Abstract
Most Latin American countries entered the ranks of middle-income levels almost simultaneously with Japan and South Korea. However, while Japan and South Korea embarked on the path of economic development through technological innovation and industrial upgrading, Latin America fell into the middle-income trap. By examining the history of industrial and technological development in Brazil, Argentina, and Mexico, three representative countries in Latin America, this paper finds that the fundamental reasons for Latin America falling into the middle-income trap lie in the tension between the choice of industrialization path and primitive accumulation, as well as the institutional deficiencies in technology and industrial development. Latin America, which has fallen into the middle-income trap, finds it hard to upgrade its technology and is trapped in premature industrialization and the middle-technology trap. It can be said that Latin America has fallen into a double trap, which reinforces each other and forms a solid trap pattern. The warning from the Latin American experience is that late-developing countries need to maintain an open attitude during the process of technological catching up, build a complete technological innovation system, enhance industrial and technological governance capabilities, and seize the window of opportunity for technological and industrial upgrading. Otherwise, there is a significant risk of falling into the middle-income trap and even the double trap.
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Introduction
Compared with Japan and South Korea in East Asia, most of the countries in Latin America did not reach the middle-income level too late. Argentina, for instance, entered the ranks of middle-income countries in the 1960s, while countries like Brazil and Chile also reached middle-income levels in the first half of the 1970s. However, after the 1980s, significant disparities emerged between Latin America and Japan/South Korea in development. Japan and South Korea embarked on the path of economic development through technological innovation and industrial upgrading, and respectively across the middle-income trap into the ranks of high-income countries in 1985 and 1995. Meanwhile, Latin America fell into a continuous state of crisis after the 1980s, marked by political and social turmoil. It became trapped in the middle-income trap with little hope of escape.
The economic region that once created the "Latin American Miracle" is now regarded as a typical example of falling into the “Middle Income Trap”. In its report "Robust Recovery, Rising Risks" (2010) the World Bank noted, “For decades, many economies in Latin America and the Middle East have been stuck in this middle-income trap, where countries are struggling to remain competitive as high-volume, low-cost producers in the face of rising wage costs, but are yet unable to move up the value chain and break into fast-growing markets for knowledge and innovation-based products and services.” Why Latin America has fallen into the middle income trap is concerned by academics and researchers. And research have been conducted from various perspectives and dimensions. From factor analysis perspective, existing studies have summarized the main reasons for Latin America's middle-income trap as follows: (1) Failure to transition from "import substitution" in a timely manner (Yue and Shi 2017; Chen 2012); (2) Populism and welfare expansion exceeding the capacity of economic growth (Zhong and Liu 2018; Fan and Zhang 2008); (3) Misguided neoliberal reforms (Kong 2011); (4) income distribution inequality. (Gao and Zhuo 2011; Cai 2011); (5) Over urbanization exceeding the capacity of industrialization (Du and Liu 2011); (6) Insufficient accumulation and upgrading of human capital (Guo and Hu 2015); (7) Political instability and inefficient governance (Zhang and Quan 2012); (8) Poor institutional environment for technological innovation and lack of innovation capability (Li and Shen 2018).
Some scholars have made a structured summary of the reasons why Latin America fell into the middle income trap. Zhou and Qian (2014) constructed an "Labor-Division-Ownership" analytical framework, arguing that rapid privatization, blind urbanization, and passive opening-up led to distorted social division of labor and widened income distribution gaps. This severely suppressed domestic consumption demand, undermined the market foundation for domestic enterprises to pursue independent innovation, and consequently increased dependency on foreign investment, further deteriorating the ownership structure. Ma (2009) proposed a planer six-element framework for analyzing the middle income trap, pointing out that three foundational factors constitute the foundation: foreign trade does not stimulate industrial upgrading and transformation, overly rapid capital account liberalization bringing significant challenges, and lagging behind in technological innovation and human capital accumulation. The excessive gap in income distribution has caused various consequences, and the problems in the urbanization process constitute the transitional middle layer. The dysfunction of government in resource allocation, located at the top layer. These three layers of factors form a restrictive framework both bottom-up and top-down, limiting the development of middle-income countries. Among current research, the main viewpoints for the causes of Latin America's middle income trap include insufficient technological progress and industrial transformation failure, backward institutional development and low institutional quality, and low efficiency in resource allocation and lack of fairness in income distribution (Zheng 2011; Cheng 2021).
This paper posits that the core of analyzing Latin America's middle income trap is to examine the relationship between the middle income trap and technological upgrading. By comparing the development experiences of East Asia, this paper aims to trace two fundamental questions: Why did Latin America fail to follow the catch-up economic development path of Japan and South Korea? What is the impact of the middle income trap on Latin America's technological upgrading? These questions deserve reflection through an examination of Latin America's industrialization and technological development process, combined with a comparative analysis of the experiences of emerging industrial countries such as Japan and South Korea in East Asia. In this paper, Brazil, Argentina and Mexico, the top three economies in Latin America, are selected for specific experience review. These three countries' industrial output accounts for more than 70% of the total industrial output in Latin America, making their industrial and technological development typical and representative in the region.
Industrialization and technological development in Brazil, Argentina and Mexico
Brazil, Argentina and Mexico are the three largest economies in Latin America, and the primary industrial output countries in the region. In terms of technological development, Argentina used to be a technological powerhouse in Latin America and produced 3 Nobel Prize winners in the first half of the twentieth century. However, after the 1980s, Argentina's technological development continued to decline. Brazil has always placed great emphasis on technological development and remains a technological powerhouse in Latin America. Mexico also prioritizes technological development and its proximity to the United States has brought it several favorable conditions. However, despite the continuous increase in industrial output, Mexico's technological innovation capability has not been effectively improved, and its industrial competitiveness has not been effectively enhanced. It can be said that Brazil, Argentina, and Mexico represent the common process and basic characteristics of industrialization and technological development in Latin America.
Industrialization, scientific and technological evolution of Brazil
Brazil truly began its industrialization journey in the 1930s. The Great Depression during this period led to a decline in Brazil's foreign exchange income and increased pressure from imported manufactured goods. Like most Latin American countries, Brazil embarked on import substitution industrialization (ISI).Footnote 1
From the 1930s to the present day, Brazil's industrialization has roughly undergone four stages of development and transformation. The first stage spanned from the early 1930s to the mid-1960s, characterized by the first half of ISI in Brazil, also known as the "inward-oriented import substitution industrialization". During this period, Brazil utilized capital accumulation from agricultural exports to develop domestic industries, focusing on the domestic market, vigorously producing industrial consumer goods to replace those previously imported, as well as initially establishing a means-of-production industry and gradually diversifying its production structure (Han 2009, 53). The second stage spanned from the mid-1960s to the early 1980s, was the second half of Brazil's import-substitution industrialization, in which the country began to develop outward-oriented import-substitution industries under the slogan of "export is the way out". During the military regime, the Brazilian economy grew at an average annual growth rate of 11%. In 1974, Brazil’s heavy industry proportion surpassed the light industry proportion for the first time, which helped Brazil to become one of the emerging industrial nations and shifted from the 15th to the 8th of the capitalist world. (Jiao 1996). The third stage was from the early 1980s to the early 1990s. Due to the military regime's continuing and even more extensive use of debt development model, Brazil's "debt growth" strategy in the 1980s evolved into a debt crisis and a comprehensive economic crisis. During the economic crisis, Brazil's industry underwent emergency adjustment and transformation, and the Brazilian industrial economy fell into recessionFootnote 2. The fourth stage spans from the early 1990s to the present. To address the economic crisis, Brazil began implementing neoliberal structural reforms in the industrial sector in the early 1990s. After undergoing extensive privatization and restructuring of state-owned enterprises, Brazil's industry adopted a stance of full openness and engaged in global competition. However, while the neoliberal reforms achieved some success, they also eroded part of Brazil's industrialization capacity. Instead of deepening, Brazil's industry entered a phase of "premature deindustrialization." (Jiang 2016).
