Regionalism, Development and The Post-Commodities Boom in South America

International Political Economy Series
Regionalism, Development
and the Post-Commodities
Boom in South America
Edited by Ernesto Vivares

Series Editor
Timothy M. Shaw
Visiting Professor
University of Massachusetts Boston, USA
Emeritus Professor
University of London, UK
The global political economy is in flux as a series of cumulative crises
impacts its organization and governance. The IPE series has tracked its
development in both analysis and structure over the last three decades. It
has always had a concentration on the global South. Now the South
increasingly challenges the North as the centre of development, also
reflected in a growing number of submissions and publications on indebted
Eurozone economies in Southern Europe. An indispensable resource for
scholars and researchers, the series examines a variety of capitalisms and
connections by focusing on emerging economies, companies and sectors,
debates and policies. It informs diverse policy communities as the estab-
lished trans-Atlantic North declines and ‘the rest’, especially the BRICS,
rise.
More information about this series at

http://www.palgrave.com/series/13996
Ernesto Vivares
Editor
Regionalism,
Development and the
Post-Commodities
Boom in South
America
Editor
Ernesto Vivares
International Studies and Communication
FLACSO Sede Ecuador
Quito, Ecuador

ISBN 978-3-319-62550-8 ISBN 978-3-319-62551-5 (eBook)
DOI 10.1007/978-3-319-62551-5
Library of Congress Control Number: 2017955026
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Foreword
Few would deny that the world is in flux. Since the end of the Cold War
many observers have offered their views about world order transforma-
tion, as illustrated by arguments about the end of history, globalization,
clash of civilizations, chaos and disorder, a world of regions, and a world
dominated by new and emerging powers, to name only a few.
South America is arguably one of the most interesting regions of the
world, both because its future is so deeply intertwined with world order
transformation, but also because of its rich and varied intellectual com-
munity. Ernesto Vivares and his colleagues carry forward this proud intel-
lectual heritage as they provide us with a compelling account about South
America’s insertion into an unequal world. Apart from the many empirical
insights, the book offers at least three important theoretical and method-
ological contributions. The book’s approach is “critical”, “global”, and it
moves beyond the conventional “formal” IPE to include “informal”
dimensions and issues. Its novelty lies in the combination of these
contributions.
First, Vivares and colleagues argue in favor of critical, alternative and
interdisciplinary theoretical approaches that confront state-centric or
economistic views about how the world hangs together. A fundamental
distinction in this type of research is between “problem-solving” theory,
which takes the world as given, and, on the whole, as “good” and “criti-
cal” theory that is concerned with how the existing order came into being
and what the possibilities are for structural and social change. Critical IPE
theory challenges problem-solving features such as the separation of sub-
ject and object, fact and value, and rationalist epistemologies. Critical IPE
v
vi FOREWORD
also rejects “methodological nationalism”, a point strongly emphasized in

this book.
The point with transcending methodological nationalism is not to
reject the nation-state and national space per se, but to transcend conven-
tional conceptions of the unitary Westphalian nation-state and “the terri-
torial trap” of the nation-state inherent in much of problem-solving
theory. Surely, methodological nationalism has resulted in many superfi-
cial representations of spatial horizons and practices. When the “taken for
granted” national scale is problematized then other spaces and actors
automatically receive more recognition, below as well as above the nation-
state. This approach is particularly plausible for the study of regionalism in
the Global South, because it helps to transcend Eurocentric conceptions
of both the nation-state and regional integration.
Second, Vivares and his colleagues emphasize a “global” perspective.
Just like other regions, South America was not formed in a vacuum. The
book correctly underlines that regions cannot be understood only from
the inside-out, but must also, and perhaps mainly, be approached from a
“global” and outside-in perspective. Although IPE scholars are trained to
analyze global structures (perhaps more so than regionalist scholars), the
fundamental question is what the global perspective actually entails. Much
effort is made to theorize the “global”, but what is often lacking is a global
perspective that also takes into account regional particularities and con-
texts. Somehow, a genuinely more “global” approach to IPE needs to be
tackled, which moves beyond Western-centric perspectives of the world.
This book makes an important contribution to a genuinely more “global”
IPE by studying South America’s external penetration, and how globaliza-
tion, regionalization, and domestic variables interact to produce a diversity
of outcomes in different policy fields.
Third, Vivares and colleagues transcend the “formal” side of IPE and
include informal processes and agents, from solidarity economies, infor-
mal flows, to organized crime. A broadened understanding of external
penetration and regionalization around the world rests on reaching
beyond hegemonic formal/formalistic and state-centric interpretations of
global and regional governance. This, of course, implies that comparison
becomes a more pluralistic exercise, transcending the prevailing tendency
in the field to focus on and explain variations from the “standard”
European case, not least formalistic and EU-style institutionalization. This
book successfully straddles the formal-informal nexus through focusing
FOREWORD
vii
on both the formal configurations of development (e.g., trade, finance,

technology, and knowledge) and the informal structures (e.g., organized
crime, and informal economy).
School of Global Studies Fredrik Söderbaum

University of Gothenburg,
Gothenburg, Sweden
Acknowledgements
This project was born during August, 2015, at the Third Latin American
and Caribbean Congress of Social Sciences, when nearly 200 regional
scholars met to present their latest research and hold discussions regarding
their increasing concern about the South American IPE, regionalism, and
global insertions after the end of the commodities boom and the changing
and unsettle global order. The discussion was friendly but intense, in par-
ticular about the lack of Southern voices in an international debate,
monopolized and understood by and from the North academy in terms of
neoclassical economics and political sciences, based on two major unques-
tioned assumptions. The first is the assumption that everything moves to
the achievement and wisdom of the industrialized north, and second, that
the fluctuations of South America are causal and directly related to the
oscillations of the commodity cycles, as the region never has managed to
rule capitalism. For the South American scholars and partners at the
Congress it was that the undeniable time after decades to endeavor open,
critical, and multidisciplinary academic studies and discussions upon the
IPEs of regional development and global insertion as a contribution from
the South. The result is this book composed of the efforts of a great deal
of colleagues, South Americans, and others from many parts of the world,
whose contributions in recent years have been vital for the return and
development of the IPE germinal epistemic community in the Southern
Cone. To all them, my thanks.
First, I am pleased to thank Professor Timothy Shaw, editor of this
International Political Economic Series, for friendship, loyal support, and
invaluable advice to the scholarship in the region, FLACSO, and to myself
ix
x ACKNOWLEDGEMENTS
over the years. Also, to Christina Brian, editorial director at Palgrave

Macmillan, for her constant support, direction, and advice, and to James
Safford for his clear assistance during the editing process. Thanks to Juan
Ponce, Director of FLACSO, Ecuador, and to his Coordinator of Research,
Fredy Rivera. Also, to the invaluable recommendations and refreshing dis-
cussions about IPE and South American regionalism from our colleagues
Cintia Quiliconi and Raul Salgado. Thanks to Steen Christensen and the
scholars from Aalborg University for intellectual advice and support in
Ecuador and Denmark. Also, to Arlene Tickner, Diana Tussie, and Gladys
Lechini, three great colleagues in our regional field who backed the proj-
ect from the beginning. Thanks also to Jose Briceño from Venezuela,
Javier Vadell and Leonardo Ramos from PUC Minas Gerais with whom
we had the opportunity to talk and exchange ideas about the central issues
of this work. Thanks to Rachel Babin, Lorena Herrera, Adriana
Montenegro, Alexis Colmenares, and Marco Mendez, doctoral candidates
at the PhD program in International Studies of FLACSO, Ecuador, who
contributed with their research to enable us to take further reflection on
regionalism in our doctoral seminars. Also thanks to Daniela Barreiro for
her technical assistance with the editing of the book; to Ankur Mehrotra
and Nicola Salgado for translating and correcting the academic styles of
the first drafts. Finally, as always, thanks to my wife Cheryl Martens for
discussion and recommendations for the book, and to my sons, Genaro,
Ayel, Alejandro, and my bandits pets; all the sources in my life.
Contents
1 The IPE Puzzle of Regional Inequality, Instability,

and the Global Insertion of South America 1
Ernesto Vivares
2 Is Latin America’s Rise of the Middle Classes Lasting or

Temporary? Evidence from Ecuador 25
Juan Ponce, Rob Vos, José Rosero, and Roberto Castillo
3 Past and Present of Latin American Regionalisms,

in the Face of Economic Reprimarization 47
Jaime Estay
4 The Impact of China on South America Political

and Economic Development 77
Steen Christensen
5 The Changing Problem of Regional Development

Finance in Latin America101
Leonardo E. Stanley and José M. Fernández Alonso
xi
xii Contents
6 South America: Trade and Integration in the New Global

Trade Network121
Wilson Pérez-Oviedo, John Cajas-Guijarro, and María
Cristina Vallejo
7 Energy Integration in South America

and Global Geopolitics147
Carolina Viola Reyes
8 Productive Integration in South America and Its

Insertion into GVCs: The Automotive Industry165
Uallace Moreira Lima
9 The Regional Political Economy of Knowledge

and Environment197
Pedro Cango, Jesús Ramos-Martín, and Fander Falconí
10 Cities in the South American Development: Bogota,

Lima, Quito, and Santiago in Regional Frame217
Luis Fuentes and Gustavo Durán
11 Global and Regional Political Economy of Migration243

Alejandro I. Canales
12 Organized Crime, Security, and Regionalism:

The Governance of TOC in LA271
Daniel Pontón and Tomás Guayasamín
13 The South American Regionalisms: A Shift or the

Return of Economic Integration?291
Cintia Quiliconi and Raúl Salgado Espinoza
Contents
xiii
14 Africa: Clues About the Tendencies of the Global South309

Timothy M. Shaw
15 Conclusions333
Ernesto Vivares
Index341
List of Contributors
John Cajas-Guijarro is an economist and professor at the Department of Social

Sciences of the National Polytechnic School of the Central University of Ecuador,
Master in Economics from FLACSO Ecuador. His areas of research are theory of
political economy and economic models.
Alejandro Canales is research professor of demography, regional and interna-
tional migration, new migration theories, and regional development at the
Department of Regional Studies (INESER), University of Guadalajara. His
research focuses upon international migration in a time of global and regional
complex transformations, and the construction of new and critical perspectives on
migrations and development. Among his most recent production is the book “E
Pur Si Muove, elements for a theory of migration in a global capitalism” (2015).
Pedro Cango is an economist from University of Cuenca, Ecuador, Magister in
Development Economics from FLACSO Ecuador, former officer at the govern-
ment of Ecuador. He is a researcher in FLACSO and a specialist in monitoring and
evaluation for the Higher Education Commission of the Ecuador (CES).
Roberto Castillo is Director of Statistical Analyses and Studies of the National
Institute of Statistics and Censuses of Ecuador. He has a Master’s degree in mon-
etary and financial economics from the Complutense University of Madrid, Spain.
Steen Fryba Christensen is an Associate Professor at the Department for Culture
and Global Studies at Aalborg University, Denmark. The center of his research is
China-LA relations as well as the theoretical contributions on transformations of
the global order after the rise of emerging powers such as China and Brazil. He has
published several research articles and book chapters, such as “The Emerging
Powers and the Emerging World Order: Back to the Future?” (2016).
xv
xvi List of Contributors
Gustavo Duran is a research professor of urban studies, planning, and regional

development management in LA at the Department of Public Affairs, FLACSO,
Ecuador. His research focuses on Studies of LA Cities, Urban Exclusion and
Marginalization, Social Household and Urban Employment. His latest work is
“Agua y pobreza en Santiago de Chile. Morfología de la inequidad en la distribución
del consumo domiciliario de agua potable” (2014).
Jaime Estay is a research professor of development economics, World and
Regional Economy, Theories of Development, International and Regional
Economic History at the Faculty of Economy of the Benemérita Universidad de
Puebla, Mexico and he is also Emeritus Professor at the Department of International
Studies, FLACSO, Ecuador. His main research is about the Political Economy of
LA Development. Among his extensive academic productions is “La integración
latinoamericana y caribeña, desde los años cincuenta a la actualidad” (2014).
Fander Falconí Benítez is a Master in Economics from FLACSO, Ecuador and
Master in Environmental Management from the Universidad Autónoma de
Barcelona, UAB, Spain. He holds a PhD in environmental sciences and did his
postdoctoral studies at the Institute of Social Studies, Haya, Netherlands. One of
his books is “Al Sur de las decisiones: enfrentando la crisis del siglo XXI”. Currently,
he is a research professor at FLACSO, Ecuador and member of Commission of
Higher Education of the Ecuador.
Jose Fernandez Alonso PhD in International Relations, is Assistant Researcher on
the Argentinean National Council of Scientific and Technical Research
(CONICET), Argentina. He is a lecturer in International Finance and International
Economy at the National University of Rosario (UNR) in the Political Science and
International Relations School, Argentina.
Luis Fuentes is a research professor of Urban Studies, Urban Planning, and
Urban Social Transformations at the Pontifica Universidad Católica, Chile. His
principal research focus is the urban and social transformation of the Cities in Chile
and LA. Among his most important works is “Competitividad urbana en el con-
texto latinoamericano: El caso de Santiago de Chile. Revista de Geografía Norte
Grande” (2011).
Tomas Guayasamin is a researcher and advisor in Security and Defense Studies at
the National Government of the Ecuador. His main research concentrates in the
areas of Strategic Studies and Regional Cooperation, Defense, Security, and
Intelligence. Among his recent publication is “La Comunidad de Estados
Latinoamericanos y Caribeños: diálogo político, concertación diplomática y
Cooperación Sur – Sur” (2015).
Uallace Moreira Lima holds a PhD from the Instituto de Economia da
Universidade Estadual de Campinas (IE/UNICAMP). He is a consultant to the
Inter American Development Bank (IADB) and a researcher at Instituto de
List of Contributors
xvii
Pesquisa em Econômica Aplicada (IPEA), the Korea Institute for International

Economic Policy (KIEP) and the Russian Institute for Strategic Studies (RISS).
He is a professor at the Faculdade de Economia da Universidade Federal da Bahia
(FCE/UFBA) where he teaches International Economy and Development.
Wilson Perez-Oviedo is a research professor in Development Economics,
Econometric, and Research Methods at the Department of Development,
Environment, and Territory, and he is also the coordinator of the Doctoral
Program in Development Economics, FLACSO, Ecuador. The research of
Professor Perez concentrates on Econometrics and Development in LA. His latest
publication is “Ecuador and Citizens, dictators and networks: A game theory
approach” (with Amitava Dutt 2015).
Juan Ponce holds a PhD in Development Studies from the Institute of Social
Studies, the Netherlands, and is a professor and researcher in Economy of
Education and a specialist in the evaluation of the social impact of public policies
in the areas of welfare in the region. He is head of FLACSO Ecuador. Among his
most recent work is “The impact of a cash transfer program on cognitive achieve-
ment: the Bono de Desarrollo Humano of Ecuador” En Economics of education
review, 29 (29).
Daniel Pontón is a researcher and associate professor in Citizen Security and
Policies against Organized Crime at the Institute of National High Studies of
Ecuador (IAEN). His latest publications are “Hegemonía antidroga y revolución
ciudadana: Un balance de la política antidroga en Ecuador 2007–2013” (2013),
and “Drug Trafficking and Organized Crime: UNASUR Perspectives” (2014).
Cintia Quiliconi holds a PhD in Politics and International Relations from the
University of Southern California (USC). She is a professor in the International
Studies Department at FLACSO Ecuador and a consultant to various international
organizations such as the World Bank, the Inter-American Development Bank, and
the United Nations Development Program. Among his works is Global and Regional
Leadership of BRICS Countries, co-edited with Stephen Kingah, Springer 2016.
Jesus Ramos-Martin is an Ecological Economist (PhD Environmental Sciences;
MSc Environmental Management; MA Environmental Politics, and MPhil
Ecological Economics). His fields are economic development and evolution of
human systems from a biophysical point of view, by applying concepts from energy
analysis, thermodynamics, and complex systems theory. Currently, he is Rector at
Universidad Regional Amazónica IKIAM, Ecuador.
Carolina Viola Reyes is a consultant and professor in the field of Geopolitics of
Energy and Development, and Energy in LA at the Pontifica Universidad Católica
(PUCE), Ecuador. Her research focuses on the geopolitics of energy and regional-
ism. Her most recent published work is “Las inversiones Chinas en América
Latina” (2015).
xviii List of Contributors
José Rosero is the Deputy Director of the Statistics Division of the Food and
Agriculture Organization of the UN (FAO). Previously he served as Executive
Director of the National Institute of Statistics and Censuses of Ecuador, as a Vice-
minister of Social Development and as Coordinator of the Integrated System of
Social Indicators (SIISE). He holds a PhD in economics from Amsterdam
University, Netherlands.
Raúl Salgado holds a PhD in Political Science and International Studies from the
University of Birmingham, United Kingdom. He is a professor in the Department
of International Studies, FLACSO Ecuador, where he teaches Political Thought,
Foreign Policy, and Research Methods. His research focuses upon foreign policy
and diplomacy of small South American countries in regional and global institu-
tions, as well as South American geopolitics in the changing world order.
Timothy M. Shaw is a research professor at the Department of Conflict Resolution,
Human Security, and Global Governance; McCormack Graduate School Graduate
Program Director, Global Governance and Human Security PhD Program. His
most recent coedited works include “Africa & IR in the 21st Century” (2015);
“Africa’s Challenge to International Relations Theory” (2013), “Comparative
Regionalism for Development in the 21st Century: Insights from the Global South” (2013).
Leonardo E. Stanley is Associate Researcher at the Center for the Study of State
and Society (CEDES). He has published in journals and written several book
chapters and is working on a book entitled Emerging Markets and Financial
Liberalization: Comparing the Experiences of Argentina, Brazil, China, India and
South Korea, to be published by Anthem Press.
Maria Cristina Vallejo is a research professor of Economics and Ecological
Economy of Development at the Department of Development, Environment, and
Territory, FLACSO, Ecuador. Professor Vallejo’s main research is on Regional
Ecological Economy and World Economy. She is author of “Biophysical structure
of the Ecuadorian economy, foreign trade and policy implications” (2010).
Ernesto Vivares is a research professor in International Political Economy,
Regionalism, and Methodology at the Department of International Studies and
Communication, FLACSO, Ecuador. His research focus is the Political Economy
of South American Regionalism, and Critical Theory of Regionalism and
Development. His latest publication is “Two regionalisms, two Latin Americas, or
beyond Latin America” (2015).
Rob Vos is Director of Agricultural Development Economics of the Food and
Agriculture Organization of the UN (FAO). Prior to joining FAO in 2013, he has
served as Director of Development Policy Analysis and chief economist of the UN
Secretariat in New York and, before that, as Vice-Rector and Professor of Finance
and Development at the International Institute of Social Studies of Erasmus
University.
List of Abbreviations
ACBF African Capacity Building Foundation

ACCORD Accord on Fire and Building Safety in Bangladesh
ADBC Agricultural Development Bank of China
ADEFA Automotive Factories Association
ADGs Decentralized Autonomous Governments
AERC African Economic Research Consortium
AfDB African Development Bank
AFI Federal Agency of Investigation
AGRA Alliance for Green Revolution in Africa
AIIB Asian Infrastructure Investment Bank
AISA Association of International Schools in Africa
ALADI Latin American Integration Association
ALBA Bolivarian Alliance for the Americas
AMERIPOL Community of Police of America
AMV Africa Mining Vision
AND Democratic Action (Venezuela)
ANFAVEA National Association of Motor Vehicle Manufacturers
AP Pacific Alliance
APP Africa Progress Panel
ASEAN Association of Southeast Asian Nations
ATM African Trade Market
AU African Union
BANDES Economic and Social Development Bank of Venezuela
BBVA Banco Bilbao Vizcaya Argentaria
BCG Global Management Consulting
BIT Bilateral Investment Treaty
BNDES Brazilian Development Bank
xix
xx LIST OF ABBREVIATIONS
BRAC Building Resources Across Communities

Brexit Britain Exiting the EU
BRIC Brazil, Russia, India, China
BRICS Brazil, Russia, India, China, South Africa
CACM Central American Common Market
CADF China – Africa Development Fund
CAF Development Bank of Latin America
CAFTA Central American Free Trade Agreement
CAN – ACN Andean Community of Nations
CCR Center for Conflict Resolution
CDB China Development Bank
CELAC Community of Latin American and Caribbean States
CELADE Centro Latinoamericano y Caribeño de Demografía
CELC Center of Latin American Studies About China
CEO Chief Executive Officer
CEPAL Databases and Statistical Publications
CEPALstat Databases and Statistical Publications – ECLAC
CEPE Ecuadorian State Oil Corporation
CFTA Continental Free Trade Area
CGD Center for Global Development
CIA Central Intelligence Agency
CIGI Centre for International Governance Innovation
CISC Criminal Intelligence Service Canada
CIVETS Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa
CIVICUS Non-profit Organisation
CLER Center-Left Extractive Regimes
CMI Chang-Mai Initiative
CODESRIA Council for the Development of Social Science Research in
Africa
COMBIFRON Binational Border Commissions
COMESA Common Market for Eastern and Southern Africa
COOTAD Código Orgánico de Organización Territorial, Autonomía y
Descentralización
COPEI Social Christian Party of Venezuela
COSBAN High Level Bilateral Commission
CSP Concentrated Solar Power
DAC Development Assistance Committee
DBRA Davis-Bacon and Related Acts
DEA Drug Enforcement Administration
DRC Democratic Republic of the Congo
EAC East African Community
ECA Economic Commission for Africa
LIST OF ABBREVIATIONS
xxi
ECLAC Economic Commission for Latin America and the Caribbean

EITI Extractive Industries Transparency Initiative
EM Emerging Markets
EMNC Emerging Market Multinational Companies
EP Emerging Power
E7 Emerging 7 Countries
ETF Exchange-Traded Funds
ETN Exchange Traded Notes
EU European Union
FAO Food and Agriculture Organization
FATF Financial Action Task Force
FBI Federal Bureau of Investigation
FBO Farmer Based Organization
FDI Foreign Direct Investment
FED Federal Reserve of the USA
FFD Financing for Development
FIESP Federation of Industries of the State of São Paulo
FIFA Fédération Internationale de Football Association
FLACSO Facultad Latinoamericana de Ciencias Sociales
FM Frontier Market
FOCAC Forum on China-Africa Cooperation
FOMIN Multilateral Investment Fund
FSC Forest Stewardship Council
FTA Free Trade Agreement
FTAA Free Trade Area of the Americas
FX Foreign Exchange
GATT General Agreement on Tariffs and Trade
GAVI Global Alliance for Vaccines & Immunizations
GDP Gross Domestic Product
GIF Global Innovation Fund
GLR Great Lakes Region
GRI Global Redesign Initiative
G7 Group of 7 countries
GT Global Trend
GVC Global Value Chain
HDR Human Development Report
IADB Inter-American Development Bank
IBM International Business Machines Corporation
IBSA India, Brazil, South Africa Dialogue Forum
ICBC Industrial and Commercial Bank of China Limited
IDB Inter-American Development Bank
IDPC International Drug Policy Consortium
xxii LIST OF ABBREVIATIONS
IDRC International Development Research Center

