remaining connected to international standards and global markets (Figure 14).

Figure 14. Average tariff applied to intraregional trade in LAC and ad valorem equivalents of non-tariff measures, 2023

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[15]), Non-tariff measures at the border, a GTAP level analysis, https://unctad.org/publication/non-tariff-measures-border-gtap-level-analysis.

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Better skills are essential for workers and firms to benefit from deeper integration and technological change

Skills deficits and informality could prevent LAC from capturing the opportunities created by more knowledge-intensive RVCs and GVCs. Students in the region lag the OECD average in mathematics by the equivalent of around five years of schooling, while 88% of socio-economically disadvantaged students are low performers in mathematics, compared with 55% among advantaged students. These weaknesses extend into labour markets, where informal workers remain concentrated in lower-skilled manual occupations and have fewer opportunities to train and upgrade. Around 27% of workers face high traditional automation risks, rising to 32% among informal workers, while only around 3% face high AI-related displacement risks. The more immediate challenge is therefore not widespread displacement by AI, but rather developing the foundational, digital, technical and transversal skills that allow workers and firms to use new technologies and enter higher-value activities. Better technical and vocational education, lifelong learning and work-based training should be closely aligned with sectors offering opportunities for regional integration and productive upgrading. This includes renewable energy, critical minerals and batteries, services enabled by information and communication technologies, agribusiness, health and sustainable transport (Figure 15).

Figure 15. Workers at high risk of automation, LAC countries, 2023 or latest available year

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[16]). Occupations are considered to be at high risk of AI automation if they fall within the highest exposure gradient (Gradient 4), following Gmyrek et al. (2025[17]). The definition of informality follows ILO (2018[18]). Data are presented for the latest year available.

Source: Estimates based on Lassébie and Quintini (2022[16]), 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[17]), Generative AI and Jobs: A Refined Global Index of Occupational Exposure, https://doi.org/10.54394/hetp0387; OECD (2025[19]), Key Indicators of Informality based on Individuals and their Households (KIIbIH), https://www.oecd.org/en/data/datasets/main-informality-indicators.html.

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Strategic financing can turn regional priorities into investable projects

Deeper regional integration also depends on mobilising finance for infrastructure, productive upgrading and regional public goods. Development banks can help translate these priorities into bankable projects while supporting firms’ participation in RVCs. National development banks and other development finance institutions (DFIs) provide trade finance, credit and guarantees to firms, particularly micro-, small- and medium-sized enterprises (Figure 16). Closer co‑ordination among national and multilateral development banks can strengthen risk-sharing, crowd in private capital and support cross-border projects in transport, energy, digital infrastructure and regional payment systems.

Innovative debt instruments can complement these efforts by mobilising additional capital for sustainable infrastructure and regional public goods. International issuance of green, social, sustainability, sustainability-linked and blue bonds in LAC reached a cumulative USD 181.9 billion between 2014 and 2025, supporting investments in areas such as renewable energy. Debt-for-nature and resilience swaps offer further opportunities to finance shared environmental assets and climate resilience. Scaling up these instruments will require stronger project pipelines, institutional capacity, harmonised reporting standards and lower transaction costs.

Figure 16. Foreign trade financial instruments in selected national DFIs in LAC, 2023

Note: MSME = micro-, small- and medium-sized enterprise. The database covers 38 national and subnational public DFIs in 13 LAC countries: Argentina, Brazil, Chile, Colombia, Costa Rica, the 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.

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Strategic international partnerships can complement regional integration

International partnerships can reinforce domestic capabilities and regional integration by expanding access to finance, markets, technology and knowledge. The EU-LAC partnership illustrates this potential, building on strong economic ties and shared interests. The EU-LAC Global Gateway Investment Agenda reflects a shift towards an investment-based partnership, having mobilised around EUR 31.5 billion in LAC between 2021 and 2024. Its flagship projects focus primarily on climate and energy, alongside transport, health, digital connectivity, and education and research (Figure 17). Initiatives such as submarine cable extension EllaLink and Central American electricity market integration can strengthen cross-border infrastructure and RVCs. Maximising their development impact will require stronger local ownership, technology transfer, skills development and linkages with local suppliers.

Figure 17. EU-Latin America and the Caribbean Global Gateway flagship projects, 2026

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[20]), Global Gateway – EU-Latin America and the Caribbean flagship projects, https://international-partnerships.ec.europa.eu/publications-library/global-gateway-flagship-projects-infographics_en.

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International partnerships can also foster regional integration through closer economic ties, policy co‑operation and knowledge exchange. The EU‑MERCOSUR agreement offers significant opportunities to deepen economic integration between Europe and South America. 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 LAC.

Ibero-American co‑operation, in turn, provides a distinctive platform for policy dialogue, knowledge exchange and capacity building across 22 countries. Through programmes and networks supporting scientific and technological co‑operation, innovation, regulatory convergence and digital transformation, it can strengthen regional capabilities and competitiveness. Together, these partnerships can help LAC diversify its international ties while reinforcing regional integration, strengthening its resilience and position in a fragmented global economy.

References

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