The industrialization process in Brazil is closely related to its technological development. Before the 1940s, Brazil's technology was not advanced, and the industry was primarily focused on traditional sectors such as food and textiles, which did not demand significant technological development. Since then, with the development of steel, energy, aviation and other industries in Brazil, the Brazilian government gradually recognized the importance of technological development for industrial and economic growth. Consequently, conscious efforts were made to invest in technological development and talent cultivation. Overall, from the 1940s to the present, Brazil's technological development has roughly experienced several stages.
The first stage was from the 1940s to the 1960s, when Brazil began to focus on scientific and technological development. During this stage, Brazil placed great emphasis on fundamental scientific research, strengthening research investment and talent development in fields such as aerospace and nuclear energy. During this period, Brazil established government-led research and development institutions to support industrial development. Take the development of the Brazilian aviation industry as an example, in 1945 the Brazilian government created a military-managed institution specialized in applied aerospace scientific research and educational training, which is called the Brazilian General Command for Aerospace Technology (CTA). In 1950, government established the Institute of Aeronautical Technology (ITA) for the training of aeronautical engineers and in 1954 set up the Institute of Aeronautical Development (IPD) under the ITA, specializing in applied aeronautical scientific research (Yan 2012). These institutions have laid the foundation for the development of the Brazilian aerospace industry. Meanwhile, Brazil was open to foreign investment during this period, which in turn brought advanced technology into the country (Li et al. 2006, 376–377).
The second stage of development in the 1970s saw Brazil systematically advancing its technological development. In 1971, Brazil established the Research and Planning Credit Bureau and the Industrial Property Office, followed by the Industrial Technology Secretariat in 1972. The country formulated its first national science and technology development plan (1973–1974) in 1973, and the second plan (1975–1979) in 1975. Throughout the 1970s, various research institutions emerged, although the system was still not fully developed. During this period, Brazil began to regulate its technology trade by highlighting the subjectivity of introducing technology through foreign capital (Sagasti and Chaparro et al. 1985).
The 1980s represented the third stage of technological development in Brazil. However, due to a debt crisis that triggered nearly a decade of economic stagnation, Brazil's technological development has also suffered a severe setback. In 1980, Brazil formulated its third National Basic Plan for Scientific and Technological Development (1980–1985), with the primary aim of further strengthening Brazil's technological capabilities and expanding government support for research and development activities. In 1983, the Brazilian government established the Ministry of Science and Technology. In 1988, a new industrial policy law was enacted to incentivize enterprise innovation, and in 1989, the Ministry of Science and Technology was merged with the Ministry of Industry and Commerce to form the Ministry of Industry, Commerce, and Science and Technology Development. During this particular period of development, while the strategic direction for national technological advancement was clear, the deteriorating macroeconomic environment, capital outflows, and challenges faced by domestic enterprises hindered technological innovation, leaving little room for progress.
The period from the 1990s to the present day marks the fourth stage of technological development in Brazil, during which Brazil began to revitalize its strategy for technological development. In general, Brazil's technological innovation system became more complete and scientific during this period. The legalization of the system is also a prominent feature of this phase, with the introduction of the Innovation Law in 2004 and the adoption of the Product Law in 2005, Brazil tries to promote the legalization to enable the steady development of science, technology and innovation (Shi 2016). The Brazilian government's investment in technological innovation is at the forefront of Latin America, and the country's technological level has always been at the forefront of Latin America. According to the Global Innovation Index 2022 report published by the World Intellectual Property Organization (WIPO), Brazil's innovation capacity ranks 54th out of the 132 countries and economies, which only ranked second after Chile (50) among Latin American countries.
The history of Brazil's industrial and technological development shows that its strategic goal of becoming a strong technological country and advancing the country's industrialization was set at an early stage and has been consistently promoted. Meanwhile, Latin America has actively embraced the promotion of technological innovation and industrialization by introducing foreign capital and technology as well as seeking international cooperation. Technological innovation in Brazil primarily relies on state investment, and there is insufficient investment from market entities. Although Brazil has made considerable efforts in technological innovation and industrial development, the results show that Brazilian industry has shown a decline trend since the 1980s, and Brazil's technological development capacity have not seen a leap (Guo and Gao 2021).
Industrialization, scientific and technological evolution of Argentina
Argentine started domestic production to substitute import since the 1930s, but it was after 1940 that Argentina began to promote nation-wide ISI. From the 1930s to the mid-1940s, Argentine industry was mainly engaged in import substitution of non-durable goods. Then with the coming to power of President Juan Perón in the mid-1940, Argentina entered a period of "Peronist" regime. Under this populist regime, Argentina's state-owned industries developed rapidly, especially the nuclear, steel, chemical, and other heavy industries. However, President Perón's first administration ended in 1956, and since then Argentina has experienced frequent regime changes, falling into a "populist-bureaucratic authoritarian" cycle (Han 2009, 252). Although the general idea of promoting national industrialization and focusing on the development of heavy industry remained unchanged, the specific development policies were influenced by the political values of the ruling party. For example, populism opposed to foreign investment while bureaucratic authoritarianism actively advocated it, which had certainly brought negative effects on Argentina's industrial development. By 1970, the value of heavy manufacturing industry exceeded that of light manufacturing industry, and a relatively mature industrial system had been formed, making Argentina a primary industrialized country (Xu 1980). The period from the early 1930s to the mid-1940s can be regarded as the first stage of Argentina's ISI, and the period from the mid-1940s to the mid-1970s can be considered the second phase of Argentina's ISI.