IEA International Energy Agency
IFI International Financial Institution
IIRR International Relations
IIRSA Initiative for South American Regional Integration
IMF International Monetary Found
IMG International Management Group
INEC Instituto Nacional de Estadística y Censos
INGO International Non-governmental Organization
INTERPOL International Criminal Police Organization
IOC International Olympic Committee
IPE International Political Economy
IPEA Instituto de Pesquisa Economica Aplicada
IRB US Institutional Review Board
ISA International Studies Association
ISI Import Substitution Industrialization
ISS Institute for Security Studies
IT Information Technology
JSE Johannesburg Stock Exchange
KP Kimberley Process
LA Latin America(n)
LAC Latin America and the Caribbean
LAFTA Latin American Free Trade Association
LAIA Latin American Integration Association
LNG Liquified Natural Gas
MAS Movement towards Socialism
MCP Municipal Compensation Fund
MDG Millennium Development Goals
MDGs UN Millennium Development Goals
MERCOSUR Southern Common Market
MINT Mexico, Indonesia, Nigeria, Turkey
MIST Mexico, Indonesia, South Korea, Turkey
MIT Massachussetts Institute of Technology
MNC HQ Multinational Corporation Headquarters
MNC Multinational Corporation
MOFCOM Ministry of Commerce (China)
MRPS Metropolitan Regulatory Plan of Santiago
MSC Marine Stewardship Council
NAFTA North American Free Trade Agreement
NCD Non-Communicable Disease
NFC National Finance Corporation
NICs Newly Industrializing Countries
LIST OF ABBREVIATIONS
xxiii
NOC National Oil Company

NTS Non-Traditional Security
OCMAL Observatorio de Conflictos Mineros de América Latina
ODA Official Development Assistance
OEA-OAS Organization of American States
OECD Organization for Economic Cooperation and Development
OFC Offshore Financial Center
OFDI Overseas Foreign Direct Investment
OICA Organisation Internationale des Constructeurs d’Automobiles
OLCA Latin American Observatory of Environmental Conflicts
OOF Other Official Flow
OPEC Organization of the Petroleum Exporting Countries
OSSREA Organization for Social Science Research in Eastern and
Southern Africa
PASGR Partnership for African Social and Governance Research
PCC Political Constitution of Colombia
PCCH Political Constitution of Chile
PCP Political Constitution of Peru
PDVSA Petroleum of Venezuela Corporation
Petrobras Brazilian Petroleum Corporation
PIIGS Portugal, Italy, Ireland, Greece, Spain
PIMCO Pacific Investment Management Company
PPP Point – to – Point Protocol
PPP Purchase Power Parity
PPP$ Purchasing Power Parity in international dollars
PPT Physical Planning of Territory
PRC People’s Republic of China
PTA Preferential Trade Agreement
PUC Pontifical Catholic University
PWC PricewaterhouseCoopers
R&D Research and Development
RCEP Regional Comprehensive Economic Partnership
RCF Regional Compensation Fund
REE Rare-Earth Elements
RMB Renminbi – Currency of the PRC
RSA Regional Studies Association
S&T Science and Technology
SADC Southern African Development Community
SAIIA International Development Bank
SAS Small Arms Survey
SCO Shanghai Cooperation Organization
SDGs UN Sustainable Development
xxiv LIST OF ABBREVIATIONS
SDR Special Drawing Rights

SFU Simon Fraser University
SICA Central American Integration System
SINOPEC China Petroleum & Chemical Corporation
SISME MERCOSUR System of Exchange of Security Information
SITC Standard International Trade Classification
SME Small and Medium -Sized Enterprise
SOE State Owned Enterprise
SRF Silk Road Fund
SSA US Social Security Administration
SWF Sovereign Wealth Fund
SWIFT Society for Worldwide Interbank Financial Telecommunication
TCP People’s Trade Agreement
TFTA- T-FTA Tripartite Free Trade Area
TICAD Tokyo International Conference on African Development
TiSA Trade in Services Agreement
TOC Transnational Organized Crime
TPP Trans-Pacific Partnership
TRIPS Trade-Related Aspects of Intellectual Property Rights
TTIP Transatlantic Trade and Investment Partnership
UK United Kingdom
UN United Nations
UNASUR Union of South American Nations
UNCTAD UN Conference on Trade and Development
UNDP UN Development Program
UNECA UN Economic Commission for Africa
UNECLA UN Economic Commission for LAC
UNODC UN Office on Drugs and Crime
UNRISD UN Research Institute for Social Development
UNU UN University
US EIA US Energy Information Administration
USA – US United States of America
VISTA Vietnam, Indonesia, South Africa, Turkey, Argentina
WACD West African Commission on Drugs
WB World Bank
WEF World Economic Forum
WHO World Health Organization
WIPO World Intellectual Property Organization
WTO World Trade Organization
WWI World War I
WWII World War II
List of Figures
Fig. 2.1 Estimates of the projected rise of the global middle class,
2015–203027
Fig. 2.2 Ecuador: Income inequality, 1990–2015. (Gini coefficient) 30
Fig. 2.3 Ecuador: Informal sector employment, 2007–2016
(Percentage of total employed labor force). Informal sector
employment defined here as workers of establishments
without tax registration (left axis), and workers without
access to (formal) social security (right axis))33
Fig. 2.4 Within-country income inequality by regions, 1988–2013
(Gini–weighted)34
Fig. 2.5 LA’s top, middle, and bottom of the income distribution,
around 2013 (income shares of bottom 40%, middle 40%
and top 20%; ranked by income share of middle class) 35
Fig. 2.6 Ecuador’s rising middle class, 1990–2016 (population
shares by income categories) 36
Fig. 2.7 Ecuador: Growth of real per capita household income by
deciles, 1991–2016 38
Fig. 3.1 Performance of total export and exports towards the region
of South America and the rest of the LAC. Left axis—millions
of US dollars; Right axis—percentage of total exports
Key: South America LAC/world (right axis), rest of LAC
LAC/world (right axis), exports from South America to the
world (left axis), exports from South America to LAC
(left axis), exports from the rest of LAC to the world
(left axis), exports from the rest of LAC to LAC (left axis) 57
xxv
xxvi List of Figures
Fig. 3.2 Composition of exports from South America as well as the

rest of the LAC. Y axis—percentage of total Key: South
American primary products, South American manufactured
products, primary products from the rest of the LAC,
manufactured products from the rest of the LAC 62
Fig. 3.3 Total and primary exports to China from South America
and the rest of the LAC Y axis—percentage of the total
Key: China in the total export: rest of the LAC, China in
the total exports: South America, primary export products
within total exports to China: rest of the LAC, primary
export products within total export to China: South America 63
Graph 5.1 FX Reserves 111
Graph 5.2 China as a capital exporter 111
Fig. 6.1 Relevance of selected countries on the rest of the world 124
Fig. 6.2 Centrality in the global and regional trade networks.
(a) Central economies. (b) Brazil, a sub-center in the
South American periphery 126
Map 6.1 Trade relevance of the USA and China on South America
(2013)127
Map 6.2 Trade relevance among South American countries (2013) 128
Fig. 6.3 Regional blocks and the rest of the world. (a) Average
relevance of blocks on the rest of the world. (b) Average
relevance of the rest of the world on the blocks 130
Fig. 6.4 Influence of global centers on the South American blocks
(a) the USA (b) China 133
Fig. 6.5 Cohesion of the South American blocks 134
Fig. 6.6 Intra-block cohesion vs. percentage of primary exports 135
Fig. 6.7 Average relevance of the block on the rest of the world vs.
percentage of primary exports 136
Fig. 6.8 Intra-block industrial trade 137
Fig. 6.9 Intra-block industrial trade vs. percentage of primary export 138
Fig. 6.10 Industrial trade balance vs. inter-block cohesion 140
Fig. 7.1 The evolution of the share of South American oil and gas
reserves149
Fig. 7.2 Share of primary exports in total exports 153
Fig. 7.3 The evolution of oil prices 154
Fig. 9.1 Industrialization (value added % of GDP) in LAC and
South America, 1992–2014 (Data do not include Paraguay
between 1994–2004 or Venezuela in 2013 and 2014;) 200
Fig. 9.2 The export structure of South America by technological
intensity index 1992 = 100 (Data do not include Suriname
in 1993, Guyana until 1996, and Venezuela in 2014;) 201
List of Figures
xxvii
Fig. 9.3 Evolution of R&D expenditure (as % of GDP) in South

American countries and the commodity price index,
2000–2012206
Graph 11.1 LA (Latin America). Population pyramid and
demographic bonus 248
Graph 11.2 LA (Latin America), 2000–2010. Export of demographic
bonus by country migration rate of working age
population (%) 249
Fig. 11.1 International migration and global regime of
demographic reproduction251
Graph 11.3 California, 2015. Population pyramid of non-Latino
white and Latino origin population 252
Fig. 11.2 Labor migration and reproduction of capital 254
Graph 11.4 USA, 1995–2016. Accumulated deficit of labor force
and coverage by ethnic minorities 256
Fig. 11.3 Labor migration and class structure in global societies 259
Graph 11.5 USA, 2016. Occupational and social class structure,
by ethnic minorities 264
List of Tables
Table 2.1 Transition matrix of mobility across income classes, 2007–2014 39

Table 2.2 Ecuador: Skill-based wage premium for urban workers (Beta
coefficients estimated using a Mincerian wage equation) 41
Table 2.3 Ecuador: Wage premium for urban workers in the modern
sector (Dummy coefficients for the modern sector) 42
Table 3.1 Exports to South America and LAC 1995–2015 64
Table 8.1 World motor vehicle production—All types—Growth rate
total and by region—2000/2015 173
Table 8.2 World motor vehicle production—All types—Percentage
share by region—2000/2015 174
Table 8.3 World motor vehicle production—All types—Growth rate
by region—2000/2015 176
Table 8.4 Motor vehicle production—All types—Percentage share
by country—2000/2015 177
Table 8.5 Vehicle sales motor—All types—Growth rate of total sales
by region—2006/2015 179
Table 8.6 Vehicle sales motor—All types—Participation percentage
(%) by region—2006/2015 180
Table 8.7 Vehicle sales motor—All types—Growth rate of total sales
by country—2006/2015 181
Table 8.8 Vehicle sales motor—All types—Participation percentage
(%) by region—2006/2015 182
Table 8.9 Intercountry input-output—Database for 2005—In millions
of US$ 189
Table 9.1 Expenditure in R&D and researchers dedicated to R&D 207
Table 9.2 Patent applications per region 209
xxix
xxx List of Tables
Table 10.1 Government models of metropolitan areas 222

Table 10.2 Political administrative division and number of units in Chile,
Colombia, and Peru 225
Table 10.3 Main characteristics of the metropolitan administration
models of Bogota, Lima, Santiago, and Quito 229
Table 11.1 International migration and global regime of demographic
reproduction251
Table 11.2 Labor migration and reproduction of capital 254
Table 11.3 Labor migration and class structure in global societies 259
Table 13.1 Regional organizations created in the twenty-first century
and their diversity of aims 295
CHAPTER 1
The IPE Puzzle of Regional Inequality,

Instability, and the Global Insertion of
South America
Ernesto Vivares
This book is about the IPE of the unequal and the unstable structures of
South American regional development and their uneven links with the
global order after the decline of the commodities boom. The book explores
the extent to which the South American development concerns are related
to the decline of commodities and/or the historical political structures of
unequal development and international insertion. The specific aim of this
collection is to open up regional research agenda through multidisci-
plinary and eclectic approaches to critical and empirical study of the
region, beyond the limitations of North American and European
approaches. As Söderbaum points out, “the problem is not … theory and
practice per se [of North American and European approaches] but … a
particular reading of [those] formal and state-centric models” (2000: 1).
The assumption here is that the regionalisms of the Global South, cannot
be studied and evaluated as variations of those models. Rather, South
American regionalism requires that that we pay attention to its specificities,
E. Vivares (*)
Department of International Studies, FLACSO Ecuador, Quito, Ecuador
© The Author(s) 2018 1

E. Vivares (ed.), Regionalism, Development and the Post-Commodities
Boom in South America, International Political Economy Series,
DOI 10.1007/978-3-319-62551-5_1
2 E. VIVARES
dilemmas, paradoxes, and contradictions of development as well as its

unsteady structures of insertion in a dynamic world order. Second, this
book contends that regionalism, regionalization, and region are not by
themselves “benign” or “positive”, and that, instead, regionalism can be
formal, informal, non-state, and even malignant regionalization such as is
observed in many regions (Taylor 2005; Duffield 2001).
This book takes issue with the normative stance of approaches around
unrevised assumptions of formal, actor-oriented, institutionalized poli-
tics, and neoclassical economic views. Instead, the work here aims to
undertake a multidisciplinary, eclectic research endeavor, through the
voices of mainly South American scholars who offer a critique of the
mainstream stance on IPE of regionalism. It does not set out to under-
take an exhaustive account of the issues of the region, but seeks rather to
open up the regional research debate. Briefly, this collection develops
theoretical and methodological approaches, and lays out a set of empirical
studies of the South American region at this particular, complex, and
challenging historical moment. It is about theory and research in the IPE
of the Southern Cone of the Americas, and critical and eclectical reflec-
tion upon the unequal and uneven structures of regional development
and global insertion, which have historically been defined. It also pro-
vides a set of empirical multidisciplinary studies, as each section focuses
on a selected sample of some of the key structures of unequal and uneven
South American development. The claim here is that the new South
American regionalism is a central case towards understanding the LA IPE
of regionalism and development in a changing world order. Accordingly,
this book is not about the progressist features or successes of the Pink
Tide or the rise of AP but upon their regional reconfiguration, develop-
ment setbacks, and global insertions and in doing so, it is about the South
American structures of unequal regional development within a complex
world order.
This chapter serves as an introduction to the theories and method-
ological approaches that underpin the book. The first section sets out the
analytical concepts that cut across the fields of IPE and regional studies
about South America in order to respond to a central question. That is, if
regional development in the South is defined by commodity prices cycles,
which the region is failing to achieve convergence in prosperity as in
industrialized countries, or if regional structures of development and
international insertion have keep it from reaching wellbeing and growth.
The section seeks to broaden and link IPE and regionalist interpretations
THE IPE PUZZLE OF REGIONAL INEQUALITY, INSTABILITY... 3
in terms of formal, informal regional development, and international

insertion. The second section sets the historical methodological lines of the
LA IPE, its features and contributions to the central regional issues of
inequality and international insertion with the world order, its central
assumptions and premises of its varied perspectives. On the basis of this, the
section deploys the concept of unequal structures of regional development
and international insertion. These are understood as the contextual and his-
torical developmental configurations (ideas, institutions, and material con-
ditions) at the very basis of inequality, instability, and external insertion. The
third section is based on the methodological notion of conceptual cages,
which often bias research, or reduce it to rational reductionism. In total, the
section identifies and discusses five conceptual cages. The final section ana-
lytically outlines the three most important IPEs in LA concerning the inter-
pretation of South America as a region within a changing world order.
Commodities Boom or Unequal Structures

Development?
During the last decade, we witnessed promising claims about the rapid
rise of the Global South, with South America and Africa leading, with
unprecedented levels of growth and reduction of poverty (World Bank
2015). The new global and regional reconfigurations arrived with opti-
mistic assertions concerning a post-hegemonic, post-neoliberal, and
multipolar order thanks to BRICS/CIVETS/MINT/MIST/VISTA,

emerging markets and regions (Shaw, Chap. 14 in this book). The two
regions provide necessary comparative cases, showing similar flawed neo-
liberal narratives underscored by optimism of alternative development
paradigms, within a world order dominated by neoliberal economics,
institutionalized globalization, and liberal peace-war (ibid.). However,
the new global divide was marked by normative and progressive assump-
tions, sustaining imprecise categories, bearing different political and nor-
mative interpretations upon the future, despite their real achievements.
South America was at the forefront of experiments with alternatives to
neoliberalism; 56 million people came out of poverty, 20 million stepped
out of extreme poverty, and an historical reduction in income inequality
and democratic stability followed, where evident. However, with still
nearly half of the population at risk of falling into poverty (UNDP 2014;
Cord et al. 2014).
4 E. VIVARES
Even so, suddenly, several countries in the region have gone from very
positive circumstances to critically dire situations, with the decline and col-
lapse of progressive governments and what once were the stars of the
global heterodox progressive change. Beyond the widely recognized
changes, something had not changed as the historical structures of unequal
development were still there, bouncing and shifting back and forth,
between the realities of neoliberal and conservative orientations. Is the
South American regional shift back to conservatism and neoliberalism just
another chapter in the old tale of the chronic LA capitalism, driven by
populist governments unable to follow the universal economic wisdom of
the North? Are we seeing the impact of the End of the Commodities
Boom? Or is it an undeniable part of its global regional transformation
defined by a particular piece of the regional puzzle of development, unat-
tached under different orientations of development, but with the same
international insertions throughout history? To what extent are inequality
and uneven regional structures responsible for these issues? Finally, how
do we grasp these realities in the critical and eclectical IPEs of regions and
development? The research presented here is open to the task of challeng-
ing new and old regional scholars; this section aims only to set out ques-
tions and general methodological lines of reflection and concepts to
explore.
The beginning of the new century was full of regional development
narratives, filled with diagnoses about a historical countries´ growth and
convergence, all in favor of alternative policies, and claims that the South
would eventually decouple from the North and drive its own growth
(Nossel 2016). The rapid rise and new configuration of the Global South
were undoubtedly evident, but these did not provide an idyllic alternative
world, but one within all the contradictions of the historical framework of
neoliberal globalization and the Western peacekeeping of the last decades.
Market-led global economic stagnation, the Panama Papers, Britain’s exit
from the EU (in the form of Brexit), declining cities, refugees and mass
exodus, famine, media environment destruction, Middle-East globalized
national and religious wars, and the growth in global scale of organized
crime are just some of the parts of unforeseen neoliberal global develop-
ment. This historical global development is one in which we do not know
yet if it can be understood as the end of the post-1945 world order, or a
post-crisis and world disorder, triggered by the 2008 crisis (Kaletsky
2017). Evidently, countries that have somehow temporarily succeeded
using market signals, state intervention, and international competition to
take advantage of high commodity prices have joined transnational pro-

duction networks (Estay, Chap. 3. in this book). While these are located in
advanced economies, they do not necessarily translate to structural and
consolidated changes in Southern domestic social structures and welfare
(Ponce et al., Chap. 2 in this book). Value chains and North-South frag-
mented production networks have risen with strong state-led technologi-
cal incentives, but not sufficient to consolidate Southern technological
structural hubs (Moreira Lima, Chap. 8 in this book). For first time in
LA’s political economic history, knowledge has come to the fore as
unsolved, albeit trapped in historical regressive structures, and, above all,
education has also increased (Frankema 2009; and Cango et al., Chap. 9
in this book). Summing up, reprimarization spread in particular over
South America linking progressist governments, Pink Tide regionalism
with reprimarization and weakening the external position of the region in
the face of any set back in terms of commodity prices (Estay, Chap. 3 in
this book) In fact, historical regional structures are proving to be more
resilient than everyone expected, with formal theories limited to fully
grasp them and their relations to cities characterized by unequal develop-
ment structures and global financial intermediation, thanks to reprimari-
zation (Sassen 2016; Fuentes and Duran, Chap. 10, and Estay, Chap. 3 in
this book). For instance, fragmented production networks grew in and
around cities in the region, with highly educated populations and margin-
alized ones, some tied to regional other to global setting, marking new key
ambiguous roles for LA cities of development, inequality, and global inser-
tion (Sassen 2005, 2016). Briefly, this is an IPE of South America as a
region, but rather than studying it from its achievements, or how shifts
between right- and left-wing and top-down regionalist politics, this work
examines South American regionalism in terms of its structures of inequal-
ity, asymmetric, and unsteady regional and international development.
To assert that the rise and fall of Global South America is a reflection of
the last, long international commodities boom (2003–2012) is to reduce
all these regional reconfigurations and development setbacks to a price-
oriented sophism, where everything, sooner or later, moves towards the
achievements of the industrialized North (Dumitru et al. 2015). In fact,
historical evidence speaks differently about these changes, and, in particu-
lar, about the historical relations among the global economy, South
American inequality, and its strong dependence on development funding
from primary sectors. The matter is not new in the political economy of
6 E. VIVARES
regional and LA development (Halperin Donghi 1995; Weaver 2000;

Bertola and Ocampo 2012). Certainly, there was, and there continues to
be, a wide range of regional IPE scholarship focused on the regional his-
tory of inequality and its international insertion (De Ferranti et al. 2004;
Frankema 2009; Thorp 2012; Astorga 2015). Strikingly, the literature is
mostly centered on the relations between the international order, periph-
eries and cities, the political economic nature of world hierarchies, the
relationship of inequality in development, and their structures of repro-
duction, as well as the regional attempts to change them.
More to the point, the research about the impact of the rise and decline
of the commodities boom on the region highlights different conclusions
compared with the aforementioned sophism. In fact, the fluctuation
between neoliberal-conservative and neo-populist–neodevelopmentalist
directions have been present, in different but similar ways, since the
1940s in LA accompanying a deep process of hemispheric and regional
reconfiguration (Griffith-Jones 1984; Payne 2005; Bertola and Ocampo
2012). Following the literature, the relations between world orders and
regional change are more related to regional structural reconfigurations,
something accompanied by economic cycles rather than determined by
them (Halperin Donghi 1995; Weaver 2000). This common unrevised
sophism concerning commodities derives from the methodological bias
of particular theoretical assumptions in research premised on ideas such
as “when there is money there is progressist regionalism, but when there
is not, market clearing rules.” This argument biases the analysis towards
universalist and ahistorical conclusions (regionalism rise and fall tied to
the development finance), without accounting for other dimensions of
life beyond the formal numbers of trade, finance, and fiscal budgets
(Söderbaum 2000).
A more integral and wide-ranging way to approach the central features
of the realities of LA development is from the specific political economic
caveats at the heart of its unsteady history of its distinctive regions of
development, for the case of inequality in all its varied configurations and
forms in their historical regional context. This includes lines of conflict,
which have marked the region and passed from the colonial empire to the
Pax Britannica, and from the Pax North Americana to the current global
order. A global configuration that seems today to shift from a neoliberal
and institutional settings towards a world shared between the great pow-
ers and regions, all crossed by nationalism, mercantilism, and new right
wing configurations of political economic forces.
The relation between regional domestic and the international is perhaps

one of the most elusive research topics in the fields of both International
Relations (IIRR and IPE), since they question some specific academic
understanding regarding the nature of regional economics and politics,
and above all, the dynamics between the domestic and the international
connections. To contest this, a conceptual and methodological introduc-
tion argues that any multidisciplinary and comprehensive South American
regional research must start with its main lines of inquiry examining its
unequal structural development and peripheral insertion.
Latin American IPE, Inequality and World Order

