China’s meteoric emergence in the last decade and its profound impact on the economic performance of Latin America and the Caribbean (LAC) has eclipsed the importance of the region’s other Asian partners. Yet, LAC‘s governments can only ignore them at their own peril. These countries remain a major source of opportunities for trade and investment and Korea is a case in point. It has a one trillion dollar economy, with an impressive growth record (a 7% annual average growth since the early 1960s) and a population of nearly 49 million, sitting on a very limited pool of natural resources.
It is clearly another important market for the region’s commodities, but not just that. The complementarity between the two economies goes beyond natural resources and extends to the manufacturing sector, where Korea has already upgraded beyond labor-intensive and basic capital-intensive sectors, offering less of a competitive threat to the bulk of LAC’s industries. At the same time, its US$ 20 thousand per capita income offers opportunities for more sophisticated and diversified exports, something that is already visible in the current pattern of bilateral trade, which is one of the most diversified among LAC’s Asian partners.
Korea is also an important source of foreign direct investment with a worldwide stock of approximately US$120 billion, US$ 20 billion of which was invested just in 2010. LAC has been one of the beneficiaries of these flows, accounting for a still small but growing share of the total. Breaking with the pattern of other Asian investments, manufacturing has frequently been the target of Korea’s investments in the region, providing the basis for a more balanced and diversified relationship.
Apart from trade and investment, Korea is also a major source for policy lessons, which can be drawn from its remarkable and no less than spectacular growth trajectory. In less than 30 years, the country went from a broken-down economy, ravaged by civil war and with half of the per capita income of the average developing country, to a highly sophisticated developed economy exporting a wide array of technology-intensive products and backed by a highly educated workforce and a world class private sector. This report draws attention to these opportunities and the challenges of fully exploiting them.
It highlights the fact that there is more to Asia than just China and that the relationship with Korea has the contours of what can be a model for a sustainable Asian-LAC relationship. But it also points to the obstacles that still hold back bilateral trade—currently standing at US$ 44 billion or only 2.5% of LAC’s trade—and that call for decisive action to address both traditional and non-traditional trade barriers. More trade will bring more investment and more cooperation, which eventually, in a virtuous circle, would create even more opportunities to trade.
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