In March 1976, the right-wing forces in Argentina staged a militarized coup and overthrew the regime led by Mrs. PerónFootnote 3. Following the coup, Argentina began to implement neo-liberal reforms and gradually stepped into a free, open, and export-oriented stage of industrial development. However, Argentina was mired in debt, economic crises, political and social unrest in the following decades, and the reform of Argentina's export-oriented industry did not achieve positive results. Argentina has become a "deindustrialized" country. According to data from the World Bank, the share of second industry in Argentina's gross domestic product (GDP) has fallen from 50.1 percent in 1975 to 23.4 percent in 2022. Since 2000, due to political instability, the Argentine economy failed to enter a stable cycle. Upon taking office, President Milae announced over 300 reforms, which were seen as "shock therapy" for the national economy. This has led to renewed economic and social turmoil in Argentina.
The technological development of Argentine can be traced back to the mid-to-late nineteenth century. The first few scientific institutions, including the National Observatory and the National Academy of Sciences, established in the 1870s under President Sarminento. Starting in the twentieth century, La Universidad de la Plata established a high-level physics institute, which hired the distinguished German professor Emil Bose as its director, brought in and cultivated many talented people who laid a solid foundation for the subsequent development of physics research in Argentina.
During the ISI period, Argentine government strengthened its investment in education, while basic sciences became the focus of government research institutions. After World War II, Argentina established several government scientific research institutions outside the university system. These institutions mainly focus on research in industries such as agriculture, nuclear energy, mining, and fisheries. Argentina's scientific and technological achievements were outstanding during the ISI period. From 1940 to 1975, Argentina had three Nobel Prize winners: Bernardo Hauser won the Nobel Prize in Physiology or Medicine in 1947; Luis Federico Lelio won the Nobel Prize in Chemistry in 1970; and Cesar Milstein won the Nobel Prize in Physiology or Medicine in 1975 (Li et al. 2006, 333–336). The creation of the National Atomic Energy Commission (CNEA) in 1950 to strengthen research in atomic energy fostered the development of the Argentine nuclear industry, which was at the global leading position until the 1970s.
After the Argentine economy entered a phase of export-oriented growth, the development of science and technology continued to slow down. During the neo-liberal economic reforms in the 1980s, Argentina removed a number of technological administrations. During the ongoing economic crisis, it was difficult for the government to invest in science and technology development. This environment is not attractive to foreign investment, which further hinders the inflow of foreign technology into Argentina. According to the Global Innovation Index 2022 report published by the World Intellectual Property Organization (WIPO), Argentina ranks 69th out of 132 countries and economies, which is in the middle of the ranking among Latin American countries.
Industrialization, scientific and technological evolution of Mexico
Due to weak infrastructure, natural constraints and other reasons, Mexico's industrialization started relatively late. From 1940 to the present, Mexico's industrialization has roughly undergone four stages of development.
The first development stage occurred during the 1940s to 1960s. This marked the initial phase of Mexico's ISI, during which the country's manufacturing sector experienced an average annual growth rate of approximately 8%. Similar to many other Latin American countries, Mexico's ISI began with the production of non-durable goods. By the 1950s, Mexico had achieved import substitution for non-durable goods, but lacked the capacity to produce durable goods. This portion of production relied heavily on foreign investment and imported capital goods, with the United States accounting for 80% of total foreign direct investment (FDI).
The second stage occurred in the 1970s, which also represented the latter phase of Mexico's ISI. During this period, Mexico introduced new economic policies advocating for state intervention in capitalism. The development of state-owned enterprises was further emphasized, along with an emphasis on increasing the scale of labor-intensive industries to alleviate unemployment issues. Concurrently, Mexico officially proposed the establishment of the "Latin American Economic System" to promote an outward-oriented economic transformation. However, during this period, Mexico faced political, economic, and external challenges. The need for significant capital imports for industrialization contributed significantly to its balance of payments deficit. The government further incurred debt, and by the late 1970s, Mexico was on the brink of a debt crisis.
The third stage spanned from the 1980s to the mid-1990s, marking a transitional period in Mexico's industrial development. In 1982, Mexico became the first country in Latin America to experience a debt crisis, leading to an economic downturn. In response to the crisis, the Mexican government initiated reforms. ISI was officially declared over, and neoliberal structural reforms began to be implemented in the industrial sector. The most significant reforms included privatization of state-owned enterprises and the promotion of trade liberalization.
Since the mid-1990s, Mexico's industry has entered its fourth stage of development. Marked by the signing of the North American Free Trade Agreement (NAFTA), Mexico's industry has embarked on a new phase of openness and integration into the global economy. Since this period, its industrial dependence on the United States has further strengthened. (Han 2009, 144–145).
Modern scientific research activity in Mexico can be traced back to 1929 when some of the country's first research institutes were founded. In the same year, the National Autonomous University of Mexico (UNAM), Mexico's largest and most important university and research institution, was granted autonomy. Throughout the whole ISI period, Mexico progressed in the establishment of scientific research institutions, the development of higher education, and the training of scientific researchers. As an industrial power in Latin America, Mexico attached great importance to technological development and introduced specific policies for that in 1978. However, "the science and technology policy developed by Mexico has incurred a series of failures" during the ISI. The reason for this, as Mexican scholar M. Weyonchitzke's believe is that "the 'socialization' of research and development promoted by Mexico's political elites has not yet been completed"(Weyonchitzke 1986), it can also be said that the society as a whole lack technological innovation culture.
Entering the 1980s, with the outbreak of debt and economic crises, Mexico's industry suffered significant setbacks, making it increasingly challenging to advance R&D innovation in the country. However, in such a difficult background, the Mexican government further recognized the necessity of developing technology and the importance of technological innovation in promoting industrial development. In 1989, the National Council of Science and Technology (CONACYT) formally formulated the High-Tech Development Plan (TIPP). The objectives of the program are, "To work for the close integration of high-tech development and production; To strengthen national scientific and technological institutions through concrete industrial projects and results; To explore the further development of new policies and strategies for the development of high technology in the country, based on the principle of mutual benefit between industry and scientific research institutions; To prioritize the development of high-tech areas that are aligned with the interests of Mexico's national industrial strategy; To provide all kinds of support through high-tech master plans, sub plans, and their industrial utilization, developed by industry and technological community, and led and coordinated by CONACYT" (Li 1990). From the systematic and complete nature of TIPP, we can get a glimpse of the Mexican government’s basic idea of promoting industry upgrading through scientific and technological innovation. However, Mexico did not establish a relatively complete system of scientific and technological development until the end of the 1990s due to political and economic instabilities. For example, the "Science and Technology Promotion Law" which was only introduced in 1999 (Li,Song and Gao 2006, 426–428).In 2005, Mexico launched the "Silicon Valley Border" and other plans, hoping to turn the border city of Mexicali into a high-tech center and transform Mexico from a "low-end processing plant" into a high-tech country with relatively strong comprehensive power (Liao 2006).
However, Mexico's technological innovation has not yielded a satisfactory result. According to the Global Innovation Index Report 2022, issued by the World Intellectual Property Organization (WIPO), Mexico is ranked 58th out of 132 countries and regions in the innovation index, and is ranked second to Brazil in Latin American countries, and third in the Latin American region. Although Mexico's economy has slowly recovered amidst fluctuations since 2000, with its manufacturing sector gradually integrated into the US industrial chain, Mexico's independent innovation capability did not significantly enhanced (Xie 2005).