Any attempt to talk about the Political Economic History of LA repre-
sents a complicated challenge for three reasons. First of all, there is an
important deal of mainstream scholarship where orthodox economics
dominates the tale with essentialist and ahistorical interpretation, to say
the least. Second, the region is huge, complex, crossed by formal and
informal subregions, national-states configurations, settings that do not
play well with closed generalizations and universalization. Third, it is the
fact that the LA IPE has been focused deeply upon three major issues:
inequality, political economic instability in the management of capitalisms
by governments, and finally the matter of international insertion or whom
the region is part of. There, the importance of the links between IPE and
regional approaches, LA IPE, had provided for a long time the base of
regional research.
The LA IPE, beyond its different approaches, has historically focused on
the complex relations between the international, regional and national, in
terms of development, conflict, and inequality. Economics and politics
have been presented as inseparable analytical relations framing power and
development, and the same were seen between the domestic and the inter-
national (Tussie 2015). It is in relation to these methodological frame-
works that the concept of region and regionalism are often inserted,
although the notion of LA as a region existed well before the independence
of its nations (Deciancio 2016). However, that tradition, including both
that of CEPAL and dependency theories, was abruptly halted in the middle
of the 70s, via the repression and exodus of an important wave of innova-
tive scholars, stalling for more than two decades the academic development
of the LA IPE. By the middle of the 90s, the wave of regional scholarship
began to rise again in a different global order, seeking to comprehend,
8 E. VIVARES
explain, and contest the agenda of the neoliberal globalization based on

the power of international finance in partnership with the Bretton Woods
institutions (Tussie 2015).
Compared with recent decades, the challenge has been different for the
return of the LA IPE. In the absence of a regional epistemic community,
the neoliberal mainstream, rooted in a particular version of the North
American positivist political sciences and a Eurocentric view of the neolib-
eral progressist global liberalization, setting a universal understanding of
regionalism and development (Deciancio 2016; Acharya 2014). At pres-
ent, two decades later, with the global order in flux due to the rise of right-
wing populism, nationalism, and mercantilism, the return of China, and
the decline of neoliberal Europe and international institutions, the chal-
lenge of the LA IPE has shifted toward a new set of challenges and dilem-
mas (see Christensen, Chap. 4 in this book). This is to approach the new
realities through the narrow paradigms and methodologies used to inves-
tigate and explain the world order of the Cold War or open the conceptual
cages in search for approaches, theories, and methods more sensitive to
the structural configurations and realities of LA. Those historical configu-
rations of material conditions, institutions, and ideas in historical context
behind inequality, political instability, and international insertions, all at
the very basis of the historical, swing back and forth, between progressive
and conservative national tendencies, regional development, and global
orientations.
There are different lines in terms of academic contributions and domi-
nant interpretations about the causes of why inequality, instability, and
asymmetric insertion are so embedded and extreme in the LA region. One
of these major contributions has been developed by Rosemary Thorp
(2012), emeritus reader in the political economy of inequality of LA at
Oxford University. According to Thorp, historically, inequality has been
functional to the growth and international insertion, even constructed and
promoted by governments and elites in different periods to support par-
ticular paths of growth (2012). Based on the works of scholars such as
Frankema (2009), Palma (2003), North (1990) and Gasparini and Lustig
(2011), Thorp builds a powerful argument. First of all, she argues that the
Spanish colony created a strong institutional legacy that sustained and
projected regional inequality over the following centuries, holding the
region back in terms of development and global insertion. Second, she
states that the colonial rule created and embedded the overlap between
class and ethnicity that has defined inequality in the region during the
intervening centuries. Third, she argues that institutions created around

labor supply and inequality in land ownership have come to define an
unstable political economic culture of the management of regional capital-
ism (2012).
According to Thorp, this has severe implications in the transformation
and reconfiguration of LA after the Spanish colonial rule, framing a struc-
tural relation with the world trade, reacting to falling transport costs and
rising European demand of commodities between 1870 to the Great
Depression, as a valid generalization that marked the IPE of LA. Countries,
facing labor force shortages, moved to resolve the issue by reducing their
proportion of labor. Migration and indigenous subservient groups were
institutionalized, linking inequality, new LA capitalism, and international
insertion. Inequality came to be seen as functional for growth and indif-
ferent LA societies, based on the power of socio-, economic, political, and
cultural elites tied to the world order, centered around the hegemony of
Europe first and later the USA.
Along these lines, considering the close relations between inequalities,
political instability, and international insertion, similar interpretations such
as the contributions of regional heterodox economists, such as Antonio
Ocampo (2012). According to Ocampo, the LA misfortunes of develop-
ment can be found in the past and present relation with the whole as the
bulk of the LA countries have not yet been able to leave their natural-
resource based production patterns behind them that provide an eco-
nomic focus in a global economy. For Ocampo and Bertola along this
heterodox economic lines of research, LA’s pattern of trade specialization
has held region back from gaining further access to more technologically
dynamic segments of the global market. In other words, Ocampo high-
lights the formal trade link among nations, regions in their international
insertion. His conclusion, LA’s pattern of trade specialization, along with
the region’s cyclical access to capital markets, accounts for the highly
unstable nature of LA’s economic growth (ibid. 2012). As a matter of fact,
historically, other regions and countries with similar characteristics were
able to leverage their natural resource-based productions and shift devel-
opment paths towards more industrial dimensions and the key for them
was their international insertion or position within the world order and in
relation to the hegemon. These include Canada, Australia, and New
Zealand. Nonetheless, the main characteristic present in these countries,
but not in LA, is the type of international insertion or multilevel relation-
ship with the dominant world order and hegemon, that played a key part
10 E. VIVARES
in LA’s insufficient diversification of production structures made it diffi-

cult to sustain broad-coverage welfare politics (ibid. 2012). This point is
central as the new regional global trade networks of South America remain
structurally yet strongly concentrated and underdeveloped in the region
(See Pérez-Oviedo et al., Chap. 6 in this book).
In a critical review of these political economy contributions, Pablo
Astorga, focusing on the formal political economy and development,
argues that these conclusions are inconsistent with the evidence in LA in
the pre-industrial era in comparative international terms (2015). According
to Astorga, the time of polarization can be traced to the periods 1900–2011,
in particular, the 60s and during the implementation of the “Washington
Consensus” (ibid., 26–28). Considering the relations between domestic
and international development, inequality grew in the 60s in a world con-
text of the reduction of the development finance flows to the region by the
time of ISI policies, and in the 90s the period of liberalization and finan-
cialization of development (Griffith-Jones 1984; Lustig et al. 2012).
However, industrial development and the expansion of middle classes
were not enough to curb the burden of rural population into inequality in
the 60s and, in the 90s, deindustrialization and informalization of labor
force did not either. Also, the comparative studies of the region between
the 90s and the first decade of the twenty-first century presents further
contradictory results concerning the historical social structures in the
region or the variations according to the stage of development of upper,
middle, and lower classes (Ponce et al., Chap. 2. in this book).
In summary, the LA IPE scholarship on inequality in LA has longstand-
ing contributions, albeit focused on two lines: One attributing inequality
to the Iberian colonial heritage, the other focused onto formal economics,
political institutions, and public policies. In any case, strikingly, neither
take into account other academic contributions related to geo-economics,
history, urban studies, security, sociology, economic ecology, etc. A more
multidisciplinary and diverse regional research agenda links regional IPE
to the multidimensional phenomena of development. Inequality, includ-
ing its economic and political dimensions, constitutes a contextual and
historical matter of development since it is crossed in its rise, reproduc-
tion, and historical resilience by different and interrelated structures of
development and also demonstrates how inequality is structurally tied to
multiples configurations of material, institutional, cultural, and ideational
social forces.
Historians and other social scientists, beyond different perspectives,

have, for a considerable time, provided us with central insights about the
political economy, dynamics, and conflict of the power in the world order.
These discernments help us to frame that in a wider and integral approach
to comprehend the unequal, unstable, and pivotal political economies of
LA regions today. The contributions of E. H. Carr (1967), Eric Hobsbawn
(1998), Fernand Braudel (1979), Emmanuel Wallerstein (2004), Robert
Cox (1981), Katzenstein (2005), and Ikenberry (2011) differ regarding
the conceptualization of structures within a world order, but they do have
central points in common in the major features of the different worlds
orders and regions of the last 400 years.
Accordingly, the world order has boundaries that define their identities;
they circle a center or a set of major cities that are set in an already domi-
nant type of capitalism, consisting of particular configurations among
economy, the market, political order, and elite classes. Every world order
can be historically divided into different and often hierarchical layers, one
based around a central city or metropolis, highly socially diversified and
heavily protected as world class cities. Venice, Antwerp, Amsterdam,
London, and, in the last century and present day, New York, Paris,
Frankfurt, and Tokyo were examples of that. The second level consists of
a line of cities associated with the center, like a class role in the world
order, and finally, the periphery subsumed into inequality, poverty, and
backwardness, since inequality is structural and functional to the world
order (Braudel 1979). Within any historical order, regions connect, and
overlap in their political economic boundaries; regions are functional to
the hierarchical nature of the world order (ibid.). Hierarchies between
world cities and regions as well as inequality are intimately related each
other and LA within the world order does not seem to escape the histori-
cal features mentioned: inequality, political instability, and type of world
insertion have for a long time been tied to structural configurations.
Following this, one the most important lessons is that world orders and
regions occur simultaneously as they are structurally linked in their dynam-
ics and reconfigurations (Bøås et al. 2005; Söderbaum 2000). This includes
the case of the historical remapping of the Americas and LA as regions since
1889 and their institutional expressions such as the Commercial Bureau of
the American Republics, later the Pan American Union (1910) and, finally,
the OAS (1945). These are at the center of the common, often misleading,
assumptions or conceptual cages that regionalism started in Europe after
WWII and from there, the phenomenon spread to other regions such
12 E. VIVARES
as South America (Söderbaum 2000; Acharya 2015). In this sense, LA

regions have historically occupied a position in the periphery of the differ-
ent world orders (Weaver 2000). Historically, LA regions have passed from
a peripheral relationship with one historical hegemon to another. For
instance, this was the case with regard to the Spanish and British Empires,
to Pax Americana, all in a functional relationship with the hegemon on the
basis of regional hierarchy (Weaver 2000; Halperin Donghi 1995).
Accordingly, world orders present a hierarchy of core, intermediary, and
peripheral cities, which is easy to follow in the dynamics of LA’s geography
of cities and metropolis (Sassen 2016; Fuentes and Duran, Chap. 10 in this
book). Finally, hierarchy and inequality have been bound and functional to
the political economic nature of the region within a world order (Braudel
1979; Payne 2005; Thorp 2012). In conclusion, LA regions are necessary
heterogeneous configurations of historical political economic structures,
formal and informal that define position in the world order at a historical
given time (Katzenstein 2005; Ikenberry 2011; Weaver 2000; Bulmer-
Thomas 2003). Regarding informal or malign regionalism, there is wide
range of contributions challenging us to link in our research region, secu-
rity and development (Payne 2005; Bøås et al. 2005; Taylor 2005).
Historical variations in terms of upper, middle, and lower classes gener-
ally related to macro formal economic variables where the research on
inequality becomes abstract, analytical, and useful although limited to for-
mal economics (i.e., Lustig et al. 2012). However, in political economic
terms inequality is also tied and related to different structural conditions,
which, as well incomes and wages, shaped by size of informal economies,
access to urban infrastructure and services, organized crime, distribution
of trade and financial benefits, security, migration, etc. (see Canales,
Chap. 11, and Ponton and Guayasamin, Chap. 12 in this book). Inequality
in LA is historically a structure of development in a given space, which
shares regional features and is multidimensional, as it is horizontally
crossed by different configurations of forces from the formal and informal
world. Something similar can be observed about political instability, as this
is bound to social and development structures whose resilient power may
remain in place beyond different stages of change. The political economy
of the formal political construction of legitimacy around political govern-
mental projects is vital to unpacking this relation, although most of the
time it does not account for the impact and relation with other develop-
ments such as organized crime, para-state conflicts, and their international
insertions. Briefly, three different but complementary dimensions of the

IPE of development are present in LA, as well as in other peripheral
regions of the world order: the formal, informal, and that about regional
global insertion.
In terms of research, the concept of unequal structures of development
has two sides. The first is flexible and subject to the orientations of the
research as this allows multiples combinations for empirical and theoretical
investigation. The second demands to identify and critically open or review
the conceptual cages framing the IPE issue of regional development and
international insertion. Historians and international political economists
have, for a considerable time, provided central insights about the impor-
tance of structures as an empirical starting point of the research. This helps
us with the political economy, dynamics, and conflict of the power of the
regional in relation to the world order, and those discernments do help us
to frame that wider and integral approach highlighting the structural
nature of the LA regional structures of development and global insertion
today.
Therefore, a key point from the South in opening any agenda about LA
must rest on few premises, or at least they must be explored. The first is
that inequality must be considered as a multidimensional phenomenon,
shaped by unequal structures of development and global insertion.
Second, that inequality cuts across regional development orientations,
national institutionality, urban orders, urban-rural economies, undercover
worlds, formal and informal sectors, and domestic–international settings,
without omitting the centrality of the relation between power and econo-
mies. Structural inequality is a longue durée (i.e., following Braudel); a
multidimensional process that is functional to the global insertions of the
region and its countries. Inequality is linked to the domestic–international
political economic dynamics via a state–society complex (Cox 1981), and,
the resilience of this is at the very core of the regional bouncing between
neoliberal conservative to developmentalists regional orientations of devel-
opment (Braudel 1979; Palma 2003; Frankema 2009).
The theoretical and methodological value of this approach to unequal
or asymmetric structures of regional development rests on that which
allows us to identify the multidimensional political economic nature of
that region in a historical and geographical context, as the configurations
of these structures varies from North to South and from East to West
regions and countries. A second benefit is that, as an ideal type to be ful-
filled by research, it allows us to identify relations between the macro and
14 E. VIVARES
the micro levels of analysis. For instance, the impact of a structure of trade
is not the same in the formal or informal sector of the economy, very much
less over primary, industrial sectors, or regional valued changes. The same
can be said about organized crime (e.g., see Moreira Lima, Chap. 8, and
that of Ponton and Guayasamin, Chap. 12 in this book). In this sense, the
concept of unequal structures of regional and national development is use-
ful but for the understanding of some aspects of the world, as these are
historical and contextual frameworks of action, they do not determine
actions but constitute the material ideational configurations where they
take place (Cox and Schechter 2002). On the one hand, they are, at a
micro level, a particular amalgam between material capabilities, institu-
tions, and ideas (e.g., migration, organized crime, knowledge, cities, etc.)
On the other hand, the entire set of these configurations interact multidi-
mensionally in three macro levels; social forces, forms of state-society
complex, and world orders (ibid.). Accordingly, any particular unequal or
asymmetric structures of development can be analytically approached from
a specific research focus, for instance, domestic or international, formal or
informal, ideational, institutional, or as a political economic process, and
grasped in its specificity.
Successful Ideas at One Time Can Turn

into “Conceptual Cages” at Another
The idea that scholarly IPE is biased by certain preconceptions, concepts,

and research practices is not new. Numerous scholars have pointed out
how misleading preconceptions and research practices implicit in
Eurocentric regionalism, North American actor-oriented, or reducing
regionalism to liberal economic integration perspectives, have contributed
to their failure to explain sufficiently new regional processes and outcomes
elsewhere (Jackson 2011; Acharya 2011; Söderbaum 2013; Riggirozzi
and Tussie 2012; Torrent 2003). For Söderbaum, the problem inherent
in the above approaches is the assumption of the European experience “as
the foundation for conceptual development, theory building, and compari-
son”, leading to a “false universalism” based on universalist “Eurocentric”
readings of the history of regional integration (2013: 1). The fact is that
the variation in approaches concerning South American regionalisms var-
ies according to the methodologies used and their different ontologies
and epistemologies (Söderbaum and Shaw 2003; Lombaerde 2016).
These variations are central, both theoretically and methodologically,

since the study and evaluation of the IPE of regionalisms, such as the LAs,
can be part of a diverse and critical integrated research agenda in IR and
IPE to better grasp other realities beyond the mainstream. It is important
to note that LA retains strong ties to the North American–European influ-
ence in the academic field of IR, and, above all, to the frameworks for
explaining regionalism and its relations with globalization and develop-
ment. In fact, there is relatively little research about LA contributions to
IR or IPE on regionalism out of the umbrella of both the Eurocentric and
North American market-led perspectives of integration. Different histori-
cal and academic factors have contributed to this but certainly the domi-
nant theoretical views in the region rest on neofunctionalist, institutionalist
Eurocentric and North American perspectives, somehow caging the
research (Söderbaum 2012: 5; Lombaerde 2016).
In his The Protestant Ethic and the Spirit of Capitalism, Max Weber
warned how the successful ideas and projects of one time turned into
political iron cages of another period (2001). According to Weber, the use
of certain concepts for current research, removed from their original
meaning and political purposes given to them by their founders, usually
justify the survival and expansion of existents powers rather than serving
to explain social change. Weber calls such historical ideas (those with a
strong political sense in their orientation of development), “long lasting
iron cages”, derived from rationalized forms of how reality functions in
one historical context (2001). The Weberian metaphor might be a useful
concept as a base to identify and analyze the theoretical and methodologi-
cal elements that are necessary in order to avoid the biases of key concep-
tual cages.
The main issues with these conceptual cages lie in the architecture of
the paradigms where they rest and reductionist assumptions concerning
the role of theory in research on regionalism and IPE, the base of its “false
universalism”. The problem is not necessarily with the theories in them-
selves, but with some dominant and unquestioned ontological and epis-
temic assumptions on which they are built. Conceptual cages can be
identified as they do frame issues of development, set hierarchical assump-
tions, enclosing research and production of knowledge. In other words,
they constitute epistemic practices that distort, depoliticize, and turn into
technical concepts in relation to specific projects of development (Bøås
and McNeill 2004: 1–4). The epistemic power of them, as theoretical and
methodological lenses, often ends in a transformative logic that taking
16 E. VIVARES
research towards an ahistorical, top-down, and liberal-institutionalist

analysis based on particular assessments of other regionalist experiences
(Söderbaum 2013; Bøås and McNeill 2004).
These conceptual cages are marked by excluding tendencies that block
other agency-structure dynamics from the formal regional processes,
informal processes, conflict, and development (Bøås et al. 2005; Taylor
2005). In fact, conceptual cages function as consensual epistemic devices
and they depend and extend according to the power of particular epis-
temic communities. They legitimize and operationalize a certain ontologi-
cal hierarchy of assumptions. This work is done by stages, first depoliticizing
historical or contextual concepts of development, then operationalizing
them into technical and objective theories. For a final stage, using those
conceptual frameworks to measure or test to which extent other realities
fit the mould (Bøås and McNeill 2004). In summary, six major conceptual
cages can be identified by an IPE of regional South American develop-
ment: (1) the assumption that regionalism started with the rise of the EU
in the 40s; (2) the Eurocentric or North American market-led oriented
regionalism as measure of all regionalisms in the South; (3) the concept of
LA as a homogenous political economic identity detached from the
Americas and the world order; (4) the formal and top-down interpretation
of regionalism; (5) the fusion of regionalism into the concept of formal
political economic integration.
Latin American IPE and South America as a Region

There are important contributions to the comprehension of the Pink
Tide’s decline, such as that from Quiliconi and Salgado Espinoza,
Chap. 13 in this book, which offer deep analytical components from
where to grasp current debates about the South American regional
dilemmas. However, three major IPE regionalist perspectives about
South America compete for the interpretation of the South American
region: the institutionalist market-led regionalist perspective, the prag-
matic neodevelopmentalism, and the named consensus of commodities
or post developmentalists. The institutionalist market-led regionalist
perspective has been the dominant academic view in LA with significant
contributions inciting the regional debate that has highlighted the
institutional and trade integration weakness of the different regional
process (Malamud and Gardini 2012). This is nurtured by complemen-
tary academic strands of institutionalism, Eurocentric regionalism, and
economic liberalization fixing its analysis to market outcomes, national

homogenous convergence, and supranational institutionality. It claims
that the EU, from a particular institutional and liberal economic under-
standing, is the necessary model to follow and compare with other
regionalist projects (Malamud 2011). The major critiques to that are
summarized in what Acharya has come to name the Eurocentric region-
alism with its false universalism (2011: 631). Its conceptual cage dimen-
sion lies in the notion that international history and development are
the result of free trade and markets, supported by regional and interna-
tional institutions (Stein 2008). The neoliberal and historical institu-
tional premises rest on the contributions developed by functionalists
and neo-functionalist theorists for whom the origin of regional co-
operation is primarily economic and institutional. This, therefore,
equates regionalism with market and institutional integration defined
by a top-down construction; market, and political convergence, and
sovereign transfer from national states to regional institutions are con-
ditions sine qua non of its existence (Malamud 2011). Such a view,
certainly quite popular amongst a particular network of LA scholars,
stems from two central, but unrevised perspectives. One is the particu-
lar universalist and ahistorical interpretation of European regionalism.
The other is rooted in positivist North American political science tradi-
tions, centered on actor behavior, liberal economic integration, and
neoliberal institutionalism (Söderbaum 2013).
The second major regional view focuses on regional transformations
and shift from LA into South America following the exhaustion of the
Washington-sponsored regional multilateralism and its institutions, the
return of the state, the presidential diplomatic regionalism, new multi-
lateralism, and social policy issues (Sanahuja 2012; Bonilla and Long
2010; Riggirozzi and Tussie 2012). Its representatives contend that
renewed regional integration emerges as a South American political
coalition focuses upon social, political and security dimensions, and
common policies in areas of energy and infrastructure against the empha-
sis on trade liberalization of the “open regionalism” (Sanahuja 2010:
88). The political leverage of the new South American Regionalism is
nurtured by the hegemonic differentiation and competition among
North America, EU, and South East Asia. With a critical and varied
focus on power and governmental relations, multilateralism and public
policy, political projects, and institutionality, proponents of this view
argue that the rise of the new South American regionalism responds to
18 E. VIVARES
two major facts: the failure of the Washington-sponsored old inter-

American system, in particular, the OAS and the creation of the
UNASUR. The root of the change is “from above”, state and presiden-
tial-led, which has moved the axis from Latin- to South America, open-
ing the door to the surge of different multilateral regional alternatives,
and the creation of a regional security complex by democratic adminis-
trations (Bonilla and Long 2010: 23–28). The major strong point of
these perspectives is their solid and critical eclectical conceptual appara-
tus, their downside is the dispersion and embryonic empirical research
with important exceptions (Estay and Sanchez 2005a; Bøås et al. 2005;
De Lombaerde and Söderbaum 2014; Riggirozzi 2014).
Finally, according to proponents of the “Commodities Consensus”,
“Post extrativists”, “Post-regional” or “Post-developmental” perspectives,
the new world system of development forces the region into new paths of
“underdevelopment”, characterized by a return to economic regional rep-
rimarization, complex rentier states, and new asymmetries and inequali-
ties, as well as social and political conflicts that threaten to destroy the
conditions for existence of local societies (Petras and Veltmeyer 2012;
Svampa 2013; Falconi 2014). These views represent both most critical to
existent world order and innovation, although with the peril of resting on
universalist and economist interpretations about underdevelopment, gen-
erally focused on the study of isolates contextual and historical cases stud-
ies around the issues of: Dutch disease; the Prebisch-Singer thesis;
Bhagwati’s immiserizing growth; or Ricardian rent. Scholars from this
critical perspective argue that new CLER led this pragmatic IPE of devel-
opment as the result of difficulties of “private and state sectors” to develop
national industrialization and the “opportunities of high prices” via part-
nerships with MNCs (Petras and Veltmeyer 2012). That CLERs have
been able to finance poverty-reduction programs, rising wages, and expand
social expenditure but co-opting trade unions, local communities, and
social movements without a real transformation of the neoliberal model
(ibid.). A rather extreme conclusion by these scholars is that if the model
fails, for example, due to falling raw material prices globally, it might deto-
nate a conflict between two sides: financial-export-import sectors and state
calling armed forces and the upper middle class all versus local communi-
ties, provincial capitals, town and villages, and the urban leftist parties and
ecology organizations (ibid.).
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UNDP. 2014. Human Development Report. Available at: http://hdr.undp.org/
sites/default/files/hdr14-report-en-1.pdf
Wallerstein, E. 2004. World System Analysis: An Introduction. Durham: Duke
University Press.
Weaver, F. 2000. Latin America in the World Economy: Mercantile Colonialism to
Global Capitalism. Boulder: Westview Press.
Weber, M. 2001. The Protestant Ethic and the Spirit of Capitalism. London:
Routledge.
World Bank. 2015. Despite the End of the Commodity Boom, African Countries
Can Sustain Their Economic Rise. http://www.worldbank.org/en/news/
feature/2015/04/21/despite-the-end-of-the-commodity-boom-african-countries-
can-sustain-their-economic-rise
CHAPTER 2
Is Latin America’s Rise of the Middle Classes

