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Mesquita Moreira, M. (2007). Fear of China: Is There a Future for Manufacturing in Latin America? World Development, 35(3), 355-376.
Summary
The Mesquita Moreira article presents the challenges Latin America faces with the emergence of a rapidly-growing Chinese economy, in particular the question whether or not Latin America and the Caribbean (LAC) should continue the path of manufacturing into the future. The author uses descriptive production and trade statistics to emphasize that manufacturing is a crucial factor in LAC development and that it must be continued to better defend against a probable Chinese threat. The advantages which give China the upper-hand when compared to LAC include an “unlimited supply of labor”, rapid productivity growth, and support from a highly interventionist state. With a population of 1.3 billion and a labor force of 640 million combined with a limited amount of natural resources, China has a huge comparative advantage in labor-intensive goods in comparison to LAC. Although productivity is currently lower in China than in Mexico and Brazil in most sectors, it has been growing much faster in China than in LAC, suggesting the latter’s productivity edge to be soon wiped out. The role of government in the Chinese economy is also against LAC, involving heavy government intervention in the product and factor markets to support industrialization and exports. To remedy these disadvantages Moreira proposes that LAC focus on improving its well-known weaknesses. By acting quickly to strengthen its macroeconomic fundamentals, overcome excruciating credit-constraints on local producers, and boost frail local technological capabilities, LAC may be able to hold its own ground and greet China with a fair amount of competition before it’s too late.
Critique
Mesquita Moreira presents a very interesting article because the emergence of China raises pointed questions about the future of manufacturing of Latin America and the Caribbean in the world’s division of labor. Although once widely considered that the economic future of the region was in manufacturing, China challenges this belief and the economic role LAC will serve in the rest of the world. To ensure competitive success in a world market already overcrowded by at least three generations of Asian Tigers (e.g., Japan, Korea, Malaysia) and facing the prospects of others to come such as India, LAC needs to act quickly in deciding on a policy that is right for them. The issue this raises is that LAC will have to choose between either continuing their bumpy path of manufacturing or increasing their exploitation of natural resources within the area. Will LAC suffer from Dutch Disease if it curves away from manufacturing and heavily invests in natural resource extraction? It is generally believed that the effects of natural resource exports can inhibit growth in manufacturing, a vital sector thought to generate positive productivity externalities. With a slower growth in manufacturing due to competition for labor and capital from resource sectors, LAC’s economic potential for growth is predicted to diminish. However, it would not be safe to surmise that resource wealth and slow economic growth is a direct cause and effect relationship. A multitude of other variables would have to be factored in order to present a clearer and more realistic view of LAC’s future if an aggressive policy of natural resource exports were to be carried out instead of a focus on manufacturing. What we can be certain about is that the time LAC has to solve the threat of China and other prospects is running out, and that LAC must work out a policy to best deal with the situation, whether it be an emphasis on manufacturing or otherwise.
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Comments
May 9th, 2008 at 7:29 am
Hi
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Publisher
MBA(Edin)
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