Why hasn’t technological leapfrogging and industrial upgrading happened in Latin America?
The concept of the "middle-income trap" was first introduced by the World Bank in 2006 in a study of countries' economic development performance. Then the concept was further elaborated in 2010. "For decades, many economies in Latin America and the Middle East have been trapped in the 'middle-income trap' and unable to extricate themselves from it. Facing rising wage costs, these countries have struggled with large-scale and low-cost production competition as commodity producers, unable to move up the value chain and tap into high-growth markets dominated by knowledge-based innovative products and services."Footnote 4 Latin America is the most typical region caught in the middle-income trap, and the economic region falling into the "trap" for the longest. The three largest countries in Latin America, Brazil, Argentina and Mexico, have so far stagnated at the middle-income level for 47, 60 and 48 years respectively. Japan and South Korea, along with Brazil, Argentina, and Mexico, essentially entered the middle-income level around the same time. However, since the 1970s, Japan and South Korea have successfully achieved industrial transformation and upgrading. These two countries respectively entered the ranks of high-income countries in the mid-1980s and mid-1990s, successfully overcoming the middle-income trap. Why didn't the East Asian path of technological catch-up and industrial upgrading emerge in Latin America? This paper attempts to explain this question based on the industrial and technological development process in Latin America.
Industrial path selection and the capital accumulation dilemma in Latin American industrialization
We know that the trigger of Latin America's middle-income trap was the debt crisis of the 1980s, which was the accumulation and bursting of the risk of Latin America's long-term debt-financed development. Due to the substantial initial capital required for industrialization, borrowing for development is a common model. From the development trajectory of emerging industrialized nations in the twentieth century, most countries resorted to external borrowing. For example, South Korea, in the early stage of national industrialization, also had a large amount of external debt. However, only in Latin America, a comprehensive and far-reaching debt crisis occurred, but in South Korea it didn’t happen (Jiang 2002). The profound debt crisis in Latin America needs to be explained from various perspectives, including its choices in industrialization paths and the domestic and international environments. Looking at the industrialization development history of Brazil, Argentina, and Mexico, most of the industrialization of Latin American countries has gone through the process from spontaneous and self-conscious to autonomous. In the 1930s, the economies of Latin American countries, which were mainly based on agricultural exports, were hit hard during the arrival of the Great Depression. At the same time, with the outbreak of World War II, the supply of imported non-durable goods was also affected. Latin American countries then began a process of spontaneous ISI to produce substitutes for non-durable goods imports. After that, with the continued slowdown in economic development, Latin American countries realized that the transition to national industrialization was the only viable path. However, there are internal disputes within each Latin American country regarding the specific choice of industrialization paths; for example, three kinds of industrialization paths are disputed within Argentina (Dong 2013). Regardless of which specific path to choose, Latin American countries entered the stage of conscious industrialization after the 1940s, beginning to construct industrialized national industrialization. Latin American countries have long been dependent on developed Western economies, such as the United Kingdom and the United States, throughout their development history, and the period of ISI has been a period of concentrated self-reflection on this dependency (Cheng and Zheng 2020). The result of self-reflection is that Latin American countries have a strong autonomy in promoting industrialization. Inward-looking, heavy industrialization, and state-oriented have become the basic choices of Latin American countries to promote the construction of industrialization.
Specifically, Latin American countries promote nationalization in the fields of energy, transportation, etc., attaching great importance to the development of heavy industry. Simply put, the goal of their promotion of industrialization is to achieve the goal of ISI. Due to the weak foundation of industrial development, Latin America attracts foreign investment and foreign technology in a positive manner but insists on nationalizing important industrial sectors and tries to enhance its national industrialization capacity through the development of heavy industry.
All industrialization paths required large capital investments, and that was particularly true of the industrialization paths of Latin America, which actively promoted heavy industry. For a long time, Latin America's capital accumulation for industrialization has mainly come from agriculture, but agriculture itself is a weak industry with low-profit margins and is vulnerable to price fluctuations in the international market. Latin America's inward-looking national industrialization is also very limited in terms of the revenue space it can create for the country due to its small market. Most Latin American countries in the late stage of ISI have put forward the idea of expanding the market and developing the export-oriented industry, but the results achieved are very limited.Footnote 5 Therefore, Latin American countries lack the capital capacity to invest in industrialization on their own. Since the 1950s, Latin American countries generally adopted the debt financing model. Firstly, the state allowed foreign capital to enter the industrial sector development, and later all levels of government would borrow through private banks directly since the government needed to make a large investment in the infrastructure. Taking the period of rapid development of the Brazilian military regime as an example, from 1968 to 1974, Brazil's total outstanding foreign debt increased from $3.78 billion to $17.6 billion, which is a 3.66-fold increase in six years. At the same time, influenced by the oil crisis, international interest rates increased, and the debt burden of Latin American countries became even heavier (Table 1). From the data of Latin America as a whole, the external debt of Latin America was $74.5 billion in 1975 and rose to $314.4 billion in 1982 (Han 2009, 33), and the proportion of export revenue used to pay interest and principal of the debt had reached 59% by 1982. The Latin American debt crisis finally broke out.
In general, the Latin American debt crisis erupted externally because of international macroeconomic pressure and internally because the choice of heavy industrialization and the path of capital accumulation contained great risks. This risk tested the country's capacity for social governance as well as its capacity for industrial governance. As it turned out, the risks exceeded the capacity of Latin American countries.
Institutional deficiencies in the development of science, technology and industry in Latin America
As mentioned above, it is common for newly industrialized countries to engage in debt financing. For example, when South Korea started to develop its heavy chemical industry, its long-term debt to foreign countries expanded from less than $200 million in 1970 to $9.7 billion in 1982. At the end of 1981, South Korea's total external debt was $32.4 billion, making it the fourth-largest debtor country in the Third World(Zhang, Zhou and Lu, 1993, 59). However, South Korea did not fall into a debt crisis, partly because South Korea mainly borrowed from the foreign public sector, forming a long-term debt different from that of Latin America. This is also the result of the positive international environment, especially the support of the United States. On the other hand, South Korea had relatively strong debt repayment capabilities due to its industrial development. In other words, when we are analyzing the causes of the Latin American debt crisis, we have to say that the internal causes are also important, especially the development capacity of national industries. From the industrialization history of Brazil, Argentina, and Mexico, Latin America had insufficient capacity for industrial development due to the systemic deficiencies of science and technology innovation.