Lasting or Temporary? Evidence
from Ecuador
Juan Ponce, Rob Vos, José Rosero, and Roberto Castillo
Introduction
According to an influential study by Homi Kharas (2010), the increase in
average income and the fall in levels of absolute poverty, in particular
during the last decade, suggest that an increasing proportion of the
world’s population is neither rich nor poor by national standards but finds
itself in the middle of the income distribution. This expansion continues.
Despite the global economic slowdown following the Great Recession of
J. Ponce (*)
FLACSO Ecuador, Quito, Ecuador
R. Vos
FAO, Food and Agricultural Organization of United Nations, Rome, Italy
J. Rosero
Statistics Division of the Food and Agriculture Organization of the
United Nations (FAO), Rome, Italy
R. Castillo
National Institute of Statistics and Censuses of Ecuador, Quito, Ecuador

DOI 10.1007/978-3-319-62551-5_2
26 J. PONCE ET AL.
2008–2009, in an update, Kharas (2017) foresees a continued expansion

of the global middle class from 3 billion in 2015 to 5.4 billion by 2030.
The bulk of this growth will come from Asia. By 2030, Asia would repre-
sent 65% (or 3.5 billion) of the global middle-class population and 57%
(or PPP$37 trillion) of middle-class consumption, compared to 46% (1.4
billion) and 36% (PPP$12.3 trillion), respectively in 2015, according to
the Fig. 2.1 below. LA’s middle-class population would expand from 285
million today to 335 million by 2030, while dropping their share in global
middle-class consumption from 8% to 6% in the same period.
The developing world’s “emerging middle class” could be critical for
global development, because of its potential as an engine of growth.
History tells us that those in the middle have vigorosly accumulated capi-
tal, both physical (plant, equipment, or housing) and human (education
and health), more than the poor or the rich. Consolidating this incipient
middle-income group into a stable middle class could provide a solid
foundation for economic progress by driving consumption and domestic
demand. This becomes evident when contrasting, for instance, the experi-
ence of Brazil and South Korea. In the 60s, the countries had similar
income levels and rates of growth. By the 80s, however, due to high
inequality in Brazil, the middle class made up less than 30% of the popula-
tion, in contrast to South Korea’s 53%. Its growing middle class enabled
South Korea to shift away from its reliance on export-led growth towards
a growth path rested on expanding domestic consumption. Brazil did not
witness the same growth dynamics, and domestic market expansion has
been feeble and volatile. Opportunities might still be there, thanks to the
decrease in poverty from 22% to 7% between 2004 and 2014, as 26.5 mil-
lion Brazilians exited poverty and joined the ranks of the middle class
(World Bank 2016).
The middle class can not only act as the engine of consumption and
domestic demand, their social role can be equally critical. Middle classes
are believed to support democracy and progressive but moderate political
platforms. Strong middle classes can influence economic development
through more active participation in the political process, expressing sup-
port for political programs, and electoral platforms; in particular, those
that promote inclusive growth. Despite having incomes that are above
international or national poverty lines, middle classes in many cases
remain vulnerable. Their employment (many work in the informal sec-
tor), education (often only few have university degrees), and consumer
behavior do not coincide with perceptions of a middle class that drives
IS LATIN AMERICA’S RISE OF THE MIDDLE CLASSES LASTING OR... 27
Fig. 2.1 Estimates of the projected rise of the global middle classa, 2015–2030.
(Source: Kharas (2017: Tables 2 and 3); Note: a Global middle class is defined here
as the population with a per capita income of between US$10 and US$100 per day
in Purchasing Power Parity (PPP) in 2011)
28 J. PONCE ET AL.
domestic consumption and growth. For instance, in Bolivia, Brazil, Chile,

and Mexico there are up to 44 million informal middle-class workers,
more than 60% of the total middle-class working population. Not surpris-
ingly, social protection and social insurance systems fail to reach even half
of this population, as coverage rates of informal workers are extremely
limited. Coverage of some programs may be larger, such as many of the
cash transfer programs introduced in the late 90s but most of those are
targeted at the poor.
Thus, LA’s rising middle class may be unlike that which became the
engine of development in most developed countries. Yet, middle-class
expectations in emerging and developing countries are rising and evolving
as their countries’ economic situations improve, following Hirschman’s
“tunnel effect”: they are no longer satisfied with simply having access to
public services, but are increasingly concerned with their quality
(Hirschman and Rothschild 1973). Providing the quality services that the
middle classes demand is far more complicated than simply providing
access to them and this can be a source of friction, conflict, and political
upheaval. The new middle classes in LA seem to be very vulnerable still, as
many lack access to adequate social protection, and many could easily fall
back into poverty when the next macroeconomic shock arrives.
The rising expectations of the expanding middle class in developing
countries contrasts with the stagnating living standards of a shrinking mid-
dle class in many developed countries. Today, both middle classes are
awakening. Each with its own specificities, the question is will these mid-
dle classes be agents of change?
This paper will not speculate about the possible political implications,
but assess the drivers underlying the growth of the middle class in Ecuador
over the past two decades. Ecuador’s middle class, as defined by interna-
tional standards as those with a per capita income of between PPP$10 and
PPP$50 per day, rose from about 10% to near 40% of the total population
between 1990 and 2015, mostly as a result of declining poverty and rising
real wages. Likewise, the income group earning between PPP$4 and
PPP$10 per day, defined here as non-poor but vulnerable, increased from
around 30% to 40% of the total population over the same period. Hence,
about 80% of the population is either vulnerable or middle class and the
majority derives income from informal sector activities and is highly vul-
nerable to economic downswings. Much of poverty reduction was achieved
on the back of a thriving economy bolstered by high oil prices and fueled
by expansionary social policies during the 2000s, lasting till around 2015.
Weakening primary commodity prices could not be offset by new robust

middle-class consumption growth, and Ecuador’s economy went into a
tailspin from 2015, putting the rise of the middle-class status to a halt.
The remainder of this chapter is organized as follows. The second
section gives an overview of economic and social factors underlying
recent trends in inequality, and the corresponding rise in middle classes
in Ecuador and the broader LA context. The third section analyzes the
trends of declining urban and rural poverty and the rising middle class
in Ecuador and compares these with the broader patterns observed
throughout LA. The fourth section disentangles the sources of income
growth of the poor and middle classes, on the basis of which questions
are raised regarding the sustainability of the expansion of Ecuador’s
middle class. A final section provides conclusions and draws some les-
sons for the future.
Ecuador’s Rise and Fall in Income Inequality

As elsewhere in the region, Ecuador experienced notable increases in
income inequality during the 90s, which, by and large, were undone dur-
ing the 2000s. Active social transfer policies by successive governments
played a role in reducing inequality in the second decade, but the rise and
fall in inequality seem to have been associated for most part with swings in
macroeconomic conditions.
The 90s were characterized by Washington consensus-type reforms.
Trade and financial sectors were liberalized from around 1990, and high
inflation of the late 80s was controlled through a combination of hetero-
dox and orthodox macroeconomic stabilization policies in the early 90s.
The liberalization policies strengthened export growth, especially of more
capital-intensive activities (oil, manufacturing, traditional export agricul-
ture), though some of the effect was counteracted by the stabilization
policies that cut inflation, caused the exchange rate to appreciate, and
allowed real (urban) wages to increase. On balance, there was a mild
increase in inequality during the first half of the decade (Ponce and Vos
2014). The adjustment policies and market reforms failed to induce strong
employment growth in the modern sector.
The jobs that were created in the formal sector mainly benefited skilled
workers. The slack in the labor market was absorbed in traditional agricul-
tural and informal urban sectors. This drove up the wage gap between
modern and informal sector workers as well as between skilled and
30 J. PONCE ET AL.
unskilled workers. Lower inflation and aggregate real wage increases

dampened these unequalizing forces to a certain extent.
The influences mitigating inequality disappeared in the second half of
the 90s when the impact of the macroeconomic stabilization policies
faded, trade liberalization pushed further for primary export-led growth,
and the political situation became very unstable. A series of external
shocks, including heavy floods, caused by the El Niño phenomenon, and
falling oil prices, put the economy into a tailspin leading towards a full-
blown banking and economic crisis in 1999. The economic downturn,
accelerating inflation, sharply falling real wages, along with accelerated
exchange rate depreciation, pushed more and more workers into unem-
ployment and, in particular, into underemployment in informal sectors,
pushing up the (urban) Gini coefficient to 0.55 in 2000 (from around
0.49 in the early 90s; see Fig. 2.2).
Amid the crisis, large numbers of Ecuadorians started to leave the
country, migrating to Europe and the USA in search of better opportuni-
ties, and many more would follow in subsequent years. The 2000s started
with a hasted decision to dollarize the economy amid major political tur-
moil. In the first year as an officially dollarized economy (2000), Ecuador
Fig. 2.2 Ecuador: Income inequality, 1990–2015. (Gini coefficient) (Source:

INEC (various years); Note: Because of a substantial change in survey methodol-
ogy, no line is shown between 2000 and 2003. The household surveys used here
only covered urban areas during the 90s).
witnessed high inflation (peaking at an annual rate of 100%), in large part

because of the way the currency change was implemented.1 Real income
and wealth declined steeply for most Ecuadorians, which further pushed
up inequality, as low-income groups were affected the most. The ensuing
real exchange rate appreciation and a rebound in international oil and
other commodity prices, however, helped stage an economic recovery in
subsequent years. Increased government revenue supported a recovery of
government spending. As a result, employment levels and real wages
rebounded, including those for unskilled workers. The broad-based
increase in purchasing power helped sustain and expand an already large
informal sector, even as the relative share in informal employment declined
during the 2000s (see also below). This shift, by itself, contributed to
higher labor income inequality but was more than offset by overall employ-
ment growth and a fall in the wage gap between skilled and unskilled
workers. The recovery in real education spending during the 90s (see Vos
and de Jong 2003) started paying off in the next decade with more skilled
workers entering the labor market, and this trend was sustained with cash
transfer programs introduced at the end of the 90s, which induced higher
school retention rates. At the same time, demand for unskilled workers in
urban services sectors and traditional agriculture outpaced that for other
workers.
These factors explain much of the fall in per capita household income
inequality in the 2000s and early 2010s. The lack of dynamic structural
change in the economy, however, does not augur for sustained reduc-
tions in labor income inequality. Continued increases in the supply of
skilled workers may push further in that direction, but this effect may
also not be lasting, lacking a drive towards diversification into more
skill-intensive activities. This became evident in the second half of the
2000s. The fact that household income inequality continued to decline
(though only slightly), was primarily on account of public transfers
and, to a lesser extent, worker remittances. While already in existence
from the late 90s, the cash transfer program, which mainly benefits
poor households, was enhanced substantially under the “new leftist”
government of Rafael Correa, along with other social spending. At the
same time, worker remittances increased substantially during the
2000s. Initially, these mainly benefited higher-income groups but
became less regressive and even slightly progressive towards the end of
the decade. The importance of remittance incomes has tapered off
more recently because, among other reasons, many migrants have
32 J. PONCE ET AL.
returned to Ecuador as employment o pportunities in the USA and

Europe diminished with the Great Recession of 2008–2009 and its
aftermath. Furthermore, the decline in income inequality came to a
halt around 2012, along with the deceleration of the economy against
the backdrop of falling oil prices, stagnant real wages, and a drop in
fiscal space to continue with fiscal expansion, which also put further
growth of social transfers to a halt.
In summary, the decline in income inequality during the 2000s and
early 2010s was initially pushed by the economic rebound following the
deep crisis of the late 90s. A recovery of real wages was a key factor,
especially for urban workers, while improving agricultural terms of
trade helped push up farm incomes in rural areas (Ponce and Vos 2014).
After 2007, activist labor market policies and social transfers gave a fur-
ther boost to rising real wages and reductions in poverty and inequality.
These, in turn, gave rise to an expanding domestic market generating
employment in service activity, in particular. With lower oil prices and
the economic slowdown from 2013, these sources of poverty reduction
and greater income inequality have come increasingly under strain.
Little economic diversification has taken place beyond Ecuador’s tradi-
tional reliance on primary exports and the continuous expansion of,
mostly, service sector activity. A large part of these sectors consists of
informal activities (traditional agriculture, petty trade, and other ser-
vices). By the mid-2000s, about half of the country’s work force was
employed in informal sector activity (defined as employees of economic
establishments without tax registration), while 4 out of every 5 workers
did not have access to the formal (contributory) social security system.
Fiscal reform and active social policies pulled a significant number of
workers into the formal, tax-paying segment of the economy and
reduced the share of workers without access to social security from 80%
to 65% between 2007 and 2014 (Fig. 2.3). Minimum wage hikes pulled
up average wage levels, especially for unskilled workers. With the down-
turn of the economy from 2014, these trends were reversed as visible in
the rise of the share of workers in informal employment between 2014
and 2016.
This does not augur for sustained reductions in the still high income
inequality and increases the risk to new members of the middle class to fall
back into the vulnerable group of those with incomes just above the pov-
erty line or even back into poverty. The following sections will put this
hypothesis to an additional test.
Fig. 2.3 Ecuador: Informal sector employment, 2007–2016 (Percentage of total

employed labor force). Informal sector employment defined here as workers of
establishments without tax registration (left axis), and workers without access to
(formal) social security (right axis) (Source: INEC (various years))
Falling Poverty and the Rise of the Middle Class

Despite the rise of LA’s middle classes, the region continues to show the
highest levels of income inequality, with a weighted average Gini coeffi-
cient hovering around 0.5 (World Bank 2016; and Fig. 2.4 below). In
most countries of the region, inequality increased during the period of
economic opening and liberalization (Vos et al. 2002), but dropped again
during the 2000s to return to levels of the late 90s. Like Ecuador, other
countries in the region managed to reduce poverty and lift incomes of the
bottom 20% of the income distribution during the 2000s. Nonetheless,
the top 20% of the income distribution continues to take more than half
of all income, leaving 30–40% for the middle 40%, and just over 10% for
the bottom 40%. This broader distribution pattern is remarkably similar
across all countries in the region (Fig. 2.4). Ecuador’s middle 40% earns
about 35% of total household income, putting it in the mid-range of the
ranking of LA countries.
There is some debate as to what constitutes the middle class. Statistical
definitions vary, but most often refer to those in the middle of the size
distribution of income, e.g., the third and fourth quintiles as in Fig. 2.5.
Notions of an emerging global middle class, however, are based on
34 J. PONCE ET AL.
Fig. 2.4 Within-country income inequality by regions, 1988–2013 (Gini–

weighted) (Source: Based on World Bank 2016: Fig. 4.7)
internationally comparable income levels. The most often cited studies see
the global middle class as those households with per capita incomes
between PPP$10 and PPP$100 per person per day in PPP terms (Kharas
2010, 2017; World Bank 2007; Ernst and Young 2013; Bank of America
Merrill Lynch 2016). This implies an annual income for a four-person
middle-class household of US$14,600 to US$146,000. For the case of
Ecuador we consider a similar definition, but taking the range of PPP$10
to PPP$50 of daily per capita income. In nominal 2015 dollars that trans-
lates into a monthly per capita income of between US$191 and US$954,
or, for a family of four, annual household incomes of between US$9000
and US$46,000 per year. The reason to put the upper bound for the
middle class at PPP$50 per person per day is that, beyond that level, only
a very small share remains for the richest group.2
Figure 2.6a–c show the trends in the size of Ecuador’s middle class
from the early 90s for urban areas and nationwide trends from 2000.
We compare its evolution with the prevalence of extreme and moderate
poverty (at international poverty lines of, respectively, PPP$1.90 and
Fig. 2.5 LA’s top, middle, and bottom of the income distribution, around 2013
(income shares of bottom 40%, middle 40% and top 20%; ranked by income share
of middle class) (Source: World Bank, Poverty, and Inequality Database)
PPP$4.00 per person per day), the group of vulnerable households

between the poor and the middle class (with PPP$4.00 and PPP$10.00
per day), and that of rich households with daily per capita incomes above
PPP$50. By these international standards, Ecuador’s urban middle class
quadrupled from 9% to 43% of the urban population from 1990 to 2016,
increasing from 670,000 to 4.9 million people. However, most of the
expansion (24%points) took place during the 2000s. On the back of rising
real wages, the rise of the urban middle class began in the mid-90s, but
many fell back into the group of vulnerable and poor in the late 90s as the
economy went into a tail spin. As discussed in the next section, the recov-
ery of the economy and pro-active labor and social policies supported the
stark expansion of Ecuador’s urban middle classes in the 2000s and into
2010s. Expansion stagnated again with the renewed economic slowdown
from 2014.
The 2000s also saw the emergence of a rural middle class (by interna-
tional standards), increasing from virtually non-existent to one fifth of the
rural population (or about 1.1 million). Nationwide, the share of Ecuador’s
“global” middle class almost tripled (from 14% to 36% of the nation’s
population), representing 6 million by 2016. The nationwide picture
Note: Extreme poor = share of population living on less than PPP 1.90 per person per day;
Moderate poor = population living on between PPP 1.90 and PPP 4.00 per person per day.
Vulnerable households = share of population living on between PPP 4 and PPP 10 per person
per day; Middle class = share of population living on between PPP 10 and PPP 50 per person
per day; and Rich households = share of population with more than PPP 50 per person per day
Fig. 2.6 Ecuador’s rising middle class, 1990–2016 (population shares by income
categories) (Source: INEC (various years); Note: See text for the definition of
income groups)
irrors that of urban areas with further growth of the size of the middle
m
class coming to a halt (and even turning into a slight decline) from 2014,
as the economy, real wages, and the agricultural terms of trade went into
a tailspin.
Figure 2.6a–c further show the staggering decline in extreme and
moderate poverty, as measured against international poverty lines of,
respectively, PPP$1.90 and PPP$4.00 per day.3 Between 2000 and 2016,
the extreme poverty incidence fell from 23.0% to 5.5% for the country at
large. The rural extreme poverty incidence was cut by more than two
thirds: from 38.6% in 2000 to 11.6% in 2016. Extreme poverty in urban
areas had dropped from almost 23% in 1990 to 9% in 1997, but rose
again to initial levels towards the end of the decade as a result of the eco-
nomic and political crisis. During the 2000s, urban extreme poverty was
nearly wiped out, dropping to under 5% of the urban population by 2010
and to under 3% by 2016. Declines in moderate poverty (those living on
between PPP$1.90 and PPP$4.00 per day) were also substantial, though
less dramatic. Many of those lifted out of poverty transited to the group
of vulnerable households and many in that category into the middle class.
The transition matrices presented in the next section and the decomposi-
tion of income changes during 2000–2015 disentangle the underlying
dynamics.
Will the New Middle Class Stick?

Economic growth during the 2000s and into the 2010s has been strongly
pro-poor, in contrast to patterns found in the 90s. Figure 2.6a–c show the
increase in annual terms of the per capita income of the household. In the
period 2001–2006, it grew sharply for all income deciles, significantly
more for the lowest deciles as a result of the recovery in real wages and the
agricultural terms of trade, as the economy rebounded. Worker remit-
tances and the introduction of the new cash transfer program, targeted at
the poor, also contributed significantly to this pattern. Pro-poor growth
continued during 2007–2016 on the back of the same factors, though the
at lower relative income growth than in the immediate recovery in the first
half of the 2000s. During the entire period, middle-class income growth
(deciles 6 and up) was robust but below that of the poorer and vulnerable
classes (Fig. 2.7).
As a result, most upward income mobility took place from 2000
onwards. Table 2.1 shows the pattern for 2007–2014 in the form of a
38 J. PONCE ET AL.
Fig. 2.7 Ecuador:

Growth of real per capita
household income by
decilesa, 1991–2016
(Source: INEC (various
years); aOnly deciles 1–9
are shown here, as
incomes measured for
the top decile show some
volatility owing to signif-
icant under-reporting)
Table 2.1 Transition matrix of mobility across income classes, 2007–2014

2014
Poor (%) Vulnerable (%) Middle class and Total (%)

rich (%)
2007 Poor 55.0 39.0 6.0 100.0

Vulnerable 12.6 52.1 35.3 100.0
Middle and rich 0.9 16.4 82.7 100.0
Source: INEC (various years)
transition matrix of mobility across income classes. To compute income

mobility, we followed the methodology of non-parametric synthetic pan-
els proposed by Dang et al. (2011). This method overcomes constraints
posed when estimating transition matrices for a sample of households that
does not form a panel in a strict sense.4 The method consists of an econo-
metric model of consumption or income determinants. The model is esti-
mated using survey data for the first year (2007) and the resulting
parameters are subsequently used to estimate a new, counterfactual con-
sumption/income distribution for the households of the panel in the last
year of the period (2014). This way we obtain for each household of the
2014 panel an observed income for 2014 and an imputed income for
2007. These results are then used to study the probability of households
transiting from one income class to the next.
The table shows that poverty fell, on balance, almost exclusively as a
result of people moving out of poverty. Relatively few fell back into pov-
erty from vulnerable and/or middle classes during 2007–2014. About
40% of those classified as poor in 2007 had transited upward to the cate-
gory of vulnerable households by 2014. About 13% of the group consid-
ered vulnerable in 2007 had fallen back into poverty by 2014. Over one
third of the population belonging to vulnerable households became part
of the middle class during 2007–2014 and 6% of those considered poor in
2007 moved upward to middle-class status. At the same time, most (83%)
of those belonging to the middle class in 2007 had remained in that cat-
egory by the end of the period.
These findings would suggest that the growth of Ecuador’s middle class
has been robust building on upward mobility. However, as indicated,
much of the reduction of poverty and rise of the middle class was facili-
tated by an economic expansion fueled by strong primary export prices,
40 J. PONCE ET AL.
which provided the Ecuadorian government with the fiscal space to under-
pin expansive labor policies (through minimum wage increases) and social
policies (expanding social transfers and public infrastructure). Fiscal reform
and a strong government push to expand coverage of the social security
system increased the share of workers in formal employment, especially in
services and benefiting unskilled workers. As analyzed by Ponce and Vos
(2014), the boost in purchasing power among broad segments of the pop-
ulation facilitated a further expansion of the market size of an already large
informal sector (in agriculture, but especially in urban services), as well as
that of modern urban service, generating multiplier effects on employ-
ment and real wage and farm income growth. This growth pattern is also
reflected in a lowering of the wage premium for skilled labor and a rising
wedge between informal and formal sector labor incomes.
Turning first to the decline in the skill premium, existing studies have
suggested that much of the increase in income inequality in LA during the
90s was on account of increasing wage differentials between skilled and
unskilled workers. The increase would have been produced by more skill-
intensive technological change induced by trade and capital account open-
ing.5 The greater demand for skilled labor would have increased the wage
gap between skilled and unskilled workers.6 During the 2000s, in contrast,
the increase in the educational level of the work force would have counter-
acted the increase in the demand for skilled labor, reducing the wage gap.7
To analyze whether this pattern also occurred in Ecuador case, we ran
a Mincerian wage regression for the population aged 25–55 years. The
estimation model is as follows:
Yi = α + βCi + γXi + εi
Where Yi is the logarithm of labor income per hour, Xi is a vector of

control variables (such as age, age squared, and a dummy for working in
the modern sector), and Ci is a dichotomous variable that has a value of 1
if the worker is skilled and 0 if she or he is unskilled. A skilled worker is
defined as someone who has at least completed secondary school. Eta (ε)
is the error term, with a normal distribution and a mean of zero. The coef-
ficient of interest is beta (β), which indicates the salary gap between skilled
and unskilled workers. Results are reported in Table 2.2.
The results confirm that trends in Ecuador are no exception to those
found elsewhere. During the 90s, the wage premium for skilled workers
increased. Correcting for age (used as a proxy for work experience) and
type of employment (modern or informal), skilled workers earned around
Table 2.2 Ecuador: Skill-based wage premium for urban workers (Beta coeffi-
cients estimated using a Mincerian wage equation)
Urban area
Men Women Total
1990 0.534a 0.371a 0.481a

