Investing in Integration: The Returns from Software-Hardware Complementarities

New empirical evidence produced for this policy brief supports the conclusion that in a postcrisis environment, the value of integration is increasing. Meanwhile, Latin America and the Caribbean (LAC) operates below its long-term integration potential. Going forward, integration policies may generate additional trade, growth, and welfare, provided that policymakers harness greater complementarities between the software and hardware components of the agenda, that is, they undertake policy and regulatory reforms coupled with regionally coordinated investments. But why is integration more valuable today than it has been in the past? Further, what exactly are these software-hardware complementarities in investment? This policy discussion brief is a joint Inter-American Development Bank (IDB), World Bank, and United Nations Economic Commission for Latin America and the Caribbean (ECLAC) response to a request made by Ministers during the Third Meeting of Finance Ministers of the Americas and the Caribbean, held in Lima, Peru, on May 28, 2010.