Deviations in the design of ISI systems
Specifically, Latin American countries realized the extraordinary importance of industrial equipment production in the early years of industrialization. If they were not able to produce industrial equipment themselves, they would need to spend a large amount of money on importing capital goods every year. At the same time, they would not be able to realize the autonomy of durable goods production. Therefore, once Latin American countries had a large development in the light manufacturing industry, they all chose heavy industrialization roads. The basic industry capacity can be upgraded with the development of heavy industry. Through industrial nationalization, nations can also achieve science and technology independence. Only in this way, Latin American countries will be able to gradually realize the independent production of capital goods and intermediate products, and then truly realize the independent development of industry. Most of the time, Latin American countries generally have a positive attitude towards foreign capital and foreign technology, since the tax revenue generated by foreign investment is a source of capital accumulation for national industrialization. during populist regimes, Brazil, Argentina, and Mexico all somewhat restricted the entry of foreign investment, or converted foreign-owned firms to state ownership through purchase. During the ISI period, most of the durable goods industries in Latin American countries were invested by foreign capitals. Countries like Brazil started the autonomous development of the aircraft industry in an attempt to make a breakthrough in the production of durable goods gradually. In this sense, the institutional design of Latin America's industrialization is generally positive with both autonomous and open in terms of scientific and technological industrial capacity building. On the other hand, the inward-looking orientation of the system was a fundamental flaw, which led to a loss of upward momentum in industrial and technological development.
In other words, ISI would inevitably distort industrial development. Latin American industrialization began to reduce their dependence on the United States and the United Kingdom for manufactured goods, which led to the goal of "Import Substitution Industrialization". Under this development goal, Latin American countries supported the development of local enterprises through import restrictions, tariff barriers, and other policy measures. Obviously, these measures were necessary in the initial stages of developing industrial autonomy, and in fact played a significant role. Latin America soon realized the substitution of non-durable goods and laid a better foundation for the development of heavy industry. However, the high level of protection barriers also limited the development of local industries. Due to the insufficiency of competition, domestic industrial enterprises in Latin American countries did not have sufficient incentives to improve their efficiency, and private entrepreneurs could gain full competitiveness simply by purchasing advanced equipment from abroad. Under this institutional design, it is difficult for entrepreneurs to have a sense of innovation. In fact, most Latin American countries in the later stage of ISI realized the "deviation" of the "import substitution" goal design, which is not only conducive to the improvement of enterprise competitiveness, but also too small market is actually difficult to support the development of some industrial industries.
Therefore, Brazil started to gradually promote industrial exports since the 1960s, while Mexico began to launch opening-up initiatives in the 1970s. Unfortunately, their domestic industries have been protected for too long and have failed to develop in the international market. Overall, the import substitution industrialization goal was a major flaw in the industrial system of Latin America. It hindered industrial development by not providing sufficient incentives for advancement, and consequently, it’s difficult for the concept of technological innovation to take root in society.
Lag in technological system development and institution-building
Another shortcoming of Latin America’s technological and industrial development is the lagging technological system. Until the end of the 1960s, Brazil, Argentina, and Mexico were only vaguely aware of the need for science and technology for their region's development, but there was no clear understanding of how to develop science and technology and how to promote industrial development based on scientific and technological development. Reflected in the system design, the science and technology systems in Brazil, Argentina, and Mexico during this period were still very fragmented. The prevailing view believed that "as long as researchers and scientific research funding increase, scientific and technological capabilities can be enhanced and naturally lead to technological progress and innovation." However, the famous "Science: the Endless Frontier" was published in 1945 in the US, and the United States soon developed an institutional system for scientific and technological innovation and industrial development. It was not until the 1970s that there was some substantial progress in the institutional building of technological development in Latin America, but the overall institutional construction was relatively lagging. Except for Brazil, institution-building in all other countries is still incomplete (Sagasti and Chaparro et al. 1985).
Why is technological upgrading more difficult in Latin America after falling into the middle-income trap?
After the outbreak of the debt crisis in the 1980s, the Latin American economy took a sharp turn for the worse, entering two "lost decades" in succession.Footnote 6 Since 2000, although there has been some economic recovery, Latin America's political, economic, and social situations have not entered a steady upward development cycle. Financial crises have occurred from time to time, political and social unrest has not ceased. Latin America has become a typical region trapped in the Middle-Income trap. The typical performance of Latin America falling into the Middle-Income trap is:
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1)
Long-term stagnation at the middle-income level. Most Latin American countries in the first half of the 1970s went into the ranks of middle-income level countries, but only Chile, Uruguay, Panama, and Guyana belong to the high-income level among 33 countries in Latin America as of 2022. Other countries keep staying in the middle-income level. Three large countries in Latin America, Brazil, Argentina, and Mexico, had stagnant middle-income levels for an average of 51 years;Footnote 7
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2)
Economic development reflects instability and vulnerability. As shown in Fig. 1, Latin American countries have not found the momentum of sustainable economic development after entering the new century, and the volatility of economic growth in major Latin American countries is extremely strong. In addition, Latin America’s economic development is highly vulnerable. This vulnerability is mainly reflected in the fact that the frequency of economic and financial crises in Latin America is very high in the global context;
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3)
Widespread political and social instability. Latin America's modern industrial development has been more politically turbulent than politically stable since the beginning. Frequent military coups in Latin America in the twentieth century alternated their regime between civilian and military. Since the beginning of the new century, the phenomenon of left- and right-wing rule has become so common that the "pendulum effect" has become a typical description of Latin America's political ecology (Li and Yuan 2022). The polarization between the rich and the poor, as well as the unemployment rate and other problems in Latin America have made society extremely unstable. With frequent regime changes occurred in Latin American countries, social unrest, and economic crises happened repeatedly.
As mentioned above, Latin America maintained an inward-looking economy during the ISI period from the 1930s to the 1970s. During this period, regional economic integration was advocated but not substantially promoted, and participation in economic globalization was passive. After the 1980s, Latin American countries launched neo-liberal economic structural reforms in order to cope with the debt crisis. During the reform, countries participated in the globalization of the division of labor and adopted the globally accepted paradigm of technological innovation and industrial upgrading. However, Latin America's science and industries had not embarked on a path of revival, and had fallen into the premature decline of industrialization and the Middle-Technology trap.
Premature industrialization and the middle-technology trap in Latin America
After the debt crisis of the 1980s, Latin American countries carried out active economic restructuring, but industrial development did not taken off. The trend of de-industrialization in Latin America can be reflected in indicators such as the share of the second industry in total industrial values, the share of manufacturing in GDP, and the share of manufactured exports in total exports.
In this section, the most central indicator, the share of manufacturing in GDP, has been selected for specific illustration (Fig. 2):
Manufacturing value added as a share of GDP for major Latin American countries and Latin America as a whole (Authors compiled from data released by the World Bank. https://datacatalog.worldbank.org/.)
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1)
The manufacturing sector's contribution to Latin America's GDP has steadily decreased from the 1980s to the present. This value was 23.04% in 1980, 21.40% in 1990, and declined to 16.71% in 2000, with a ratio of 16.29% in 2022;
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2)
On a country-specific basis, both Brazil and Argentina are evident in manufacturing decline. Brazil's manufacturing value-added share of GDP was highest at 34.27% in 1984, and this ratio declined to 11.12% in 2022; Argentina's manufacturing value-added share of GDP was highest at 31.36% in 1982, and this ratio declined to 15.38% in 2022;
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3)
Mexico is the only one of the three large countries in Latin America that has maintained a relatively steady trend in manufacturing values, which is related to Mexico's signing of the North American Free Trade Agreement and its active integration into the U.S. industrial chains since the 1990s.