1996 0.627a 0.381a 0.548a
2000 0.789a 0.576a 0.718a
2006 0.637a 0.565a 0.617a
2010 0.574a 0.422a 0.521a
2015 0.515a 0.489a 0.509a

Significance at a 1% confidence level
a
72% more than unskilled workers in 2000, up from 48% in 1990. A similar
trend is observed for male and female workers. These trends reversed dur-
ing the 2000s, as the wage gap decreased. The skill premium reduced
from 72% to 50% in 2015. The trend is also similar for both male and
female workers. The improvements in the skill level of the labor force are
closely associated with the recovery of real public spending in education
during the 90s and the cash transfer programs of the 2000s and 2010s,
which helped improve access to education. At the same time, the struc-
tural change towards an expanding informal sector economy slowed the
demand for skilled workers, which does not augur well for sustained pro-
ductivity and income growth moving forward.
Using the same Mincerian model above, we also tested the trend in the
wage premium for modern sector workers by taking the results of the
dummy variable for the sector of employment. The dummy takes the value
of 1 if the worker is employed in the modern sector and 0 if employed in
the informal sector. The coefficient is indicative of the gap in labor income
between modern and informal sector workers, after controlling for skill
levels and work experience. As shown in Table 2.3, the modern sector
wage premium for urban workers increased strongly during the 90s and
2000s.
The implications of this finding are not immediately clear, but one
inference could be that for further sustained upward mobility towards the
middle class, an expanding modern sector in agro-industries and other
non-extractive productive sectors would be needed. This would help
reduce the vulnerability of the economy to swings in world market
42 J. PONCE ET AL.
Table 2.3 Ecuador: Wage premium for urban workers in the modern sector
(Dummy coefficients for the modern sector)
Urban area
Year Men Women Total
1990 0.056a 0.097a 0.066a

1996 0.133a 0.424a 0.226a
2000 0.195a 0.345a 0.241a
2006 0.295a 0.435a 0.344a
2010 0.402a 0.570a 0.458a
2015 0.477a 0.595a 0.523a

a
Significance at a 1% confidence level
c ommodity prices and in the related fiscal space, and it would allow the
income growth for the middle classes to be underpinned by higher pro-
ductivity growth and broader based sector development. Indeed, as shown
in section 2 above , the downturn in the economy affected the services
sector activity the most, notably reversing the trend of increased formal
sector employment and social security coverage. Alongside, poverty reduc-
tion came to a halt and growth of Ecuador’s middle class stagnated. On
the positive side, the middle class did not collapse under the weight of the
economic downturn, as happened during the crisis of the late 90s. Yet, like
the poor and vulnerable, the middle-class welfare position remains highly
vulnerable to macroeconomic swings.
Conclusions
The strong rise of Ecuador’s middle class coincided with a period of eco-
nomic recovery and growth. Part of the surge had its origins in real wage
growth and an increased wage premium for skilled workers associated with
trade and financial liberalization of the 90s. However, during that period,
macroeconomic as well as political instability brought about fluctuating
trends in real wage growth, as much as in poverty and inequality, mitigat-
ing the expansion of the middle class. Both income inequality and poverty
saw sustained reductions from the early 2000s onwards. Much of this had
to do with the recovery from the El Niño natural disaster and deep eco-
nomic and financial crisis in the late 90s. This was reflected in strong real
wage increases, improvements in relative prices for farmers and employ-

ment, especially in services sectors. This provided an important boost to
domestic market growth. Nonetheless, neither the economic liberalization
of the 90s nor the solidarity economy policies enacted by Correa’s “new
leftist” government from the mid-2000s did much to alter the economy’s
reliance on primary exports as the key driver of economic growth. Indeed,
during the 2000s, improved international commodity prices helped the
recovery and provided space for significant real wage and rural labor
income increases, as well as for substantial increases in social spending.
The lack of dynamic structural change in the economy, however, does not
augur well for further declines in inequality and a continued strengthening
of the middle class, as the structural causes of high inequality have not
been addressed. The economic downturn that set in after 2014, following
declines in international oil and other commodity prices, caused setbacks
in real wage improvements and employment opportunities in formal and
informal sectors alike, and has put a halt to the rise of the middle class.
A solid middle class can provide the backbone of more stable societies
and sustained welfare. Ecuador’s experience, similar to that witnessed else-
where in LA, has yet to reach that footing. An expanding middle class not
rooted in strong aggregate productivity growth and structural change
towards modern services and industries may neither be lasting nor become
a basis for more balanced and sustained economic growth that is less vul-
nerable to global market shocks. Ecuador clearly has not entered that stage.
This is not to argue that a solid middle class is a sufficient condition for
sustainable development and political stability. Other things will need to
fall into place as well. The changing distribution of middle-class spending
toward new entrants will change aggregate demand. Households just
entering the middle class will seek to purchase consumer durables, as well
as services including tourism, entertainment, health, education, and trans-
port. It will also change food demand towards increased consumption of
animal-sourced food products, fruits and vegetables, and processed foods,
all of which are more resource- and emission-intensive to produce, as
compared with grains and other staple crops (FAO 2017). More gener-
ally, growing middle-class spending, undoubtedly, will increase carbon
emissions and have a larger ecological footprint, but the size depends on
government policies. For instance, if cities are properly planned with
energy-efficient buildings and mass transport, and food production is
made more sustainable, then the carbon footprint of global middle-class
expansion can be reduced considerably.
44 J. PONCE ET AL.
Crafting continued political support for the middle class may present a
greater challenge. Unless globalization can be reframed into a win-win for
the middle class in each country, the political narrative can be distorted into
one of colliding interests between the middle class in emerging economies
like Ecuador and those in advanced economies. A new package of “inclusive
growth” must be constructed based on the common theme that continued
widening of income and opportunity inequality, and the barriers these cre-
ate to social mobility, must be forcefully tackled while preserving the ben-
efits afforded by globalization and technological change and innovation.
Notes
1. The high dollar inflation was the result of setting a sucre-dollar conversion
rate at a level much higher than the peak market exchange rate before dol-
larization and failure to introduce enough small-denomination dollar coins,
which pushed up prices for many basic products (by rounding to one dol-
lar). See Vos (2000).
2. Please note that the size of the upper middle-income and rich household
group in Ecuador is probably strongly underestimated because of under-
reporting of incomes by those households in the household surveys used for
the present analysis.
3. The results presented in this chapter are based on a new and robust procedure
to reconstruct series of poverty and income distribution data for the labor
force surveys conducted in Ecuador since 1990. The surveys have gone
through several methodological changes in questionnaire design and sam-
pling. Also, the dollarization of the economy in 2000 poses problems in proper
deflating nominal incomes for the currency change. The set of deflators for
national and international poverty lines used to construct the time-consistent
poverty and real income estimates are available from the authors upon request.
4. The results on mobility presented in this chapter follow the same procedure
as the study of Pesantez (2014), which also estimates transition matrices
based on Ecuador’s labor force surveys, but covers the period 2007–2013.
5. For the case of LA and Ecuador, see, respectively, Vos et al. (2006) and Vos
and León (2003). The Brazilian case represents an exception in this sense,
given that trade liberalization generated a reduction of inequality. See
Ferreira et al. (2008)
6. Critical stances regarding the focus on technological change with a bias
towards skilled labor can be found in Card and Di Nardo (2002), Morissette
and Drolet (1998), Oosterbeek (1997), and Entorf et al. (1999). For
Ecuador see Oosterbeek and Ponce (2011).
7. See, for example, López Calva and Lustig (2010).
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Washington, DC: The World Bank.
CHAPTER 3
Past and Present of Latin American

Regionalisms, in the Face of Economic
Reprimarization
Jaime Estay
In this text, we will identify the principal stages through which regional-
ism, in the context of its economic elements, in LAC has passed. In rela-
tion to these stages, we will revise the theoretical approaches which have
been present, as well as the context in which they have unfolded.
This chapter proposes that in the second half of the twentieth century,
two clearly distinct stages of economic integration developed in conjunc-
tion with two dominant patterns of economic operation that were in force
in the region. These patterns are both defined by a set of functions for
mechanisms of integration. In this century, while disparate strategies of
economic development in the region coexist, a third stage is unravelling
whose main feature is the increased heterogeneity within and between dif-
ferent integration projects in which important changes have taken place.
This is the case, particularly in South America, with regard to geographical
composition and with international trade which is increasing the impor-
tance of trade with China and accentuating the role played by primary
products to be exported.
J. Estay (*)
Benemérita Universidad Autónoma de Puebla, Puebla, Mexico

DOI 10.1007/978-3-319-62551-5_3
48 J. ESTAY
Regional Economic Integration in the Context

of the ISI Model
Even though the first integration mechanisms were created in the region
at the end of the 1950s, the pursuit of economic integration has been
included as part of the strategy of industrialization since the Economic
Commission of LA was first drafted and began activities in 1948.
In these initial terms, and with the advancement of integration, two
principle objectives were sought: (1) the creation of a common market
that embraced all or the majority of LAC countries; (2) given the obstacles
derived from the existence of multiple bilateral agreements of signed pay-
ments among countries in the region, a constitution of a union of pay-
ments was proposed.
With respect to both objectives, the immediate reference point was the
similar initiatives that were being pursued in Europe: on one hand the
negotiations for and subsequent implementation of the European
Community of Coal and Steel (1952), as well as the European Economic
Community (1958); on the other hand, the Intra-European Payments
Agreement of 1948 and 1949, and the creation, in 1950, of the European
Payments Union, which in 1958 was replaced by the European Monetary
Agreement.
Thus, the terms of LAC integration were nurtured by the theories of
European integration, which, in the main, were created from the perspec-
tive of traditional economic analysis and were based on “customs union
theory”, found in research by, for example, Viner (1950), Meade (1953,
1955), Lipsey (1957, 1960), Balassa (1961a, b and 1963) and Johnson
(1957, 1960a, b, 1965), amongst others. Other authors who influenced
the initial terms of the ECLAC are, for example, Meier (1960), Allen
(1961), Cooper and Massel (1965), and Mead (1968). In this research,
more reference was made to the situations of developing nations, above
all, necessities beyond free trade were considered, such as savings in for-
eign currency, the improvement of exchange rates, the increase of interna-
tional negotiation capacity, the formation of capital, and the achievement
of industrial development.
In this initial stage, the role allocated to economic integration in the
ECLAC strategy of the ISI model can be seen in the Economic Survey of
Latin America 1949 in which a review of the characteristics and the prob-
lems of the bilateral conventions between countries in the region suggests
that these conventions:
PAST AND PRESENT OF LATIN AMERICAN REGIONALISMS, IN THE FACE... 49
[…] have not pursued a long-term goal as would stimulate industrial

exchange, ensuring that a country has a market for certain industrial prod-
ucts from another country, in exchange for reciprocal concessions of equiva-
lent quantity.
[…] each country is trying to develop industrial and agricultural prod-
ucts on one side of the border which are similar to the products being devel-
oped on the other side, to the detriment of specialisation and the widening
of the market (CEPAL 1951: 88).
During the rest of the 50s, ECLAC introduced multiple resolutions with
regard to the increase in intra-regional trade, the creation of a common
market, the definition of a multilateral payment system, and policymaking
for industrialization at a regional level. These resolutions were mandates
for the elaboration of research on this topic as well as studies completed by
the secretary of ECLAC and recommendations made by the governments,
a large part of which was channeled through ECLAC’s trade committee,
created in 1955.
We are not attempting to provide a detailed account of all of the above,
but will simply highlight that the progress made in the analysis of this area
is reflected in the document of ECLAC’s trade committee, Recommendations
on the Structure and Norms of a Common Latin American Market, pub-
lished in March 1959 (CEPAL 1959) and in which 11 points and 12
norms are proposed referring to the “structure” of the common market
and which would frame its operation.
If what is suggested in this document is compared with the contents
expressed in the Treaty of Montevideo that was signed in February of 1960
creating the LAFTA, the differences are evident. For example, the “sub-
regional” character of the association—the Treaty of Montevideo was ini-
tially signed by seven countries—the lack of inclusion of a multilateral
compensation mechanism of balances,1 and the definition as an objective
of the association a free trade area rather than a common market.
The creation of the LAFTA marked the beginning of the first stage of
regional economic integration that corresponded to the ISI model. At this
stage, the CACM was also created with the signing of the Treaty of
Managua in December 1960, as well as the Andean Group, which in
1996 became the Andean Community with the signing of the Cartagena
Agreement, and the Caribbean Community (CARICOM) with the sign-
ing of the Treaty of Chaguaramas in July 1973, to which the replacement
of the LAFTA, the LAIA, was added with the signing of the Treaty of
Montevideo 80 (TM80) in August 1980.
50 J. ESTAY
During the first stage of regional integration, the founding texts of these
mechanisms and their development had specific characteristics as well as
differences between them, of which we will mention only a few: in CACM,
the intention to create “Central American Industries for Integration” and
a maximum momentum of intra-scheme commerce in comparison to pre-
vious mechanisms; in the Andean Group, a more complex institutional
structure with common procedures and norms on various topics with
“Sectoral Industrial Development Programs” and with some characteristics
of supranationality; in the Treaty of Chaguaramas and in the development
of the CARICOM, the importance of functional cooperation and the coor-
dination of foreign policy; in the LAIA, the greatest possible flexibility in
defining objectives, the absence of liberalization deadlines and the possibil-
ity of “partial scope” agreements—which according to the TM80 would
be object to a “progressive multilateralization” —compared to the LAFTA.
Despite these differences, the schemes share two characteristics and
general results that demonstrate the development of regional integration
during its first stage:
• On one hand, and in exactly the same way as happened with the
LAFTA, the initial definition of the remaining mechanisms also dis-
tances itself from the integration model created in the 50s, in such a
way that the objectives, for example, the regional character desired
for integration, the realization of common markets, and the incorpo-
ration of advanced models of monetary and financial co-operation,
were relegated, remaining at a declarative level.
• On the other hand, the operation of the mechanisms distanced
themselves swiftly from the fulfillment of the commitment and dead-
lines set, with which the progress made was only partial and time-
related. The results were partial because the only commitments that
were moderately fulfilled were those related to the mutual reduction
of tax and in some cases to the creation of credit mechanisms for
intra-scheme trade. This happened in such a way that the integration
almost exclusively manifested itself as growth of the aforementioned
trade; time-related because the “integrating stimulus” only lasted for
the period immediately after the creation of each scheme, after which
it fell into a period of stagnation and regression.
These general characteristics and results of the integration mechanisms

were clearly present at the beginning of the 80s. In addition to this, a
major regional crisis throughout this decade marked the final stage effort
of the ISI model and of the modality of integration associated with it.
Thus closing the first stage of integration with a global balance, which, at
the end of the 80s, CEPAL (1990: 164) summarized, identifying a “gen-
eral insatisfaction which can be observed in the countries of the region
with respect to the achievements of intraregional integration.”
In the context of this crisis, the decision of LA governments to generate
considerable commercial operations to serve the interest of the external
debt, had a large impact on integration. The operation of the mechanisms
suffered a sharp deterioration, the quantity of infringements, and existing
problems multiplied, new problems appeared, and even in those areas
where progress was previously being made there was a regression. As a
result, years later a new regional context arose with completely different
content assigned to integration.
Regional Economic Integration in the Context

of the Neoliberal Model
During the 80s, a set of policies that implied substantial changes to the
economic and social operation of the countries in the region was applied.
Of these changes, amongst the most important were those which referred
to international integration modalities and to performance of the external
sector, in such a way that the new form of operation implied an accelerated
opening process of the market, modifying the previous approach in a way
that emphasis was on productive structures and internal markets—or
regional—that developed with important mediation with respect to the
world scene.
In this new context and since the end of this decade, there was a
“relaunch” of regional integration, beginning a second phase in which
there was not only new content but also a distinct positioning of the devel-
opment strategies present in the countries.
In general terms, the beginning of this second phase corresponded,
time-wise and with some of its content, with the boom of the so-called
“new regionalism”, which was deployed from developed countries and
whose main expression was the growing presence of trade agreements that
had been in existence since the second half of the 80s, and which Schiff
and Winters (2003: xi) describe as “one of the most significant develop-
ments in international relations in recent years”, and which is considered
by Bhagwati (1993) as the second wave of regionalism since WWII.
52 J. ESTAY
This increased presence of trade agreements, which were a back-

ground to the problems present in the negotiations of the GATT/
WTO, includes those new agreements that deepen liberization in the
areas of trade included in those negotiations and add areas that had not
been considered by the aforementioned organization2 and while it had
as the main characteristic the increase in number of agreements—
according to the WTO, the existing agreements notified before it, and
previously before the GATT, increased from 46 in 1985 to 101 in 1995,
to 226 in 2005, and to 423 in 2016—it also relates in an important way
to the developments that, in this regard, were being made in Europe
and the USA.
In the case of Europe, we need to remember that in the second half of
the 80s there was a “relaunch” of the integration process whose beginning
could be pinpointed to the year 1986 with the signing of the Single
European Act, followed by the Treaty of Maastricht, the convergence cri-
teria, the Single Market, the Treaty of Amsterdam, the Treaty of Nice, the
successive increase of member states, the single currency, and the difficult
institutional reform, which was finally embodied in the Treaty of Lisbon,
amongst others.
In the case of the USA, the willingness to sign agreements marked a
change of politics, incorporating the aforementioned agreement in its
strategy for international economic links as a multilateral policy. From the
second half of the 80s and in the context of the problems of the Uruguay
Round of GATT, the deepening of European integration and the adjust-
ments to its international politics derived from the end of the Cold War,
the signing of trade treaties was set up as a pillar of what the US govern-
ment described as “competitive liberization”, which suggests the simulta-
neous movement in different types of negotiation, in addition to the
multilateral, and which, in recent years, has become a negotiation towards
“mega agreements”; the TPP since 2010, the TTIP since 2013, and the
TiSA, also since 2013.
The USA’s turn towards “competitive liberalization”, since the NAFTA,
included signatures of treaties from developing countries, and exerted
pressure on them in two areas: for those countries prepared to sign, the
requirement of making progress with “structural reform”; for those coun-
tries reluctant to sign, the threat of remaining isolated from their neighbors
and allies, as well as losing out on increased US market access, which they
would otherwise have had.
In the following paragraphs, that correspond to an article from 2002 by

the US government trade representative at the time, Robert Zoellick, the
strategy is summarized:
Let’s promote free trade at a world, regional and bilateral level […} (Zoellick
2002).
“Currently, any decision made by the WTO requires a consensus from its
144 members. Any country […] can paralyse the Doha Agenda […] If oth-
ers do not want to move forward, the United States will move forward with
those that want to […]”3 (ibid).
In parallel to the application of this strategy and since the 90s, consider-
able research has been conducted about the “competitive liberalization”
of the USA and about “new regionalism”, identifying its general charac-
teristics and its differences from previous regionalizm (Mistry 1995, 1999;
Bergsten 1997; Baldwin 1997; Ethier 1998a, b; Bouzas 1999; Burfisher
et al. 2003; Söderbaum and Shaw 2003; Söderbaum 2015); analyzing the
relationships between the development of blocks and multilateralism, as
well as the conditions or difficulties with which new regionalism leads to
global free trade (Summers 1991; Bhagwati 1993, 1995; Winters 1996;
Bhagwati and Panagariya 1999; Panagariya and Findlay 1994; Hettne and
Inotai 1994; Ethier 1998a; Hettne and Söderbaum 2000; Andriamananjara
2000, 2003; Hettne 2005; Baldwin 1999, 2006; Crawford and Laird
2001); critisizing the protectionist character, which would definitely con-
serve regionalism in its new forms (Krugman 1989, 1993; Oman
1994; Bhagwati 1995; Organization for Economic Cooperation and
Development (OECD) 1995; Bhagwati et al. 2014; Bhagwati and Krishna
2016); and highlighting the importance of the attractions that the forma-
tion of a block has over non-member states (Baldwin 1995, 1997; Corden
1995), amongst others.
With “new regionalism” as a framework in the international economy
and the neoliberal trend in the world and in the region, the relaunch of
integration implied the abandonment of previous intentions to give it a
regional character—with a clear preference for agreements of a bilateral
nature or for small groups of countries—and, as a result, that it looks
beyond trade, adding, in some cases, the circulation of capital and people.
With regard to trade, a deepening of liberalization was proposed for the
54 J. ESTAY
various instruments of integration, as well as the application of a common

