Groundwork for Inclusive Development: Responses to Emergent Challenges for Latin American and Caribbean Economies

Most countries in Latin America and the Caribbean are struggling to escape what economists label “the middle income trap.” While much if not all of the region has emerged from low income status, neither growth nor productivity has increased sufficiently to enable Latin America to narrow the gap separating it from the world’s most developed economies. And while income inequality has diminished across much of the region in recent years, social vulnerability remains widespread and institutional weaknesses continue to plague efforts to achieve equitable development. How can this trap be avoided? One key element is to build a development vision shared by the public and private sectors and by political and social stakeholders. This paper outlines three large policy areas that demand the construction of a shared strategy: on the economic front, the need for higher productivity; on the social front, the need to tackle poverty, and address the new vulnerabilities and needs for protection of a new middle class; and in the area of integration, the need to create a productive integration system that generates synergies among the countries of the region.This report was prepared by Alejandro Foxley of CIEPLAN in the context of a joint project of CIEPLAN-American University on Emergent Challenges in Latin American and Caribbean Economies. Commissioned by the Office of Stratgic Planning and Development Effectiveness of the Inter-American Development Bank (IDB), the study has benefitted significantly from discussions and contributions in seminars organized earlier by CIEPLAN, the Center for Global Development, and the IDB. This version also includes valuable comments and suggestions by members of the External Advisory Council named by the IDB President in 2013.