Japan's and South Korea's development experiences show that they both reached a high level of industrialization. Their economies had become developed economies that the proportion of industry in the national economy began to decline, while the balance of the tertiary industry began to rise; the second industry, especially the manufacturing industry, has long played the role of national economic engine. However, Latin American countries began to experience a decline in industrial development before they fully industrialized. This phenomenon, also known as the premature industrialization of Latin America, has further contributed to the vulnerability of Latin America's economic development.
Regarding the level of scientific and technological development in Latin America, we can first refer to the evaluation made by the World Intellectual Property Organization (WIPO) through the Global Innovation Index(GII).Footnote 8 According to the reports released by WIPO in the past years, Latin America's performance in science and technology innovation is poor (Table 2), and its innovation level is obviously lower than that of some emerging economies in East Asia and Southeast Asia. Chile jumped to the 50th place in the ranking for the first time in 2022, becoming the only Latin American country to enter the top 50; São Paulo of Brazil, is the only city on the list of the top 100 science and technology clusters. During the same period, China ranked 12th in the GII ranking, with Thailand, Vietnam, and the Philippines also ranking ahead of Chile; in terms of tech clusters, the Shenzhen-Hong Kong-Guangzhou region and Beijing region were respectively in the global second and third place, with a total of 20 clusters from China in the top 100.Footnote 9 The 2020 WIPO Global Innovation Index report states that " Latin America and the Caribbean continue to be regions with significant imbalances. The region is characterized by low investment in R&D and innovation, nascent intellectual property systems, and a disconnect between the public and private sectors in prioritizing R&D and innovation. With low innovation inputs, the region has barriers to effectively transforming these inputs into outputs."
The GII is a comprehensive evaluation of a country or economy's innovation level and innovation capacity through seven primary indicators, 21 secondary indicators, and 79 specific indicators. Judging from the index releases in previous years, the three large manufacturing countries in Latin America—Brazil, Argentina and Mexico—have always been in the middle of the global pack in terms of innovation level and innovation capacity. If we use high-tech exports, which is the core index to measure the level of manufacturing technology according to the World Bank, to account for the total manufacturing exports,Latin America's high-tech exports constituted 15.26% of total manufacturing exports in 2001, declined to 10.09% in 2008, rose to 13.80% in 2015, and slightly increased to 15.13% in 2020. China's high-tech exports’ proportion of the manufacturing industry reached 61% in 2020, thus it proved that the technological level of Latin American manufacturing has not made a significant leap since the beginning of the new century.Footnote 10 We call this long-term intermediate level of technological development in national comparisons or comparisons of groups of countries the "middle-technology trap"(Zheng 2023).
Analysis of the causes of Latin America's falling into the middle technology trap
The reasons why Latin American countries fallen into the middle-technology trap are multifaceted. Latin America, as a late-developing economy, has a huge science and technology deficit after the serious debt and economic crises caused by mistakes in strategic choices. For example, education and R&D investment, the construction of science and innovation institutions and mechanisms, and international and regional cooperation in science and technology innovation are all lagging behind. It is difficult to achieve technological upgrading in such circumstances. Meanwhile, Japan and South Korea primarily focused on comprehensive learning and introduced Western technologies, leveraging their late-developing advantages to develop independent technological innovation capabilities on this basis. Looking at the development experience of Japan and South Korea, to turn late-developing disadvantages into advantages and cultivate independent technological innovation capabilities, it is crucial to ensure some basic conditions. Firstly, to maintain openness in scientific and technological innovation, which includes the subjective attitude of openness as well as the openness of the objective international environment; Secondly, there needs to be a significant investment in technological innovation; Finally, continue to promote the upgrading of education. Latin American countries stepped into the best era of globalization since the neoliberal economic restructuring in the 1980s while upholding a comprehensive and open attitude to development, but it is challenging to maintain a high level of investment in R&D and education. At the same time, due to macroeconomic instability and other factors, international investment, which is also a key factor affecting Latin America's industrial and technological upgrading, was cautious about entering Latin America. These constraints can be characterized as limitations imposed by the middle-income trap on technological upgrading in Latin America.
First, Latin American countries have low levels of R&D investment. Examining the key indicator of investment in innovation, Latin America's ratio of R&D to GDP failed to reach 1% over the last two decades, staying consistently low level of development without any signs of upward momentum. In Latin America, the highest R&D share of GDP reached 0.77% in 2015, notably lower compared to OECD countries where R&D investment surpassed 2% during the same period. For instance, Japan allocated 3.24% of its GDP to R&D in 2015, while South Korea's R&D expenditure accounted for 3.98% of its GDP. By looking into specific countries, the R&D share of GDP in Brazil, Argentina, and Mexico has not increased significantly since the twenty-first century (Fig. 3). Brazil's R&D investment as a proportion of GDP is 1.05% in 2000, 1.20% in 2019, and the highest year is 1.37% in 2015; Argentina's R&D investment is 0.44% of GDP in 2000, 0.45% in 2019, and the highest is 0.63% in 2012; Mexico's R&D investment share of GDP is 0.31% in 2000, 0.30% in 2020 with the highest 0.49% in 2010. From Fig. 3, we can see that the intensity of R&D investment in Latin American countries is less than that of China, and the gap is gradually widening. Insufficient R&D investment is the fundamental reason for Latin America’s slow development of science and technology.
Changes in R&D share of GDP for Latin American countries, with China, Japan, and South Korea, 2000–2020 (Authors compiled from data released by the World Bank. https://datacatalog.worldbank.org/.)
Secondly, Latin American countries have a low level of educational development and weak ability to adapt educational development to economic development. High-quality human resources brought by education are the basis of industrial development, especially in the era of Industry 4.0. If the quality of human resources is not improved by accelerating education, Latin America will also be at a disadvantage in the global industrial transfer. From the cases of Brazil, Argentina, and Mexico, it is evident that Latin America has significant shortcomings in the education sector. Although each country is striving to increase investment in education, the issue of educational inequality in Latin America has not seen significant improvement. During the pandemic, the digital divide exacerbated the level of educational inequality. Specifically referring to the statistical information in the OECD database, there is a large gap between the average level of education of the labor force in Brazil, Argentina, and Mexico to those of OECD countries in 2021(Fig. 4). In particular, Brazil, Argentina and Mexico still have a high percentage of labor force without high school degree, 41.6%, 33.5% and 57.2% respectively, while this segment of the labor force in OECD countries accounts for only 20.1%. Indeed, the upper secondary level of education stands as the pivotal benchmark determining an individual's qualification as skilled labor. Conversely, regarding the percentage of the labor force attaining tertiary education, Brazil, Argentina, and Mexico basically only have half of the OECD countries' average level. A lower rate of higher education attainment inevitably results in a scarcity of R&D personnel. Additionally, from the standpoint of employers, such as enterprises, it is also very difficult to find qualified human resources in Latin America. According to a 2014 World Bank enterprise survey, 36 percent of the firms in Latin America in the formal economy struggled to find properly trained laborers, compared to a global average of 21 percent and an average of 15 percent in OECD member countries. The survey reports that because of the lack of human capital, companies in Latin America are three times more likely to face operational problems than companies in South Asia and 13 times more likely than companies in the Asia–Pacific region.Footnote 11 Moreover, in terms of high-quality higher education resources, only the University of Buenos Aires entered the top 100 of the 2023 QS World University Rankings, ranking 67th; followed by the National Autonomous University of Mexico, the University of São Paulo, and so on, ranking in the range of 100–200. This ranking is a clear indication of the scarcity of high-quality higher education resources in Latin America. The lack of higher education resources inevitably leads to the country’s inability to cultivate innovative talents.