external tariff and the harmonization of instruments of trade policies and
some macroeconomic policies.
As a result, integration acquired a clear free trade stamp with the aim of
adjusting it to the liberalizing trend and transforming it into an instru-
ment of increased integration for international markets, reducing the rel-
evance of any objective that does not support the opening up of economies
to international competition. These are characteristics that have, as yet,
partially remained in the regional integration scenario.
The Andean Group’s Galapagos Meeting of December 1989 clearly
had this as its aims, as did the CACM in the meeting of presidents that
took place in Antigua, Guatemala, in June 1990 and the Protocol for the
General Treaty of Central American Economic Integration signed in
October 1993.
Also, after previous progress made by Argentina and Brazil—under
the governments of Raúl Alfonsín and José Sarney—who were looking
to build links in which the component of trade liberalization was neither
unique nor the most important, as alongside this, the priority contents
related to productive integration, binational companies, food supplies,
financial matters, investment funds, transport by land and sea, currency,
and planning.4 Both in the Act of Buenos Aires, signed in July 1990 by
the new presidents of these two countries, and in the Asuncion Treaty
from which the MERCOSUR was created in March 1991, there was a
change in direction that prioritized trade and, in particular, the commit-
ment to accelerate a reduction in taxes, as well as relegating non-trade
issues, which resulted in a startup period that Caetano (2011) calls a
“Phoenician MERCOSUR”, and Saludjian (2004) refers to as a “neolib-
eral MERCOSUR”.
With respect to the LAIA, its objectives and its breadth of membership
differed markedly from its new directions of integration, which have
had clear positions both in the limited progress made in the regional
agreements—and, particularly in the regional tariff preference system,5 as
well as in the proliferation of partial scope agreements among member
states, which, to date, total more than 74, of which 38 are of economic
complementarity. This did not make any progress in the 70s, or in subse-
quent years, towards “progressive multilateralization”, as was included in
the TM80.
In parallel to what has happened with the operation of the distinct
instruments of integration, another important implementation of the
changes that have occurred in the context of the neoliberal model was the
signing of numerous free trade treaties, to such an extent that—according
to the Organization of American States’ Foreign Trade Information
System—from the first half of the 90s until now, the countries in the
region have signed 23 treaties and 51 with partners outside the region.
Among those treaties with partners outside the region are those that
have been signed with the USA by 11 countries in the region,6 —agreed
in parallel with, or after, the negotiations of the FTAA. It is clear that a
large percentage of the countries in the region, and above all Mexico,
began with “asymmetrical bilateralism” (Bouzas et al. 2008). This nego-
tiation, in both the treaties and in the FTAA, was clearly a priority, both as
with other negotiations of other free trade agreements, as well as in rela-
tion to the development of regional integration schemes.
In conclusion, it should be noted that the official document elaborating
on integration from the region in this second stage, unlike what happened
with the ISI model, clearly took place before the redefining of the direc-
tion of regional integration, whose basic components were finalized
between the end of the 80s and the beginning of the following decade.
This suggests that the document intended to fine-tune itself to the new
integration format already in place, and with respect to this take on the
demand for an urgent neoliberal openness as well as take advantage of
integration.
With respect to this approach to integration, identified by the LA
Economic System (2002) as a “new stage” of integration and by the Inter-
American Development Bank (2002) as the “new regionalism in Latin
America”, the policy that had the greatest impact corresponded to the
ECLAC, which presented its proposal of “open regionalism” in 1994,
defining it as the “process that emerges while conciliating […] the inter-
dependence born from special agreements that had preferential character-
istics and that which was basically propelled by market signals resulting
from trade liberalisation in general” (CEPAL 1994:12).
In this document, which was complemented the following year by
another with a title of more general nature (CEPAL 1995), strategies were
proposed for incorporation into the international sphere and objectives
and functions of regional integration were defined, assuming the general
sense of what had already happened in this area, as well as locating “open
regionalism” in the proposal of “Changing Production Patterns with
Social Equity”, which ECLAC put forward at the beginning of the 90s
(CEPAL 1990, 1992).
56 J. ESTAY
In the document about “open regionalism”, the principal behind the

policy of the ECLAC with regard to regional integration in the 90s was
described and, in our view, since then has had no significant reformula-
tions, in such a way that in their analysis of the topic—completed by the
Executive Secretariat, by staff, and consultants—what has principally been
done, on one hand, is the general follow-up of the distinct integration
projects and of the bilateral treaties, as well as the analysis of the links of
integration with distinct general tendencies, first through specific docu-
ments about the topic (CEPAL 1994a, 1995a) and after in the annual
reports Panorama de la inserción internacional de América Latina y el
Caribe and in studies such as those of Ocampo (2000), Baumann et al.
(2002), Maldonado (2003), Duran and Maldonado (2005), Vaillant
(2007), Da Motta Veiga and Rios (2007), Saez (2008), CEPAL (2008)
and Baumann (2009). On the other hand, the specific integration issues,
both in these annual reports as well as in other studies, to which, in recent
years, documents requested by some of the new mechanisms have been
added, will be referred to in the following section.7
It should be noted that the proposal of “open regionalism” has been
object to considerable criticism since its creation over 20 years ago, which
in our opinion demonstrates its shortcomings. These have become more
evident to the extent that the regional situation has been modified with
the appearance of alternatives to neoliberalism. In this new situation,
modalities of integration whose principles have, in time, become more
distanced from open regionalism have been incorporated.
This criticism included both the actual concept of “open regionalism”8
as well as the integrating projects that it synthesized, in relation to which
Garrido (2008) points out the limitations of its political agenda and Grien
(2005) criticizes the demand for dispersal associated with this path of inte-
gration. Guerra-Borges (2001) associates it with the tendency of taking
trade liberalization to the extreme and sacrificing LA independence, and
Caldentey (2000) argues that under open regionalism “subregional inte-
gration agreements have a multilateral role and are no more than progres-
sive steps towards the extension of free trade.”
The Twenty-First Century: Regional Integration

in Times of Reprimarization
Since the beginning of this century, different assessments of the devel-

opment of integration have been added to the criticizm directed at the
formulation of “open regionalism” and to the new directions taken by
regional integration in the neoliberalism framework. These assessments

generally agree that limited progress has been made, even in the narrow
context of objectives and goals proposed in the model of the liberaliz-
ing trend.9
In concordance with the model—and with the present dynamism in
international trade at a systematic level—a significant increase in the
region’s exports to the world, as well as with intra-regional trade, was
observed for a large part of the 90s, as can be seen in Fig. 3.1, which rep-
resents these values (shown on the left axis) for South America, as well as
for the rest of LAC. The percentages of which trade to the LAC represents
Gráfico 1. Comportamiento de las exportaciones totales y hacia la región,

de América del Sur y del Resto de ALC
700000 35
600000 30
porcentajes del total de exportaciones

500000 25
Millones de dólares
400000 20
300000 15
200000 10
100000 5
0 0
1989
2008
1988
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2009
2010
2011
2012
2013
2014
2015
Sudam ALC/ Mundo (Eje der) Resto ALC ALC/Mundo (Eje der) Exp. Sudam. al Mundo (Eje izq)
Exp. Sudam. a ALC (Eje izq) Exp. Resto de ALC al Mundo (Eje izq) Exp. Resto de ALC a ALC (Eje izq)
Fuente: CEPAL, Anuarios Estadíscos y Base de Datos CEPALSTAT
Fig. 3.1 Performance of total export and exports towards the region of South
America and the rest of the LAC. Left axis—millions of US dollars; Right axis—
percentage of total exports
Key: South America LAC/world (right axis), rest of LAC LAC/world (right axis),
exports from South America to the world (left axis), exports from South America
to LAC (left axis), exports from the rest of LAC to the world (left axis), exports
from the rest of LAC to LAC (left axis)
Source: ECLAC yearbook of statistics and database CEPALSTAT
58 J. ESTAY
in the total trade of both groups of countries (shown on the right axis)
shows that trade to the region, even though its importance increased
towards the end of the 80s—above all, for South America—did not do so
to expected levels, given the priority to the increase in trade links in open
regionalism, adding the dramatic fall in these percentages in the four years
of regional economic deterioration from 1998 to 2002, which has also
been happening in recent years, maintaining it like that—as occurred in
the 80s—the pro-cyclical character of intra-regional trade.
During the full implementation of “open regionalism”, and within the
countries, the incomplete character of the common external tariff was
inserted to the various mechanisms of integration, in addition to the lack
of political harmonization and the failure to reach the commitment and
deadlines set, amongst others. At the beginning of this century, the lack of
results in regionalism, with regard to what had been announced with its
application, was evident, in addition to the lack of coherence in the
“entanglement” of signed agreements by different governments and the
consequent absence of any sign of progress towards the promised “pro-
gressive multilateralization”.
At the change of the century, this lack of results for open regionalism
became evident in a new regional context, in which the growing rejection of
neoliberalism was embodied with the arrival of a significant number of gov-
ernments with projects, which to varying degrees, were opposed to the neo-
liberal model—Venezuela (1999), Brazil (2003), Argentina (2003), Uruguay
(2005), Ecuador (2007), Nicaragua (2007), and Paraguay (2008)—which
included international strategies for integration that were different to the
liberalizing trend, a clear decision to distance themselves from any extra-
regional mentorship and a redefinition of regional integration that assigned
distinct functions and objectives to those of open regionalism.
Thus, during the first decade of this century a new modality of region-
alism in the region unfolded, beginning a third stage of regional economic
integration, in part through changes in pre-existing mechanisms,10 and
primarily with the creation of new mechanisms: the ALBA in December
2004, the UNASUR in May 2008—as a predecessor to the South
American Community of Nations, and the CELAC in December 2011—
as a predecessor to the Rio Group created in 1986, and the presidential
summits that took place in 2008 and 2010.
Even though there are differences among these mechanisms, in general
terms, within them there is a notable increase of the action plans, the
themes, and the areas included in their respective agendas, in which, for
the ALBA and the UNASUR, Serbin (2011: 7–8, 2014: 54, 2012: 79)
summarizes as “a return to the development agenda”, “return to politics”,
and “return of the state”, which he expresses in at least three ways:
• On one hand, in respect of economic integration, the commercial

component lost the importance it had in open regionalism—and in
the ALBA this component redefines itself under other criteria—
incorporating other related economic themes, according to the
mechanism, alongside energy cooperation and security, the creation
of financial instruments and institutions, as well as productive
cooperation.
• Second, non-economic fields were incorporated, related to the social,
the political, and the cultural, with such themes as poverty, inequal-
ity, food security, education, health, social inclusion, peace, security,
defense, participation of social actors, identity, citizenship, and envi-
ronmental damage.
• Third, particularly in the CELAC, the agenda for discussion and
positioning with respect to topics of global politics were incorpo-
rated, in particular, in view of the global crisis that began in 2008, as
well as dialog with further actors—the EU, the BRICs, China,
Russia, South Korea, the Arab States of the Persian Gulf, India,
Turkey, and Japan, amongst others—to which the UNASUR can be
added, whose constitution can be considered as a space of conflict
mediation.
The new form of regionalism has been the subject of various denomi-
nations, depending on which characteristics and which of the mechanisms
involved are to be highlighted. Thus, the UNASUR and the ALBA refer
to a “post-hegemonic regionalism”, according to Riggirozzi (2012) and
Riggirozzi and Tussie (2012), with which Briceño (2014) agrees. The
UNASUR, the ALBA, and the CELAC refer to a “post-liberal regional-
ism”, according to Sanahuja (2009, 2012, 2014) and a “new multilateral-
ism” according to Yepe (2014); for Hettne and Söderbaum (2006), a
“regionalism geared towards development” is referred to in
the MERCOSUR and, at that time, in the Andean Community; for the
ALBA reference is made to a “new strategic regionalism”, according to
Aponte (2011, 2014, 2015) and a “counter-hegemonist integration”,
according to Puello-Socarras et al. (2014); for Preciado (2013) and
Preciado and Florido (2013), a “post-neoliberal integration with a
60 J. ESTAY
communitarian character” is referred to in the UNASUR, the

MERCOSUR, and the CAN, and a “post-neoliberal integration of coun-
ter-hegemonic tendency” in the ALBA; and for South America a post-
liberal regionalism according to Da Motta and Rios (2007) and a “new
regionalism” according to Bonilla and Long (2010) as well as according
to Vivares et al. (2010).
The new form of regionalism to which those labels refer, and which
demonstrate considerable diversity, have developed in coexistence with
“open regionalism”, which still applies in certain countries in the region,
and is progressing even with the launch, in April 2011, of the AP. With
this, the third stage of regional economic integration, which appeared
with the emergence of new regionalism and was referred to above, has as
its main characteristic a considerable heterogeneity of integration projects,
both among the different mechanisms and within them. This has resulted
in a deep crisis within the Andean Community.
That heterogeneity, that ultimately refers to the diversity of national
strategies of development and international integration—impacting also
on the recent operation of the MERCOSUR, after the changes of govern-
ment in Argentina and Brazil—contrasts with the relative homogeneity
that both “open regionalism” and economic integration associated with
the ISI model have had.
In this sense, Malamud and Gardini (2012: 118) characterize regional-
ism in recent years as “segmented and overlapping”, whereas Riggirozzi
(2012: 139) identifies three tendencies of regionalism which are classified
in accordance with the countries and mechanisms. In addition, Briceño
(2012: 89–92, 2013: 13–14) proposes the existence of three axes of inte-
gration: neoliberal or of open regionalism, revisionist and antisystemic.
An important characteristic of the third stage of regional economic
integration, is that, until recently, it developed in parallel to a process of
“reprimarization” in the region, primarily in South America from which
significant resources that played an important role in the development of
this third stage have derived, particularly in the case of the Venezuelan oil
revenues used by the ALBA.
Since 2003, the international price of primary products showed a clear
upward trend, reversed in 2009, but resumed over the next three-year
period and ended in 2012. As a result, and according to UNCTADStat
figures, between 2003 and 2012 the unit value of LAC exports grew con-
siderably more than their imports, producing a 42% improvement in the
terms of exchange in the region and 70% in South America.
In light of this positive performance of prices, in the majority of the

region and almost all of South America, the production and export of
primary products increased, multiplying the extractivist activities and their
participation in economic activity of the different countries as a whole,
including those such as Ecuador, Bolivia, and Venezuela, where the gov-
ernments had aimed to achieve targets to change previous production
methods which would enable greater diversification, increase the aggre-
gated value, and support a more endogenous development.
This general tendency of reprimarization of the economic activity,
which has appeared with the independence of political views of the differ-
ent governments for some time now, became an object of critical analysis,
being described by Svampa (2011, 2012, 2013) as the “Commodities
Consensus” that replaced the Washington Consensus, by Acosta (2009,
2011) as the “curse of abundance”, given the way that natural resources
are extracted and taken advantage of, the landlord mentality that generates
extractivism and the limited benefits that result in well-being, and by
Gudynas (2009, 2010) as “progressive neo-extractivism” in reference to
the governments with programs opposed to neoliberalism, in which there
is a use focused on social compensation of the achieved surpluses from
primary exports. These authors, amongst others, highlight the social
impact and negative environmental shift towards reprimarization,11 to
which can be added other research, such as that of Cypher (2009) in which
a warning was given about the transitory character that the “boom” of
primary products would have, which eventually happened.
With respect to the export of primary products, (Fig. 3.2), it is possible
to see the biggest share in the total exports since 1993, both for South
America and the rest of LA, reversing the trend of the previous decades to
an increased share of manufactured exports. Thus, it is possible to see that
for the majority of the four decades considered, except for the period from
1979 to 1983—that the primary products represented in the total exports
was greater for South America than for the rest of the region, and that the
difference has increased in recent decades in which the growth in
manufactured exports from Mexico to outside the region has been key,
due to maquilas and assembled products.
This modification in the composition of exports, has been directly
linked to changes in the relative weight of the international trading part-
ners in the region, in which an important increase in the exports from the
region to China is noticeable, whereas before the tendency was concen-
trated clearly within South America.
62 J. ESTAY
Gráfico 2. Composición de las exportaciones de Sudamérica

y del Resto de América Lana y El Caribe (ALC)
100
90
80
70
porcentajes del total
60
50
40
30
20
10
Sudamérica Prod. Primarios Sudamérica Prod. Manufacturados

Resto ALC Prod. Primarios Resto ALC Prod. Manufacturados
Fuente: CEPAL, Base de Datos del Comercio Exterior (BADECEL)
Fig. 3.2 Composition of exports from South America as well as the rest of the
LAC.
Y axis—percentage of total
Key: South American primary products, South American manufactured products,
primary products from the rest of the LAC, manufactured products from the rest
of the LAC
Source: ECLAC, database of foreign trade (BADECEL)
According to Fig. 3.3, the participation of China in the total exports of

South America increased by approximately 3% at the beginning of this
century, by more than 15% from 2013 to 2015, in so far as the rest of the
LAC exports to China did not exceed 2% of their total exports. Thus, it
can be seen that, for the 20 years represented, the vast majority of South
American exports to China were primary products—in contrast to the
exports to China from the rest of the region—and that this trend has
increased since 2003, to the extent that, in recent years, these products
have represented around 95% of the total exports to this country.
The substantial increase of economic links with China, above all from
South America, which, in addition, includes the import of products and the
Gráfico 3. Exportaciones totales y primarias a China,

de Sudamérica y del Resto de ALC
100
90
80
70
en porcentajes del total
60
50
40
30
20
10
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
China en las exp totales: Resto de ALC China en las exp totales: Suramérica
Exp. P Primarios en exp totales a China: Resto de ALC Exp. P Primarios en exp totales a China: Suramérica
Fuente: UNCTAD, Base de datos UNCTADStat
Fig. 3.3 Total and primary exports to China from South America and the rest of
the LAC
Y axis—percentage of the total
Key: China in the total export: rest of the LAC, China in the total exports: South
America, primary export products within total exports to China: rest of the LAC,
primary export products within total export to China: South America
Source: UNCTAD, database UNCTADStat
arrival of capital coming from this country and the features characterizing
these links, has been the focus of increasing attention in the region, linked
also to a sharp increase of Chinese presence at a systematic level. We make
no intention here of explaining all of the above, even though it is interest-
ing to highlight that the importance of the relationship with China has led
to the possible emergence in LA of a “Beijing Consensus” — Slipak (2014),
Svampa and Slipak (2015)—and that, regarding exports to the aforemen-
tioned country, they have become an important motor and extreme expres-
sion of the reprimarization to which we have been referring.12
In contrast to the figures for the total exports to China, is the trade
within LAC. For several decades now, for the majority of these coun-
tries, regionally focused exports have been characterized as having a
64 J. ESTAY
different composition to what they export to the rest of the world,

which has been highlighted in various reports, both of the ALADI
(1983, 1996, 2000, 2012) as in the CEPAL (1992a, b, 1996), in such a
way that intra-regional trade—and amongst the different mechanisms of
integration—there is greater export diversification and a larger presence
of manufactured goods, which retain a high percentage of total trade
between the countries in the region, even during the recent shift to
reprimarization.
As can be seen in Table 3.1, over the last 20 years around half of the
exports from South America to the LAC have been manufactured goods,
and this percentage fluctuates at about two-thirds for exports to the LAC
Table 3.1 Percentage composition of the exports to the region 1995–2015

Percentage composition of the exports to the region
South America Rest of the LAC
Primary Manufactured Primary Manufactured

products products
1995 49.2 50.8 34.6 65.4

1996 50.3 49.7 34.9 65.1
1997 45.3 54.7 34.6 65.4
1998 43.7 56.3 34.1 65.9
1999 47.7 52.3 39.1 60.9
2000 51.3 48.7 43.9 56.1
2001 49.2 50.8 43.4 56.6
2002 50.1 49.9 39.2 60.8
2003 48.9 51.1 41.6 58.4
2004 48.8 51.2 41.6 58.4
2005 47.7 52.3 36.3 63.7
2006 46.8 53.2 32.8 67.2
2007 47.8 52.2 32.5 67.5
2008 50.2 49.8 32.7 67.3
2009 47.0 53.0 27.8 72.2
2010 47.3 52.7 27.6 72.4
2011 49.5 50.5 29.0 71.0
2012 49.5 50.5 30.1 69.9
2013 46.6 53.4 27.6 72.4
2014 51.6 48.4 32.8 67.2
2015 47.0 53.0 34.2 65.8
Source: UNCTAD, database UNCTADStat

by the remaining countries in the region, which for South America implies
a percentage that is substantially higher than the corresponding total
exports, shown in Fig. 3.2, and evidently the extreme opposite of the min-
imum level of manufactured exports to China.13
Consequently, this characteristic of intraregional trade is still present as
it has been throughout the three stages of economic integration. This has
kept open the possibility of increasing this trade in order to help to attenu-
ate the tendency towards reprimarization and enabling progress in the
creation of economies of scale in manufacturing, which could be the foun-
dation for initiatives of greater depth in the development of productive
links between the countries in the region.
However, it is necessary to recognize that regional economic integra-
tion, in its third stage, is experiencing not only difficult moments but is
also full of uncertainty, both economically and politically, within the
region, as well as through the traits that characterize the global system and
international economic relations, including trade.
From outside the region, in addition to the systemic economic down-
turn that has persisted since the outbreak of the crisis in 2008, the serious
problems in trade multilateralism expressed in the Doha Round crisis and
the end of the “boom” for primary products, we can add the uncertainties
created by Brexit, the future development of the EU and, above all, the
arrival of Donald Trump to the US government. This could mark the
beginning of a period of increased protectionism, of trade wars, and
greater use of “economic nationalism” —with the removal of the USA
from the TTP, anti-immigrant politics, and questioning of the NAFTA, as
steps in this direction. To all of these can be added uncertainties about the
role that China will play as a global actor in response to the new strategies
for global insertion and international relations that the US government
seems prepared to deploy.
Within the region, and since 2014, to the heterogeneity characteristic
of the third stage of integration, the fall in export revenues of the recent
four-year period, and the drastic regional economic decline—and of the
intra-regional trade—has been added the predictable continuity of repri-
marization and the changes present in the political situation of the differ-
ent countries, which are already impacting on the operation of different
integration mechanisms. All certainly leading us to a yet more complex
scenario, in which the definition of a “common minimum” in order to
move forward, and the generation of a consensus about improved integra-
tion, will definitely become more difficult.
66 J. ESTAY
Notes
1. Only in September 1965 was LAFTA/LAIA’s Treaty for Payments and
Reciprocal Credits signed, which, despite some changes and additions, is
still in force today.
2. A detailed revision of the contents of the new agreements can be found in
WTO (2011).
3. The original formulation of “competitive liberalization”, which took place
quite some time before the following citation, corresponds to Bergsten
(1996) in which he suggests in an article:
In the search for reciprocal liberalisation, countries could return to their

respective geographical region or towards the global system of com-
merce in its totality […].
However, as the urgency of competitive liberalization accelerated in the
last decade, the forging of closer regional relationships increasingly
dominates the process. This has simply resulted in the resolution of
mutually acceptable agreements with some neighbours that with the
agreement of more than 100 countries of WTO member states has
become less time-consuming and less complicated.
In a previous text by Bergsten, Richard Baldwin (1995) suggests the
“domino effect” to refer to the incentives that non-member states have
in order to integrate into the agreement.
4. This refers to the Iguazu Declaration of November 1985, to the Act for
Brazilian-Argentine Integration of July 1986 and to the Integration Treaty
between Argentina and Brazil, which was signed in November 1988.
5. To that effect, in a stock-taking document of its first 30 years, LAIA sug-
gests “the negotiated tariff preferences in the regional agreements have
been either of poor coverage […] or of little depth […]. Additionally, […]
these agreements have in practice not made any progress in the last two
decades” (ALADI 2012: 71).
6. Guatemala, El Salvador, Honduras, Costa Rica, Nicaragua, the Dominican
Republic, Mexico, Chile, Colombia, Peru, and Panama.
7. Two recent ECLAC documents regarding the productive dimension of the
integration, and in particular the value chains in this integration, which
distance themselves from the assumptions of “open regionalism” are
CEPAL (2014a, b).
8. In relation to the concept of “open regionalism”, Gudynas (2005) criti-
cizes its “insufficient and woolly” character, Vázquez López (2011) high-
lights the flagrant contradiction, which he identifies in a regionalism whose
ultimate aim is the liberalization of world trade, and Guerra-Borges (1998)
argues that the term is fraught with danger as it intertwines two concepts
that within themselves are contradictory.
9. In addition to the various texts mentioned previously, further examples of
research with assessments of this period are Devlin and Ffrench-Davis
(1999), Devlin and Estevadeordal (2001), Phillips (2003), Bouzas (2005),
Sanahuja (2007), Bouzas et al. (2008), Torrent (2009), Wollrad et al.
(2011), and Briceño (2011).
10. In particular, the MERCOSUR, which in the first five years of the 2000s—
specifically with the signing of the Consensus of Buenos Aires by Kirchner
and Lula in October 2003—signified a move towards a more integral pro-
file, with an extension of its objectives and the incorporation of new areas,
which in part implied the recuperation of the previous content of the
Treaty of Asuncion, mentioned in previous paragraphs, and, in part, cor-
responded to the new profile of regional integration that was taking shape.
11. Three books that collate the research referring to the impact of extractiv-
ism in different areas of LA and the resistance that has been generated are
those of Delgado (2013), the OLCA and OCMAL (2014), and Alvarez
et al. (2015).
12. In this respect, the following paragraph of the Panorama de la Inserción
Internacional 2015, of ECLAC, synthesizes the profile of such exports:
“In spite of its dynamism, trade between Latin America and the Caribbean
and China has a number of gaps. The regional exports to this country are
highly concentrated in few countries, products and companies, and basi-
cally consist of primary products. These characteristics are causing a repri-
marization of the regional exports, a high environmental cost, a
concentration of sales to China with a reduced number of economic opera-
tors, an accelerated deindustrialization of the economies and an absence of
indirect dissemination effects […]” (CEPAL 2015: 63).
13. In the case of the “Rest of the LAC” excluding Mexico—which targets
most of its manufactured exports at the US market—for the other coun-
tries the share of manufacturing in its exports to the region is also substan-
tially higher than the share of its total exports.
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CHAPTER 4
The Impact of China on South America

