Trapped in bad specialization: Premature deindustrialization and unstable growth in LACs

Over the last forty years, Latin American countries (LACs) have experienced a variety of specialization trajectories, while sharing a common pattern of weak and unstable growth. Given the accelerated premature deindustrialization path and the loss of productive capacity, manufacturing has represented a missed opportunity for development. The result has been a stable landing into a middle-income trap and economic stagnation. Accordingly, this paper addresses the relationship between sectoral productive composition, growth performance and its variability. Using the UN-COMTRADE and the Penn World Table 10.1 databases between 1962 and 2017, we account for the specialization strategies of LACs, linking aggregate output, export products, and sectoral composition. In a nutshell, we examine the extent to which revealed comparative advantages, at the country or the technological (Pavitt) class level, and the relative composition of the export baskets exert any significant role in explaining output growth and volatility. According to our findings, specializing in factor endowments and natural resources has brought LACs into a trap of halted catching up.