There is a generalized concern about the effect that the economic growth of China and India has had, and will continue to have, on the Latin America and Caribbean region (LAC). It is feared that these two countries will replace LAC as providers of goods and services in the world markets. The Caribbean regions most adversely affected by the growing presence of China and India are the continental countries of the Caribbean, especially Mexico. In fact, China and India’s combined share of exports around the world is 50% greater than the LAC, while in 1990 the situation was exactly the opposite.

Competition between these regions occurs mainly in the unskilled labor market, where China and India have a clear advantage over the LAC region. Therefore, some economists emphasize the need to invest in human capital, particularly in education, research and innovation, or to increase the competitiveness of skilled and trained labor, as a means of adapting to the new economic reality. Some countries are adapting to the competition from these Asian countries by diversifying and specializing in export products. In the textile industry, for example, Costa Rica and the Dominican Republic are focusing on higher quality and higher priced textiles and clothing than that produced in the Asian countries, while Haiti and Nicaragua are focusing on production of lower cost goods. But many of the LAC countries have also responded to the threat from China and India by creating protectionist policies through the imposition of tariffs and fees, caps on imported merchandise, and other technical regulations. Although protectionist measures have been aimed at products from both countries, China is in the forefront. In other words, these policies show a greater degree of protectionism toward products imported from China than toward products imported from India. This differential treatment is explained by the different levels of substitution of products imported from the two countries. Products imported from China are more likely to replace locally produced goods, while those exported from India often have a lower level of substitution.

But the involvement of these two Asian countries in world markets implies not only the presence of new and more efficient competitors, but also new markets for the export of Caribbean products. In fact, a study by the World Bank titled Latin America and the Caribbean’s Response to the Growth of China and India, in 2006, proposed that the net effect of China and India’s growth has been positive for the Latin America and Caribbean region and notes that China and India’s involvement has only had adverse effects on certain countries and in certain industries. The industries that have been most affected by the competition have been industrial and electrical machinery, electronics, transportation equipment, and the textile industry.

Author: Luis Galanes
Published: March 20, 2012.

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