Political and Economic Development
Steen Christensen
Introduction
This chapter analyzes China-South America relations since the beginning
of the twenty-first century, a period in which China has gained a strong
presence in South America (Brandt et al. 2012: 3). It focuses mainly on
bilateral economic relations between China and South American coun-
tries, but also considers a more comprehensive set of interconnected
issues, such as geopolitics, alliance patterns, and domestic politics in South
American countries, and how this connects to China-South America
relations.
The analysis is oriented by a comparative approach that considers three
“types” of South American countries. The three typologies are based on
three elements: economic policy, foreign policy, and economic develop-
ment model. These elements are considered to be potentially significant
when comparing the relations of different South American countries with
China. The first category is the “liberal” category, exemplified in this anal-
ysis by Peru and Chile. This category is characterized by liberal market-
oriented economic policies, foreign policies guided by commercial
S. Christensen (*)
Institut for Kultur og Globale Studier, Aalborg University, Aalborg, Denmark

DOI 10.1007/978-3-319-62551-5_4
78 S. CHRISTENSEN
concerns and a development model with a heavy specialization in primary

goods but with some diversification into the manufacturing sector. The
second typology is exemplified by Bolivia and Venezuela, and counts
socialist-inspired “neo-developmental” countries with economic policies
that emphasize the active role of the state in the economy, foreign policies
that put greater weight on geopolitics, and a development model with
intense specialization in commodities. The third typology consists only of
Brazil. It has an intermediate position in terms of economic and foreign
policy orientation compared to the other two typologies, whereas its eco-
nomic model is significantly more diversified. Furthermore, Brazil’s role in
the global economy and on the international political scene is much
greater than in the two other typologies.
The Liberal Typology: Peru and Chile

In 1989/1990 Peru faced a severe foreign debt crisis and a situation of
hyper-inflation. The Peruvian government reacted by introducing liberal
economic reforms and has since then stabilized the economy and achieved
economic growth through a strategy of privatizations, liberal trade, and
reliance on the private sector coupled with prudent macroeconomic poli-
cies. In 1999, a fiscal responsibility law was passed in order to support this
strategy convincingly (Werner 2015: 1–4). Peru dropped its former focus
on industrial policies, and between 1992 and 2008, Peruvian develop-
ment strategy did not build on long-term strategic planning policies
(Mattar and Cuervo 2016: 153–154).
At the turn of the century, China was the fourth biggest export market
for Peru and the sixth largest source of its imports (Dussel Peters 2011:
94). Since then, economic relations with China have grown enormously.
In 2009, China made up 15.4% of Peru’s total exports compared to 6.4%
in 2000 (Rosales and Kuwayama 2012: 78), and in 2011, China became
Peru’s biggest export destination (Sanborn and Chonn 2015: 9). In 2014,
China became both Peru’s biggest export market and its largest source of
imports (OECD, UN, CAF 2015: 212). Peruvian exports to China are
heavily dominated by mining exports. In 2013, these made up 74% of
Peru’s total exports to China (Rosales 2015: 47). Since 2014, Peru has
seen export earnings fall by approximately 12% due to falling commodity
prices. Nevertheless, exports to China have grown by some 16% over 2015
and 2016 (ECLAC 2016a: 128–129) attesting to China’s growing signifi-
cance to Peru.
THE IMPACT OF CHINA ON SOUTH AMERICA POLITICAL AND ECONOMIC... 79
Between 2003 and 2007, Peru experienced annual average economic

growth of more than 7% (ECLAC 2008: 18) based in large part on the
boom in commodity prices. Chinese demand had a significant impact on
these prices (Perotti 2015: 49–50). The international financial crisis hit
the Peruvian economy it in 2009, where growth fell to just 1.1%, but as
export prices and markets improved again, economic growth rebounded
to 8.3% in 2010 and was kept at a high level until 2013. The end of the
commodity boom then led to significantly lower economic growth from
2014, where Peru had 2.4% growth (ECLAC 2015b: 62).
Since 2003, Peru has achieved primary budget surpluses every year
(Werner 2015: 1) and it has accumulated enormous foreign reserves thus
pursuing prudent counter-cyclical macroeconomic policies. Reserves
reached an all-time high of more than US$65 billion in 2013 (ECLAC
2015b: 75) providing the country with very strong economic buffers and
a capacity to pursue counter-cyclical policies in the context of low com-
modity prices after 2013 (World Bank 2016).
Peru’s policy towards China has centered on bilateral economic rela-
tions as part of its overall liberal strategy of diversification of economic
partners. In 2006, Peru celebrated a FTA with the USA and, in 2009 it
celebrated a FTA with China. Peru has signed various other FTAs in the
last two decades, as well (Sanborn and Chonn 2015: 3). Peru’s aim in the
FTA with China was amongst other things to get preferential access to the
Chinese market as well as to pursue a strategy of greater integration into
Asian industrial “supply chains and to become a business center in South
America” (OECD, UN, CAF 2015: 211). This aim remains an important
but also challenging strategy for Peru (Rosales 2015: 75–78).
Apart from the strong bilateral trade, Peru has also received much FDI
from China that now controls around 30% of the mining sector (Sanborn
and Chonn 2015). In 2015, the Chinese and Peruvian governments
signed a number of cooperation agreements, and Peru also signed an
agreement with a large Chinese corporation to establish cooperation in
the development of the Peruvian energy sector (ibid). Recently the
Chinese state-owned enterprise, Chinese National Petroleum Company,
bought the Peruvian holdings of Brazilian state-owned Petrobras. Thus,
China currently controls around 40% of Peru’s hydrocarbon sector
(Sanborn and Chonn 2015: 7). This reflects China’s interest in access to
metals and oil. Furthermore, China, Brazil, and Peru announced a joint
US$10 billion investment for the construction of a transoceanic railway in
order to connect the Pacific and Atlantic coasts. Chinese investment in
80 S. CHRISTENSEN
infrastructure and in the oil sector is thus growing strongly. In this way,
China seems set to live up to its promise in the China-CELAC Cooperation
Plan 2015–2019 of stepping up trade and investment relations with LAC
(Rosales 2015: 67–76) in the case of Peru. Finally, China has also become
an important lender to Peru during the last decade (OECD, UN, CAF
2015: 211–212).
Economic relations between the two countries take on a decidedly
North-South pattern: China imports commodities from Peru and exports
manufacturing products. A huge 95% of Chinese exports to Peru are from
this sector and is dominated by relatively advance segments of manufactur-
ing. Although competition from Chinese manufacturing is quite relevant,
Peru maintains an important manufacturing capacity (Sanborn and Chonn
2015: 8).
Of the five countries emphasized in this analysis, Peru ran the biggest
trade deficit in 2014, though its deficit of US$1445 billion is a far cry
from Mexico’s deficit of more than US$60 billion in that same year
(Rosales 2015: 41).
The general focus of the Peruvian government’s policy towards China
follows a liberal commercially oriented focus. Peru does not seem inter-
ested in entering into the realm of geopolitics with regard to the possible
competition between China and the USA for influence in the region.
Nevertheless, Peru’s room of maneuver and thus autonomous policy space
has increased since 1990. This is, in large part, thanks to its economic
strengthening, but China’s rising importance as an economic partner, as
well as Peru’s own economic diversification strategy, have also contributed
towards this situation as they strongly reduced Peru’s economic depen-
dency on the USA.
Chile’s relationship with China is similar to Peru’s. It is guided by a
liberal commercial strategy and its strategy of diversification. It emphasizes
bilateral economic relations and does not emphasize geopolitics. China
and the USA are key economic partners for Chile, as in the case of Peru.
Unlike Peru, Chile did not face a foreign debt crisis in the early 1990s.
Chile introduced a very orthodox neoliberal economic strategy in the 70s
during the dictatorship of Augusto Pinochet (Rindefjäll 2009: 180),
although Chile did not privatize copper, which is a key export resource for
Chile, and state-owned CODELCO remained the dominant actor in the
copper sector. Chile’s abandonment of the import substitution and indus-
trialization strategy in the 70s led to a tendency towards de-industrialization
(Castillo and Martins Neto 2016: 12), and the orthodox neoliberal
evelopment strategy turned out to create disastrous results as Chile was

d
hit by one of the worst economic crises in the region in 1982 and 1983 in
response to falling copper prices and a sudden stop of international credit.
This led to a huge increase in unemployment and to a rise in state debt and
foreign debt. Chile responded by devaluing its currency and by adjusting
its development strategy towards an export-oriented growth model with
some more state regulation of the economy (Christensen 2009: 44–45).
As a result the economy stabilized and new economic growth was achieved
from the mid-80s. Growth picked up further from 1990, when democracy
was re-introduced, and averaged 5.5% between 1990 and 2005. As a con-
sequence, Chile’s high level of poverty was substantially reduced. In this
period, Chile maintained neoliberal continuity, though with a strength-
ened focus on social policies following a strategy of “growth with equity”
(Rindefjäll 2009: 177 and 181).
The strategy had a strong focus on free trade and Chile celebrated a
high number of FTAs, like Peru. In the 90s, a number of FTAs were cel-
ebrated with LA countries and, in the early 2000s, Chile celebrated a large
number of FTAs with extra-regional countries such as the USA, South
Korea, and the EU (Christensen 2009: 51 and 54). In 2006, Chile was the
first LA country to celebrate an FTA with China (Wise 2016).
In 2000, China was the fifth biggest export destination for Chile and
the fourth biggest source of its imports (Dussel Peters 2011: 94). The
boom in the prices of Chile’s commodity exports, particularly copper
which is the dominant export item, between 2003 and 2008 led to high
economic growth and large current account surpluses. Coupled with fiscal
surpluses, Chile reduced its public debt and its foreign debt assuring a very
solid financial situation (ECLAC 2008: 18 and 141), similarly to Peru. In
Chile’s case, the government introduced the rule that the government
should assure a structural fiscal surplus of 1% to even out the business
cycle. The calculation of this structural surplus was linked to the long-term
tendency of the copper price, due to its key importance in the Chilean
economy (OECD 2007: 21). The Chilean macroeconomic strategy
sought to assure stable economic growth and to avoid an overvalued
exchange rate and the problem of “Dutch Disease” that would harm the
manufacturing sector.
The boom in commodity prices and China’s huge appetite for imports
of copper and other minerals from Chile led to a significant intensification
of bilateral trade, and in 2009, China was Chile’s number one export
destination with 23.2% of exports compared to just 5.0% in 2000. In
82 S. CHRISTENSEN
c omparison, 11.3% of Chilean exports went to the USA in 2009 against

16.2% in 2000 (Rosales and Kuwayama 2012: 78). As in the case of Peru,
Chile’s exports to China were dominated by metals. These made up 82%
of Chilean exports to China in 2013 (Rosales 2015: 45). China’s exports
to Chile, as in the rest of South America and LA as a whole, were strongly
dominated by manufacturing exports. In the FTA between the two coun-
tries, Chile had achieved exceptions from low trade tariffs in the sector of
textiles and clothing in order to protect national producers. Chile fur-
thermore hoped that the agreement would open up for rising Chilean
exports towards China of more value-added exports. However, the reality
was that Chile mainly exported metals to China (Rosales 2015: 65),
although it did achieve significant exports of Chilean wine to China (Wise
2016: 39–40).
Chile has been interested in receiving Chinese investments. However,
unlike Peru, Chile has not had success in attracting Chinese FDI. Between
2010 and 2013 Chile only received US$100 million in Chinese FDI com-
pared to Peru’s approximately US$7 billion (Rosales 2015: 60). Carol
Wise argues (2016: 39) that the main reason for this is that China’s main
interest in Chile is copper, and that copper is largely controlled by the
Chilean state. Another reason stems from Chile’s liberal strategy and free
trade agreements such as the one with the USA that prohibits restrictions
on unrefined metal exports. Although Chile produced 31.1% of global
copper output in 2014, its share in refined copper was merely 11.9%, and
Chile maintains a relatively small refining capacity. In comparison, China’s
global share in refined copper production has increased to 34.8% in 2014
from 15.6% in 2005. Chile now is considering to expand its refining capac-
ity as well as to develop more value-adding activities in the manufacturing
sector based on copper (Mautz 2016: 13 and 16). In other words, Chile
is considering strategically oriented industrial policies. This seems to be a
reaction to the fall in copper prices since 2013.
Chile responded to falling export prices since 2013 by implementing
counter-cyclical fiscal policies, as did Peru. In 2014, the government hiked
public spending. This continued in 2015 and led to a doubling in the fiscal
deficit and a weakening in the current account (World Bank 2016: 104).
Unlike Peru that saw a major widening in its trade deficit in 2015, how-
ever, Chile maintained a significant trade surplus in 2015 (ECLAC 2016a:
128), something that implies greater solidity to Chile’s financial situation.
Nevertheless, worsening terms of trade have provoked a fall in economic
growth as in Peru’s case. Also, Chile has been relatively unsuccessful in the
manufacturing sector that experienced a reduction in its share of GDP

from 14.6% in 2005 to 11.6% in 2014 (Mautz 2016: 19).
Nevertheless, Chile’s liberal economic strategy has served it well in
terms of assuring a stable economy and rising GDP, and Chile has recently
become one of the few high income countries in LA (World Bank 2016).
China has played a key role in this development. For years Chile has
achieved substantial trade surpluses with China largely driven by copper
exports. However, the recent fall in commodity prices has led to a reduc-
tion in export revenue from China of more than 16% over 2015 and 2016
(ECLAC 2016a: 129).
The “Neo-Developmental” Socialist-Inspired

Typology: Bolivia and Venezuela
Bolivia and Venezuela show major similarities in terms of their recent eco-
nomic development strategies, foreign policy strategies, and development
models, although some significant differences are also clear. For instance,
Bolivia is one of the poorest countries in LA, while Venezuela is one of the
few LA countries that recently became a high-income country (World
Bank 2016: 111).
Bolivia and Venezuela, like Peru, Chile, and Brazil pursued neo-liberal
economic strategies in the 1990s in response to the economic crisis expe-
rienced in the 80s. However, this changed in the 2000s after disappoint-
ing development outcomes associated with neoliberal strategies (Madrid
2010/2011: 600–602).
For much of the twentieth century Venezuela pursued a relatively suc-
cessful oil-led development path while seeking to diversify the economy
towards manufacturing. However, as in the other country cases, Venezuela
was hit by a financial crisis in the early 80s. The crisis had a highly negative
effect on industrial production, jobs, and the fiscal health of the Venezuelan
state. In response to this, Venezuela introduced harsh fiscal measures and
privatizations in the oil sector (Buxton 2009: 157). Nevertheless, the
economy continued on an unstable path in the 90s. This paved the way for
major political change when Hugo Chávez won presidential elections in
1998 as the leader of a new political party, the Party of the Fifth Republic
thereby putting an end to 40 years of dominance by the two parties
COPEI and ADN. Chávez promised what he called a “Bolivarian
Revolution” based on pro-poor policies and state control of the huge oil
company PDVSA (Christensen 2016a, b: 79).
84 S. CHRISTENSEN
As president, Chávez pursued deep economic reform policies that con-

fronted local elites and Venezuela’s traditional allies such as the USA,
Venezuela’s main partner in the oil industry. In 1999, a new constitution
that set up the guidelines for these reforms was passed, and in 2001, a new
law for the oil sector was passed giving the state more control in the sector
(Giacalone and Briceño-Ruiz 2013: 79–80). The aim was to use state con-
trol of the strategic oil resources as a platform for greater autonomy from
the USA and for a socially inclusive state-led economic growth strategy.
Venezuela’s foreign policy strategy emphasized alliance formation with
states that could contribute to these aims as well as to pursue an actively
anti-hegemonic strategy against the USA and neoliberalism (García
Agustín 2016: 104). Key alliances were made with China, OPEC coun-
tries, as well as with Cuba, and later other countries in the regional coop-
eration scheme ALBA that opposes free trade agreements. In this way,
Venezuela’s foreign policy and its economic policy differed significantly
from those of the liberal countries.
Hugo Chávez visited China in 1999, and in 2001 the two countries
celebrated a strategic alliance (Giacalone and Briceño-Ruiz 2013: 81–85),
although bilateral economic relations at the time were extremely limited.
In 2000, China was only the 37th largest export destination and the 18th
largest source of Venezuelan imports (Dussel Peters 2011: 194). This
changed drastically with the Chávez government in power. Initial oil
exploration agreements were celebrated with China in the early 2000s,
and in 2007 the Venezuelan government celebrated an “Oil for Credit”
agreement with China (Giacalone and Briceño-Ruiz 2013). At this point
Venezuela was experiencing an oil-led economic boom with dramatic rises
in oil prices. This strengthened Venezuelan exports and fiscal revenues as
well as living standards in the country. Exports almost tripled between
2002 and 2007 assuring big current account surpluses and strong growth
in the international reserves at the Central Bank. At the same time,
Venezuela ran primary budget surpluses (ECLAC 2008: 113–117),
though at a low level considering the windfall incomes and extraordinarily
high economic growth figures between 2004 and 2007 (ibid: 18).
The international financial crisis put an end to the economic boom
period in 2008. Venezuela was hit much harder by the international finan-
cial crisis than the other countries in this study. Several reasons account for
this, such as Venezuela’s strong dependence on oil that was quickly felt in
worsening fiscal and current account outcomes. Furthermore, the crisis
came at a bad time, since Venezuela had just recently started an ambitious
and costly nationalization strategy in the oil sector and in other sectors.
Venezuela’s strategy of moving towards socialism and the government’s
aggressive anti-imperialist rhetoric worsened the situation further as
Venezuela’s creditworthiness suffered a severe blow in international finan-
cial markets (ECLAC 2015a: 73).
In 2009, China had become Venezuela’s third biggest export market
and its fourth biggest source of imports (Dussel Peters 2011: 94). China
also became increasingly important as a lender and as an investor, particu-
larly in the oil sector. Venezuela was by far the biggest recipient of lending
from Chinese public banks between 2005 and 2016 (Gallagher and Myers
2016). Many development cooperation projects and joint productive
projects were celebrated (Giacalone and Briceño-Ruiz 2013), and
Venezuela became increasingly dependent on China, although the USA
remained its largest export destination (García Agustín 2016: 105–106).
With this support as well as with higher oil prices again, Venezuela achieved
decent economic growth results in 2011 and 2012. However, the interna-
tional financial crisis had provoked a severe worsening of the Venezuelan
financial situation, and when oil prices started falling again from 2013,
Venezuela lost control of its financial situation. The Venezuelan economy
is currently in a deep crisis with an expected negative economic growth of
8.0% in 2016 and an expected contraction of 4.0% in 2017 (ECLAC
2016b).
In the chaotic economic, social, and financial situation this has created,
the Nicolás Maduro government is facing strong political opposition. The
opposition is questioning the lack of transparency in the credit dealings
between the Venezuelan government and China and it criticizes the risk to
Venezuelan sovereignty that relations with China imply, according to its
view (Pérez Flores and Jatobá 2016: 140–141). This situation introduces
uncertainty as to Venezuela’s future development strategies as well as to its
relationship with China.
However, an eventual future liberal government is not likely to pursue
an anti-American foreign policy and would most likely follow a more lib-
eral orientation both in terms of foreign policy and economic policy. This
will most likely not mean that China will lose importance for Venezuela,
since China plays a significant role for Venezuela.
However, the preference for China-based cooperation and alliances in
global politics is likely to give way to a new approach from Venezuela.
China on its part can also not be counted on for unlimited financial
support. The Chinese government has recently expressed concerns about
86 S. CHRISTENSEN
corruption and fraud with Chinese funds directed at development projects

in Venezuela (CELC 2016: 9). Thus, there are serious doubts as to the
Chinese future willingness to lend to Venezuela and a moratorium on
Venezuela’s foreign debt seems likely. The caution of the Chinese govern-
ment at the moment regarding new lending to Venezuela could be seen as
strategic, since the political opposition may soon take over power in
Venezuela, and China wishes to build a good relationship with a coming
new government.
Bolivia faced a very severe development crisis in the 80s due to a wors-
ening in its terms of trade and financial instability. This led to a crisis in its
relatively insignificant manufacturing sector (Madrid 2010/2011: 600).
In response to this, Bolivia introduced harsh fiscal adjustment policies and
later a neoliberal strategy of openness and privatizations, including in the
strategically important energy sector (Petras and Veltmeyer 2005: 185).
These policies helped to stabilize the economy, but a new period with a
worsening in Bolivia’s terms of trade in the late 90s and early 2000s led to
economic stagnation and widespread popular dissatisfaction with the out-
comes of neoliberal policies. This paved the way for a reversion in the
political landscape in Bolivia in 2005 similar to what had earlier occurred
in Venezuela. In Bolivia’s case, Evo Morales became president as the can-
didate of the new party, MAS. He introduced a state-led development
strategy with nationalizations and a focus on social inclusion as well as
greater political inclusion of indigenous groups. On the foreign policy
front, Bolivia, like Venezuela, pursued counter-hegemonic foreign policies
aiming at strengthening Bolivia’s autonomy and reducing US influence
(Christensen 2016a, b).
Bolivia’s bilateral economic relations with China were very limited in
2000. China was its 18th largest export destination and its seventh big-
gest source of imports (Dussel Peters 2011: 94), whereas Brazil was its
dominant trade partner and investor. However, the new Bolivian govern-
ment sought closer diplomatic relations to China from the outset in
2006. Initially this did not translate into substantially closer bilateral eco-
nomic links (ibid). Nevertheless, Bolivia benefitted from the boom in
commodity prices, achieving a strong rise in export revenues and an aver-
age yearly economic growth rate of 4.5% between 2004 and 2008 as well
as a significant strengthening of its foreign reserves (ECLAC 2008: 18).
The Morales government was also able to introduce social policies aimed
at the poor sectors in society while pursuing prudent macroeconomic
policies.
In 2009, a new constitution was passed after a long political process

wrought with tensions between the government side and the political
opposition. The opposition was opposed to the nationalist and statist ori-
entation as well as to constitutional changes oriented towards the interests
of indigenous groups. Evo Morales was re-elected as Bolivia’s president in
the same year thus legitimizing the political direction. The USA was nega-
tively inclined towards this direction and sided with the political opposi-
tion. This led to bilateral tensions and in 2008 the Bolivian government
expelled the US ambassador (Wolff 2011: 5–9).
In Bolivia’s case, the international financial crisis in 2008 led to a quite
modest reduction in economic growth in 2009. At the same time, con-
trary to Venezuela, Bolivia was able to add further to its reserves, even
during this period. In late 2009, Bolivia’s terms of trade improved again
and economic growth resumed (Christensen 2016a, b: 93).
Bilateral trade with China started rising significantly after 2009, though
mainly in terms of Bolivian imports. China became Bolivia’s biggest source
of imports. The ratio between imports and exports was 4.2:1 in China’s
favor. More than 80% of Bolivia’s exports corresponded to the mining sec-
tor, since Bolivia’s dominant export item, natural gas, is not easily trans-
ported over long distances. China’s exports to Bolivia were concentrated
in the manufacturing sector in areas of high-value adding (Ellis 2016: 3).
Bolivia received its first loans from China in 2009, but Chinese financ-
ing was relatively limited, and Bolivia mostly financed its economic growth
by its own means contrary to the Venezuelan case. At the end of 2015,
Bolivia had received loans worth US$1.6 billion from Chinese public
banks to finance different development projects in collaboration with
China, e.g., in infrastructure and satellites, as well as to finance Bolivian
imports of technical equipment from China in the energy sector. More
than half of these loans corresponded to 2015 alone (Gallagher and Myers
2016).
In comparison to Venezuela, Bolivia’s exports were more diversified
with specialization in energy, mining, and agriculture (World Bank 2014).
This, along with the expansion of production, made Bolivia less vulnerable
to external economic shocks. Nevertheless, falling export prices from
2014 were a challenge. Bolivia, however, has managed to maintain eco-
nomic growth, and a solid financial situation allowed the country to
achieve a fall in its relatively low risk rating in international financial
markets in 2015 (ECLAC 2015b: 73) in spite of a fiscal deficit of 6.6%
(Vergara 2016).
88 S. CHRISTENSEN
In this context, Bolivia turned to China for support in 2015. The