Educational attainment of the population aged 25–64 in Brazil, Argentina, Mexico, OECD countries (Chart organized by authors based on information from the OECD database. Source: https://stats.oecd.org/)
Thirdly, Latin American countries have limited capacity to attract foreign investment. Within economic globalization, foreign investment serves as a conduit for technology transfer, representing the most direct means for late-developing nations to acquire advanced technology and accumulate technology. Consequently, it stands as a pivotal indicator of a country's technological and industrial proficiency. Latin American countries that fell into the middle-income trap in the 1980s and 1990s were basically dealing with debt and economic crises in an emergency manner. After 2000, although the overall economic and social development in Latin America tended to stabilize, some countries in the region still occasionally experienced economic crises, with persistently high inflation rates. Debt crises occurred from time to time, for example, Argentina declared twice in 2001 and 2014 that it was unable to pay its debts as they fell due. Simultaneously, social movements have frequently erupted in Latin America due to issues such as high unemployment rate and poverty. All these factors are not friendly to foreign investment, and they prefer to invest in regions with economic and social stability. Therefore, since the beginning of the new century, foreign investment has flowed more into China and India, with Latin American countries overall lacking the ability to attract foreign capital (Fig. 5). Besides, the division within Latin America is also obvious. Brazil's performance has been relatively impressive, with the country attracting $32.995 billion in foreign investment in 2000. The level of FDI attraction fluctuated slightly over the following decade before trending upwards after 2010, growing to US$91.502 billion in 2022. Neither Argentina nor Mexico has seen any significant improvement in attracting foreign investment over the past 20 years, with Argentina's ability to attract foreign investment still significantly weaker than Mexico's.
Foreign direct investment in Brazil, Argentina, Mexico, China and India, 2000–2022 (Authors compiled the map based on data from the World Bank. Source: https://datacatalog.worldbank.org/home.)
Finally, the three major countries in Latin America face differentiated challenges in technological upgrading. Brazil, the largest country in Latin America, has always been more dominant in industrial and technological development especially with some industrial development experience of its own, most typically in the aircraft manufacturing industry. Brazil has accumulated its own methodology and governance capacity for scientific and technological development, and it is the only country in Latin America that has retained its own industrial chain while implementing neoliberal economic structural reforms. This has preserved a good foundation for Brazil's industrial and technological upgrading, and Brazil is, in fact, Latin America’s industrial and technological powerhouse. However, one of the important reasons why Brazilian industry and technology are not competitive globally is the heavy social burden that Brazil carries as a country with a large population. Considering the social risks, the government has to choose the former between short-term and long-term benefits. It thus continues to emphasize the development of service industries such as tourism, which makes it difficult to invest more in industrial industry and science and technology (Zhang 2015). Argentina is a country that has been dragged down by the "Dutch Disease".Footnote 12 Due to its high-quality agricultural resources and flourishing trade in agricultural products, Argentina's industrial development capacity has lagged, resulting in an extremely fragile national economy. Therefore, Argentina's technological upgrading is the most difficult among the three major Latin American countries. Mexico's biggest advantage is that it’s backed by North America, so it has more opportunities to receive technology transfer from the United States. On the other hand, Mexico's industrial and technological development has shown a strong dependence and poor autonomy. The significant reason behind this trend is that during the implementation of neoliberal economic structural reforms, Mexico's domestic industry suffered heavy blows, and its autonomous industrial chains were dismantled. Mexico still required considerable time to restore its local industrial foundation; otherwise, achieving technological upgrades would be nearly impossible.
Conclusion
From the development trajectories of the three large countries in Latin America, Brazil, Argentina, and Mexico, the middle-income trap and the middle-technology trap will show a mutually reinforcing mechanism of action. In other words, countries trapped in the middle-income trap are highly prone to falling into the middle-technology trap. This predicament hampers crucial elements or capabilities necessary for technological advancements, intensifying the difficulties and challenges faced in technological progress. On the other hand, the inability to advance technologically, in the era of economic globalization, makes it easy for the relative advantages of industrial development to be replaced, thereby leading to premature industrialization. The vulnerability of the national economy is strengthened, and the state of the country falling into the middle-income trap is further solidified. The prospect of falling into the double trap serves as a cautionary signal, highlighting the imperative to avoid the middle-income trap while concurrently pursuing proactive efforts for technological breakthroughs and industrial upgrading, and then fall into the more solidified double trap.
The experiences of Brazil, Argentina, and Mexico in promoting industrial development and technological upgrading also provide us with valuable insights and lessons to learn from. First, the development strategy of opening-up and domestic protection needs to be balanced. The industrial and technological development of Brazil, Argentina, and Mexico has undergone a "pendulum-like" institutional adjustment from extreme protectionism to extreme openness. Only in the new century have they implemented protection and openness strategies under the principle of pragmatism, and some successful cases have been developed. Despite Latin America's struggles in achieving successful industrial and technological upgrades due to various limiting factors, the predominant approach in the region's industrial and technological governance has been a mix of both protectionism and openness. During the ISI period, Latin America adopted a protectionist approach to its industrial development in order to support the development of local industries. However, this protection led to limited competition among industrial entities, causing a lack of motivation for these industries to upgrade. After the neoliberal reform, Latin America almost completely opened the market. However, the sudden opening of the market left no cushion for Latin America's local industries, which went bankrupt in the face of international competition, causing a regression in Latin America's industrial development and depriving the country of many entrepreneurial carriers of technological innovation. Only after entering the new century has Latin America figured out a strategy of industrial and technological governance that is both protective and open. Putting openness first ensures the innovation and development drive of enterprise entities. Nonetheless, the significant role of the state in industrial and technological development should not be disregarded, particularly when an independent industrial and technological foundation remains relatively fragile. Under such circumstances, the implementation of specific trade protection measures is extremely necessary. The development of Brazil's aerospace industry has demonstrated the effectiveness of this governance mechanism. Simultaneously, Brazil initiated the application of this mechanism within the automobile industry, computer manufacturing, and other sectors. Additionally, other Latin American countries have also begun implementing this governance strategy. This experience of industrial and technological governance has a reference value for China: on the one hand, we should adhere to the open orientation in industrial and technological development; on the other hand, we should implement the necessary protection for the national industry when the technological capacity is still very weak; last but not least, we should grasp the appropriate time for opening up to avoid missing the window of opening up, and form a market-driven industrial and technological upgrading pattern in a timely manner.
