Latin America and Caribbean Studies – serie

Entrepreneurship—manifested in the entry of new firms or products into new markets, or substantial improvements in technological capacity or process innovation by incumbent firms—is widely considered to be an important ingredient for long term economic development. Entrepreneurship in Latin America and the Caribbean argues that entrepreneurship is also a source of employment generation, export growth, and resilience during economic downturns.Although the conventional wisdom suggests that Latin American and Caribbean countries underperform relative to China and other emerging markets in terms of its entrepreneurial dynamism, this report provides evidence suggesting that the region is characterised by substantial entrepreneurship. The main challenge in the region is not a lack of entrepreneurs, but rather their relatively low level of innovation and the slow growth of incumbent firms. The report discusses the nature of new entrants into markets and the factors that might help stimulate private-sector innovation after firms have survived the initial test of market competition.

This book proposes a renewal of 'Open Regionalism' in Latin America and the Caribbean (LAC) aimed at achieving the region's goals of high growth with stability. The LAC region experienced a growth spurt with equity during the first decade of the 21st Century. It is well understood that an unsustainable demand boom fueled by terms-of-trade improvements drove this growth acceleration episode, especially in South America. Unfortunately, terms of trade are no longer fueling growth, and the region’s policymakers are in search of new sources of growth with stability. With the experience of East Asia and the Pacific in mind, many policymakers in LAC are looking to international economic ties as a potential source of stable growth.The challenge highlighted in this book lies in designing an integration agenda comprising trade and factor market integration that is conducive to region-wide efficiency gains, which can help LAC enhance its global competitiveness. The forces of geography imply that pro-growth global integration cannot be achieved without building a strong neighborhood. Thus, this volume argues that LAC's regional economic integration agenda needs to go well beyond the current spaghetti bowl of preferential trading arrangements.

With more than 70 percent of its population living in cities, Latin America and the Caribbean (LAC) is among the most urbanized regions in the world. Yet, although its cities are, on average, more productive than those elsewhere in the world, their productivity lags that of North American and Western European cities. Closing this gap would provides LAC with the opportunity to raise living standards and join the ranks of the world's richest countries. Raising the Bar: Cities and Productivity in Latin America and the Caribbean is about the productivity of cities in LAC and the factors that help to explain its determination. Based on original empirical research, the report documents the high levels of population density and other features of LAC cities that mark them out from those in the rest of the world. The report also studies the role of three key factors—urban form, skills, and access to markets—in determining the productivity of LAC cities. It shows that while excessive congestion forces and inadequate metropolitan coordination seem to be stifling the benefits of agglomeration, LAC cities benefit from strong human capital externalities. It also finds that, within individual LAC countries, cities are poorly integrated with one another, which contributes to large differences in performance across cities and undermines their aggregate contribution to productivity at the national level.

The economic impact of COVID-19 is unprecedented in size and scope. It has quickly evolved from a health emergency into an employment crisis. It also has far-reaching implications for workers beyond the immediate employment effects, as it most likely has accelerated the transformation process of jobs that had already started in the region and the world. This book focuses on three important pre-pandemic trends observed in the region—namely, premature deindustrialization, servicification of the economy, and task automation—that were significantly changing the labor market landscape in the region and that have been accelerated by the crisis. While there is still uncertainty about the economic impacts of Covid-19, policymakers need to start planning for a rapidly evolving future that will come sooner than expected. A strong focus on productivity, technology development and adoption, and training in relevant skills will be key to adapting and taking advantage of the new opportunities in the post-pandemic world. Importantly, the accelerated transformation of jobs calls for a rethinking of labor regulations and social protection policies geared towards wage earners employed in the formal sector of the economy. The three trends identified in Going Viral, the effects of the pandemic itself, and the growing reliance on electronic platforms raise doubts that wage employment will increase substantially in the coming years. At the same time, earnings and transactions processed through electronic platforms are more visible to the authorities, bringing an opportunity to increase tax revenue and social security contributions. The flexible regulation of the emerging forms of work in a way that encourages employment, supports formalization, and expands the coverage of social protection to larger segments of the population will be of utmost importance for policymakers preparing for a new and changed world.

A better policy framework for preventing, managing, and helping people recover from crises is crucial to lifting long-term growth and livelihoods in Latin America and the Caribbean (LAC). The need for this policy framework has never been more urgent as the region faces the monumental task of recovery from the worldwide COVID-19 pandemic. Whether specific policy responses will deliver the expected growth dividends will depend on the underlying vision of how labor markets adjust to crises and the quality of the policies enacted. This report estimates how crises change labor market flows, assesses how these changes affect people, and discusses the key policy responses.The key findings are threefold. First, crises have significant impacts on employment dynamics and structure in Latin America. Different labor market dynamics hide behind similar reductions in labor demand. Crises increase unemployment. This is the principal margin of adjustment despite highly informal labor markets. Across the region, the biggest employment losses are in the formal sector, driven by a reduction in job-finding rates rather than higher job-loss rates. Adjustment through reduction in hours worked does not seem to be an important factor in most countries' formal or informal sectors. Crises do not just shape worker flows temporarily—they have significant after-crisis effects on the structure of employment that last for several years. These effects are such that good job opportunities are gradually shrinking. Whereas in some countries the whole economy shrinks, in others informality serves as a partial buffer. Second, crises leave scars. Some workers recover from displacement and other livelihood shocks, while others are permanently scarred. For lower-skilled workers, earnings losses are persistent. Workers with higher education suffer no impacts of the crisis on their wages and very short-lived impacts on their employment. The responses are similar across male and female workers and workers with high and low previous participation in the formal labor market. New entrants to the labor market during a crisis face a worse career start – one from which it is difficult to recover. Yet, crises also bring efficiency gains, as detailed in this report.This study finds that both the structure of product markets and the conditions in local labor markets matter for the severity of crisis-induced employment and earnings losses across localities and sectors. Workers in more protected sectors that enjoy rents are sheltered from adjustment, while workers in localities with more informality cope better. This suggests the need for integrated responses at the worker, sector, and locality levels.Third, this study considers how the region’s policy frameworks can more effectively respond to crises—mitigating scarring, speeding adjustment, and promoting long-term growth. It proposes a three-pronged strategy, including (i) creating a more stable macroeconomic environment at the aggregate level to smooth the impacts of crises, including "automatic stabilizers" such as countercyclical, publicly-financed income support that is lacking in LAC; (ii) increasing the capacity of social protection and labor policies to provide income support as well prepare workers for change through reemployment assistance; and (iii) tackling structural issues, including addressing product market competition, contestability issues, and the spatial dimension behind poor labor market adjustment.