Urban Stagnation and Shifting Investment Trends in Latin America

Latin America’s economic growth has lagged behind Asia’s in the twenty-first century, expanding at only half the pace. A recent World Bank study attributes this to the region’s cities lacking productivity. Over the past two decades, rural areas experienced economic boosts due to advancements in agriculture and increased global demand for minerals and farm products. In contrast, urban productivity remained stagnant, reducing the gap between urban and rural productivity levels and living standards but hindering overall innovation and economic growth.

A significant factor in this stagnation is the region’s deindustrialization. Over the past thirty-five years, Latin America saw a sharp decline in manufacturing output and jobs, largely due to increased competition from imports following China’s entry into the World Trade Organization. Unlike other regions that shifted towards advanced tradable services like finance, insurance, and information technology, Latin America saw a rise in employment in less productive sectors such as retail, construction, and personal services.

Urban migration in Latin America often fails to yield substantial economic benefits for workers. Issues like congestion, poor infrastructure, inadequate urban planning, and limited public transportation create segregation within cities. This makes it difficult for poorer residents to access public services and better job opportunities. Additionally, the prevalence of informal economies with minimal regulations and worker protections further restricts economic advancement.

Growth is also hampered by weak connectivity between larger and smaller cities, which impedes mobility and limits the flow of opportunities to more affordable areas. Furthermore, the lack of fast, reliable, and affordable high-speed internet hinders the potential for remote work, preventing talented workers from reaping nationwide benefits.

The World Bank study suggests solutions such as investing in widespread, efficient, and affordable public transportation to spur economic growth. Latin American countries have historically underinvested in public infrastructure, spending just 3% of GDP on public investment since 1990, compared to higher investments in East Asia and other emerging economies. Improving digital infrastructure could also open up career opportunities for workers in remote locations. These physical and virtual connections could transform cities from a source of low growth into a driver of economic development.

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