Secondly, governments need to make sustained investments in R&D and education and make efforts to improve the efficiency of resource allocation, equity in education and the quality of teaching. From the perspective of Brazil, Argentina, and Mexico's investment in R&D and education, there's a dual challenge. On one hand, the investment remains insufficient, a common scenario in developing nations. On the other hand, the inefficiency in resource allocation towards R&D and education, along with persistent issues regarding equity and education quality in Latin American countries, demand our attention. It can also be said that for late-developing countries to achieve technological catch-up, continuous investment in R&D is necessary, including both government and societal investment. Investment in education is a long-term strategy, which not only involves improving the overall level of education but also focuses on developing vocational and higher education. At the same time, attention should be paid to institutional capacity building, maximizing the effectiveness of limited resources. Overall, the three major Latin American countries, Brazil, Argentina, and Mexico, have now fallen into both the middle-income and middle-technology trap. The interaction of the two traps has further solidified each other and made it more difficult for Latin America to break through them. Latin America's development history teaches us the lesson that if we can't carry out technological and industrial upgrading during the window period, there will be a great risk of falling into the middle-income trap and even into the double trap. The core of transcending the middle-income trap is to cross the middle-technology trap. As a late-developing country, China should uphold an open posture and draw on the fruits of global scientific and technological progress as much as possible. Also, we should build a complete scientific and technological innovation system and improve industrial and scientific governance capacity. Only by stimulating the innovation vitality of the whole society will it be possible to realize technological catching up and ultimately transcend or avoid the double trap.
Availability of data and materials
Data openly available in a public repository.
The data that support the findings of this study are openly available in World Bank Open Data at https://data.worldbank.org.cn/, UNIDO Statistics Data Portal at https://stat.unido.org/, OECD Statistics at https://stats.oecd.org/ etc.
Notes
Import substitution industrialization refers to the development strategy of prioritizing the production of domestically needed manufactured goods in developing countries, replacing imported goods with domestically produced ones to promote industrialization and economic growth. Its theoretical basis lies in the theory of deteriorating terms of trade proposed by Prebisch and others. In the 1930s and 1940s, countries in Latin America such as Brazil and Mexico were among the first to implement import substitution industrialization strategies, which were later adopted by some countries and regions in Asia. This concept is referenced from Su, Z.X and Zhang, Y. 2011.From "Import Substitution" to "Export-Oriented": The Transformation of Industrialization Models in Latin American Countries. Latin American Studies,4.
The Mexican debt crisis erupted in August 1982 when Mexico declared its inability to repay its foreign debt. Subsequently, the debt crisis swept across Latin America, leading to a general economic crisis in Latin America. The Latin American economy began to enter into recession after nearly 30 years of rapid development. The 1980s is also known as Latin American’s "lost decade".
The first administration of Perón and his wife was from 1946-1955 and the second from 1973-1976.
Source:The World Bank. 2010.Robust Recovery,Rising Risks,World Bank East Asia and Pacific Economic Update, 27.
In fact, the manufactured goods they produce under the Import Substitution Industrialization model have limited competitiveness in the international market.
Brazilian economist Ronnie Lins says, "In the 1980s Latin America's GDP growth averaged only 1.2% per year, while per capita GDP growth was -0.9%; The figures were 3.2% and 1.4%, respectively, in the 1990s. The 1980s and 1990s became two 'lost decades' for Latin America '" // Reference News. Crossing the middle-income trap | Anatomy of the stagnant development of Latin American countries. (2016-04-11). https://mp.weixin.qq.com/s/hKJvYM-Q5gs8mFupOjPK6A.
Brazilian economist Ronnie Lins says, "In the 1980s Latin America's GDP growth averaged only 1.2% per year, while per capita GDP growth was -0.9%; The figures were 3.2% and 1.4%, respectively, in the 1990s. The 1980s and 1990s became two 'lost decades' for Latin America '" // Reference News. Crossing the middle-income trap | Anatomy of the stagnant development of Latin American countries. (2016-04-11). https://mp.weixin.qq.com/s/hKJvYM-Q5gs8mFupOjPK6A.
Chile, Uruguay, and Panama rose to high-income status mainly due to their resource advantages, so their experience in crossing the middle-income level is basically meaningless to other Latin American countries.
The Global Innovation Index (GII) is an annual ranking created in 2007 by the World Intellectual Property Organization (WIPO), Cornell University, and INSEAD, which evaluates the innovation performance of more than one hundred economies around the world through 80 indicators. WIPO publishes one edition of the GII every year, and 15 editions of the report have been published so far. The GII is widely recognized internationally and is a key benchmarking tool for policymakers, corporate management executives, and others around the world.
Global Innovation Index 2022: What is the future of innovation–driven growth? (wipo.int).
Sources: Global Development Indicators published by the World Bank, https://datacatalog.worldbank.org/search/dataset/0037712/World-Development-Indicators; United Nations Industrial Development Organization database - Industrial Competitiveness Index (CIP), https://stat.unido.org/database/CIP%20-%20Competitive%20Industrial%20Performance%20Index.
Source: World Bank Enterprise Survey, Washington, D.C., August 2014 data. Statistical link: http://dx.doi.org/10.1787/888933174171. // Development Center of the Organization for Economic Cooperation and Development, UN ECLAC, CAF-Development Bank of Latin America. Latin American Economic Outlook 2015: education, technology and innovation for development. Beijing: Intellectual Property Press, 2015: 6-7.
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Acknowledgements
Special thanks to Professor Zheng Yongnian from the Institute for International Affairs at The Chinese University of Hong Kong, Shenzhen, and Senior Researcher He Dongni from the Guangzhou Institute of GBA for their guidance and revision of this article.
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In-depth Study on Overcoming the "Middle Technology Trap." This specialized research is led, coordinated, and supervised by Professor Zheng Yongnian. The research team includes participants from the Guangzhou Institute of GBA, the Institute for International Affairs at The Chinese University of Hong Kong, Shenzhen, and the Institute of Public Policy at South China University of Technology.
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The main work of author Qiuju Wu is to study design and write most of the initial drafts; The main work of author Weichuang Fang is data collection and analysis, and he has completed the writing of some important arguments in the article.
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Wu, Q., Fang, W. The middle-income trap and the middle-technology trap in Latin America–practice comparison based on East Asian perspective. ARPE 3, 12 (2024). https://doi.org/10.1007/s44216-024-00031-7
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DOI: https://doi.org/10.1007/s44216-024-00031-7