Bolivian government made agreements with China to receive financing for
11 strategic projects that were included in its 2016–2020 National
Economic and Social Development Plan. It was agreed that Chinese com-
panies would be the ones in charge of developing these projects that had
a combined value of US$7.5 billion (Ellis 2016: 1). Bolivia is thus pursu-
ing a counter-cyclical strategy based on growing foreign financing and big
fiscal deficits bargaining on its ability to assure continued economic growth
and stability with the support of China and its own financial buffers. So
far, Bolivia’s financial buffers seem to be strong enough for such a policy.
ECLAC (2016b) expects economic growth of 4.5% in 2016 and 4.3% in
2017. However, there are concerns in Bolivia about the consequences of
higher foreign debt. Will this make Bolivia more dependent on China, and
will Bolivia be able to repay this debt (Ellis 2016: 8)?
The Bolivian government’s strategy seems to be to react to the cur-
rently low commodity prices by turning to Chinese project financing as a
way of assuring continued economic growth and the ability to maintain its
social programs. The intensified relations with Bolivia offer China an
opportunity to show that Chinese cooperation and financing may help
Bolivia achieve sustainable national development, contrary to what has
happened in Venezuela’s case. This could be important for China as it has
promised LA a new era of “win-win” economic cooperation with the
adoption of the Cooperation Plan 2015–2019 between the member states
of CELAC and China. This is surely not what we are seeing in Venezuela
at the moment. If Bolivia is able to profit from its current intensification
of bilateral economic cooperation with China, maybe China can avoid
being seen as a new imperialist partner. This is something that China wants
to avoid. In any case, the move to the political right in a number of South
American countries will most likely reduce this risk. There is every indica-
tion that China is as interested in collaborating with right-wing govern-
ments as with left wing governments in the region.
The analysis now turns to Brazil-China relations.
The Neo-Developmental Typology of Brazil

Like Peru, Venezuela, and Bolivia, Brazil opted for a neoliberal economic
strategy in the early 90s faced with a situation of significant economic
constraints from foreign indebtedness and a weak financial position of the
Brazilian state.
However, unlike the other countries analyzed, Brazil emerged from the
debt crisis of the 80s with a highly diversified economic development
model with a relatively strong manufacturing sector, although the share of
the manufacturing sector in total GDP had fallen a little since its peak in
the early 80s. The manufacturing sector’s share in overall employment
peaked in the late 80s and then saw a major decline in the 90s (Castillo
and Martins Neto 2016: 8 and 13).
In 2000, just 2% of Brazilian exports went to China; Brazil’s 12th larg-
est export destination (Rosales and Kuwayama 2012: 78; Dussel Peters
2011: 94), although Brazil and China had celebrated a strategic partner-
ship in 1993.
Bilateral relations developed further during the presidency of Lula da
Silva (2003–2010). In 2004, China’s President Hu Jintao visited Brazil
promising to intensify bilateral relations. For this purpose, the two gov-
ernments agreed on the establishment of a COSBAN (Tavares Maciel and
Nedal 2011: 243), and Brazil accepted China as a “market economy”.
Inside Brazil this measure was controversial and met opposition from the
representatives of the manufacturing sector, headed by the São Paulo
branch FIESP, which found that China should not be considered a market
economy due to the nature of the link between the Chinese government
and the Chinese productive system. Accepting China as a market economy
made it more complicated to use safeguard mechanisms against China at
the WTO and thus constituted a major competitive challenge for the man-
ufacturing sector (Vadell 2013: 51; Pérez Flores and Jatobá 2016: 145).
Bilateral trade rose dramatically in the decade of the 2000s in response
to the commodity boom (2003–2008) and Chinese manufacturing
exports to Brazil. Brazilian exports to China were dominated by soybeans
and iron ore. With the growing price and export volume of these com-
modities China became Brazil’s greatest export market in 2009 with a
13.2% share (Rosales and Kuwayama 2012: 76 and 78).
Exports to China kept rising until 2013 when bilateral trade between the
two countries reached a historical record of US$83.3 billion (Brun 2016:
201–202).Growing export receipts helped Brazil stabilize its economy,
build up reserves, and to achieve a period of dynamic economic growth
until a short-lived economic recession hit in 2008 and 2009, as a conse-
quence of the international financial crisis. As in the case of Chile, Peru, and
Bolivia, the Brazilian government pursued prudent m acroeconomic policies
with high primary budget surpluses and foreign trade surpluses. The gov-
ernment, furthermore, introduced a development strategy that emphasized
90 S. CHRISTENSEN
greater active state intervention in the economy than in the neoliberal 90s.
State-business cooperation was a significant component of the strategy. The
government cooperated with the industrial sector in order to promote its
expansion and to work against the de-industrialization that had been expe-
rienced in the 90s (Coutinho 2007). This led to a significant increase in
employment in the manufacturing sector until 2008 (Castillo and Martins
Neto 2016: 13). At the same time, the government also backed the agricul-
tural sector, for instance, through its activist international trade policy in the
WTO where it formed a South-South coalition, the G20, with countries
such as China, India, South Africa, and several LA countries. The purpose
was to promote the liberalization of agricultural markets in developed coun-
tries (Christensen 2012).
In spite of participating in the G20 coalition, the Chinese leadership
stressed that its priority in relations with LA as a whole was strictly focused
on the economic area, as it wanted to calm potential US worries of China
becoming a challenge to US influence in the region (Vadell et al. 2014:
100). Brazil, in turn, was more openly seeking to strengthen its influence
on the global political scene through different South-South coalitions.
Brazil’s economic downturn in late 2008 and in 2009 turned out to be
short-lived. In late 2009, Brazil resumed its economic growth path with
the use of counter-cyclical policies. Chinese growing imports and improved
commodity prices contributed to the resumption of Brazilian growth
(Brun 2016: 202). At the same time, China started to invest more in
Brazil and to offer loans. In 2009, when credit conditions were difficult
due to the international financial crisis, the Chinese Development Bank
and the Brazilian state-owned oil company, Petrobras, agreed on a US$10
billion loan-for-oil deal (Wise 2016: 29). In 2010, Chinese FDI in Brazil
rose tremendously from a very low level (Oviedo 2014). Investments were
largely directed towards oil and mining (Bernal-Meza 2016: 36). A
US$7.1 billion investment by Sinopec in the oil sector was the biggest
individual investment (Planas 2011). Economic relations with China thus
helped Brazil to weather the economic crisis, and in 2010, Brazil achieved
7.5% economic growth.
As a reaction to the international financial crisis, China began to put
more emphasis on its relations with Brazil and on South-South relations
more generally (Haibin 2010: 186). Xing Li (2016: 1) argues that the
international financial crisis led to a greater assertiveness of China on the
global political scene. The so-called “emerging powers” were also increas-
ingly recognized as important global political players by the dominant
developed countries. For instance, the USA, that was hosting the 2008
meeting of the G8, decided to invite the countries of the financial G20 to
the meeting. This group includes the greatest economies in the world and,
therefore, also China, India, and Brazil. This changed the political dynam-
ics of global economic governance (Visentini 2013) as the BRIC coun-
tries, Brazil, Russia, India, andChina, started to coordinate their
negotiating positions within the G20. In 2009, the BRIC countries had
their first Presidential summit thus institutionalizing their network coop-
eration in something that seems like an informal coalition (Christensen
2013). Similarly, Brazil collaborated in the BASIC coalition with China,
India, and South Africa in negotiations on global climate change politics.
China-Brazil relations were further strengthened with the signing in 2010
of a Joint Action Plan for the period 2010–2014. The plan focused both
on bilateral relations and on their collaboration on a range of multilateral
issues (Haibin 2010: 186).
In spite of these favorable developments in China-Brazil relations, ten-
sions between the two countries started to grow on the bilateral economic
front due to a negative Brazilian perception of the North-South pattern of
bilateral economic relations. A number of issues provoked dissatisfaction
from the Brazilian side, particularly the growing competitive pressure
from China in the manufacturing sector. The issue of the revaluation of
the Brazilian exchange rate was of great importance to the competitive
pressure. The Brazilian Real strengthened for a number of reasons. One
was the US policy of monetary easing. Another was China’s defensive
exchange rate policy. A third reason was the “Dutch Disease” phenome-
non that affected Brazil due its high export receipts from commodities.
Brazil’s counter-cyclical expansionary policies during the financial crisis
also contributed towards this outcome, as did the inflow of financial spec-
ulative investments in Brazil (Christensen 2013). Between early 2009 and
January 2011, the Brazilian Real thus rose by 38% against the US$
(Economist, January 13, Economist 2011), as well as it strengthened
against the Chinese currency.
This led to a surge in imports, not the least from China. In 2010,
FIESP criticized “excessive imports” of consumer goods and the loss of
thousands of jobs in the manufacturing sector to China (ibid). The FIESP
President, Paulo Skaf, pointed out that, although Brazil had a trade sur-
plus with China in 2010, there was a Brazilian deficit of around US$25
billion in manufacturing sector trade with China (Vadell 2013: 53). The
Brazilian finance minister, Guido Mantega, spoke of a “currency war” or
92 S. CHRISTENSEN
an indirect “trade war” among Brazil, the USA and China (Economist,
January 13, Economist 2011). This concern was shared by Dilma Rousseff
(Vadell 2013: 52), who became Brazil’s new President in 2011. She
argued that bilateral economic relations should move “beyond comple-
mentarity” and allow for greater Brazilian manufacturing exports to China
(Guilhon-Albuquerque 2014). Her government, and the Lula govern-
ment before her, introduced a range of policies aimed at promoting
Brazilian manufacturing production. In 2010, the government introduced
a “buy national” public procurement policy aimed at favoring national
producers (Fleischer July 30, 2010). Another policy in 2010, made
Petrobras participation of at least 30% in all oil exploration mandatory.
Furthermore, in 2010, Brazil put limits on the purchase or control of land
by foreign capital in Brazil in order to avoid “land grabbing”. This policy
was to a large extent a reaction to growing Chinese interest in investing in
the Brazilian soybean sector (Hearn 2015: 306–311).
Furthermore, in 2011, the Dilma government introduced a new indus-
trial development policy, “Brasil Maior” (Greater Brazil) after having
reached an understanding with the industrial sector through government-
business dialog (Ogier 2013). These initiatives did little to improve the
situation of the Brazilian manufacturing sector, though. It has remained
basically stagnant since 2012 (Christensen 2016a, b: 100). Recently, it has
even gone into negative terrain (Economist October 29, 2016a, b).
Similarly, economic growth has faltered since then, not the least due to
volatility in commodity export prices. This has led to growing external
economic imbalances.
In 2015, Brazil experienced negative economic growth. In this context,
Brazil has received growing amounts of Chinese lending, part of which
went to Petrobras in a loan-for-oil deal as in 2009. Furthermore, a US$20
billion Brazil-China Fund of Cooperation aimed at expanding productive
capacity in Brazil was created in 2015 with two-thirds of the funding from
China. Chinese FDI to Brazil has been growing since 2013 and it has
gone through a diversification towards infrastructural investments and
market-seeking investments in the manufacturing and services sectors
(Brun 2016: 200). This development is in line with the Chinese “going
out” strategy after the international financial crisis (Vadell et al. 2014:
102; Li 2016: 1 and 16–17) that aims at Chinese global investment diver-
sification and China’s political strengthening on the global scene. It can be
seen as a strategy of competing with the USA for influence in different
world regions (see e.g., Li 2016: 16–17). In spite of tensions over trade
issues, China and Brazil have thus maintained close bilateral economic
relations as well as pursuing common agendas on the global political scene
in different international coalitions.
In 2016, President Dilma was impeached, and her vice-President,
Michel Temer, from the coalition party PMDB, took over the presidency.
The new leadership has taken new steps that could be seen as a correction
in the strategy pursued by the PT-led governments. The new government
may be leaning towards a foreign policy strategy and an economic strat-
egy similar to that of the liberal countries that now include Argentina
after Mauricio Macri took over power in 2015. In the realm of economic
policy, the Temer government is dropping the local content policy intro-
duced in 2010 as well as the policy guaranteeing a minimum investment
share of at least 30% to Petrobras in all oil exploration projects in the
pre-salt petroleum deposits (under the seabed) (Fleischer, October 7,
2016a). Transpetro, a private company in the oil sector, recently
announced that it had cancelled the construction of 17 oil tankers by
Brazilian shipbuilders as the policy of Lula and Dilma of obliging the
company to buy from Brazilian producers has been discontinued
(Fleischer, October 28, 2016c). In spite of a 5.2% fall in industrial pro-
duction in Brazil between August 2015 and August 2016 (ibid), the
Temer government has thus introduced a more liberal policy in the area
of public procurement.
The fiscal situation is still deteriorating, and public debt has moved up
over 70% of GDP (Fleischer, October 7, 2016a), and Temer has made fis-
cal consolidation his government’s number one priority (CELC 2016: 4).
In October, Michel Temer participated in the 2016 BRICS summit in
India. Russian President Putin, however, did not wish to meet with him
due to issues that the Russian President has had with the impeachment of
Dilma. Thus, the BRICS coalition seems hurt. After the BRICS Summit,
Temer went to Japan where he attended a meeting of Japanese and
Brazilian business leaders and had a long talk with Japanese Prime Minister,
Shinzo Abe. This was the first visit of a Brazilian president to Japan in 15
years (Fleischer, October 21, 2016b).
The Temer government seems to be focusing on a commercial agenda
that no longer emphasizes South-South relations from a geopolitical stra-
tegic position. Trade agreements with developed countries have moved up
amongst the top priorities in Brazil’s foreign policy. The policy should not
be seen as being against China, though. Brazil still collaborates with China
and Chinese investments in Brazil remain solid (CELC 2016: 10).
94 S. CHRISTENSEN
Conclusion
The historical comparative analysis of the five South American cases
grouped into three typologies allow us to draw a number of conclusions
on recent China-South America relations.
Relations between China and South American countries intensified
after the year 2000 for all three typologies. This intensification was par-
ticularly caused by China’s economic rise and impact on international
commodity prices. China’s growing import of commodities and its impact
on commodity prices was an opportunity for all of the countries studied,
even for Bolivia whose exports to China were very limited. Rising prices of
commodity exports helped all five countries assure economic strengthen-
ing and greater room of maneuver during the commodity boom
(2003–2008), and they all pursued development strategies based on the
centrality of commodity exports, although particularly Brazil also had
some emphasis on industrial policy.
China’s main focus was on bilateral economic relations, initially with an
emphasis on access to commodity imports needed in the Chinese develop-
ment process but also with an interest in the diversification of its manufac-
turing exports. In the early part of the 2000s, trade relations were most
developed with those countries that specialized in the mining sector, i.e.,
Chile and Peru. This was followed by growing trade and economic rela-
tions with oil producing countries and then countries with significant agri-
cultural production, particularly soy. At the end of the decade, China was
amongst the main economic partners for all of the case countries with the
exception of Bolivia due to its particular specialization in the gas sector.
Venezuela on its part became increasingly dependent on Chinese financ-
ing in the context and in the aftermath of the international financial crisis
when faced with volatile oil prices and poor access to international capital
markets. The other four case countries managed this crisis better due to
their stronger financial situations.
The international financial crisis also led to greater emphasis on South-
South collaboration through coalitions. This was particularly relevant in
the case of Brazil due to its stronger role in the international system.
In the second decade of the twentieth century, China has become
extremely central from the perspective of all of the five country cases,
especially due to its contribution to external financing of development
through FDI and loans, which has become increasingly important after
the end of the commodity boom in 2013. This particularly is the case for
Bolivia, Brazil, and Peru. Venezuela, the biggest recipient of Chinese

financing since 2005, has entered a chaotic economic and political situa-
tion. The socialist-inspired government is facing huge challenges from the
political opposition and China is no longer willing to function as a lender
of last resort to Venezuela criticizing the lack of transparency in the gov-
ernment’s handling of Chinese financing. China thus seems to prepare
itself for collaborating for a future government of the right-wing opposi-
tion. This shows that ideological orientation (on the political left) is not
very significant from the perspective of China.
Volatile commodity prices have led to an increased focus on how
development based on commodity exports can lead to external vulnera-
bilities and to promoting strategies of handling this problem. So far,
Bolivia, Chile, and Peru have dealt successfully with this through pru-
dent macroeconomic policies. Currently, especially Chile is considering a
focus more on innovation and industrial policy, a strategy Brazil has also
attempted, though with limited success as the problem of “Dutch
Disease” often associated with development models strongly based on
primary sector exports tends to make strategies of productive diversifica-
tion difficult.
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CHAPTER 5
The Changing Problem of Regional

Development Finance in Latin America
Leonardo E. Stanley and José M. Fernández Alonso
Introduction
Defined as the complex of resources assigned to the enhancing of socio-
economic structures and dynamics within a specific political entity,—
usually a State, but not exclusively—development financing comprises
both public and private funds and actors. On the one hand, funds could
be obtained from national or supra-national (public funded) institutions
or from private sources (bonds, banks, etc.)1 On the other hand, funds
could be directed to finance private agents´ projects (corporate financing)
or they go to finance public projects (public debt). The mobilization of
domestic resources in LA has historically been limited. In this context,
political-economic authorities in the region were compelled to rely on
foreign funds in order to forge development projects, frequently associ-
ated with infrastructure necessities: the construction of railways and ports
in the late nineteenth century, the expansion of roads and basic facilities
L.E. Stanley (*)

CEDES, Centro de Estudios de Estado y Sociedad, Buenos Aires, Argentina
J.M. Fernández Alonso
Universidad Nacional de Rosario, Santa Fe, Argentina

DOI 10.1007/978-3-319-62551-5_5
102 L.E. STANLEY AND J.M. FERNÁNDEZ ALONSO
for the provision of public services during the twientieth century, or the
generation of wind farms, or rapid transit systems in present days.
In spite of being a constant, this need for external financing did not
always have equal importance. Likewise, the amounts and mechanisms
regarding the need for capital varied in the course of time, together with
the adjustments in the international financial system and LA development
strategies.
Without the purpose to display a detailed historical approach, the argu-
ment merely note that, in recent decades, the access of South American
countries to development financing has gone through substantial changes.
In this respect, it could be stated that, in spite of the low savings to
GDP ratio traditionally observed in the region, this problem became par-
ticularly significant in the 70s, when governments decided to phase out
the ISI policies and disarticulate the so-called financial “repressed model”.
In this regard, it should be noted that after the liberalization of the capital
account, savings were no longer required to match investment necessities.
At the same time, the post WWII financial architecture suddenly collapsed,
transforming development financing with it. Cross-border funds began to
increase, alongside the likelihood of financial crisis on a global scale as we
have repeatedly observed since then.
In order to obtain funds, sovereign nations were somewhat forced to
go into the markets, whose conditions and institutions would cyclically
challenge them, as observed after 1982 when the LA debt saga erupted. A
decade later, international debt markets experienced a “revolution”, as
transnational bank loans lost their prominence, and bond financing
bloomed. Most LA bonds were issued under New York jurisdiction, with
sovereign nations unaware of the legal conditions the market was impos-
ing on them.
The role of multilateral lending agencies also changed during these
years, particularly after the collapse of the Bretton Woods order.
Historically, development financing came from traditional IFIs, namely,
globally funded agencies as the World Bank or from institutions estab-
lished on a regional level such as the IADB and the CAF, among others.
After the turn of the century, the financial development setting became
more complex when other international agents gained presence: the PRC,
in particular, followed by other members of the BRICS coalition (Brazil,
Russia, India, and South Africa). In this context, it should be noted that
the decision of the Chinese authorities to compete globally—under the
so-called “go global” strategy—and to internationalize the Renminbi
THE CHANGING PROBLEM OF REGIONAL DEVELOPMENT FINANCE... 103
(RMB), were the beginning of new patterns in international capital flows,

and development financing. Suddenly, countries in the region benefited
from a new source of funding for their development projects.
Besides the systemic changes produced by the rise of China, other fac-
tors impacted South American strategies towards development financing.
In this respect, the externalities of the commodity boom initiated during
the first years of the twenty-first century must be considered. In this
respect, the extraordinary resources obtained from trade allowed South
American countries to escape the traditional constraints imposed by tradi-
tional IFIs.
Financing necessities were not considered until these international pro-
cesses began to fade. In effect, the decrease in commodity prices, the
deceleration of the Chinese economy, and the persistence of a low savings
ratio, henceforth, re-introduced the issue in policy-maker circles.
The aim of this chapter is to evaluate the old and current challenges
experienced by South American countries regarding development financ-
ing. Specifically, this study analyzes the conditionalities that South
American countries had—and have—to cope with in order to access to
external development financing, from a historical perspective.
The interest in scrutinizing extra-regional development financing
mechanisms provokes tension between economic opportunities and politi-
cal constraints experienced by South American countries. When lenders
are called to fill this gap, these funds would necessarily try to impose their
conditions, as IFIs have done in the past, or the PRC might try right now.
This study looks at development financing from a historical perspective,
analyzing the old scheme and describing the alternatives that South
American countries are beginning to face.
The Changing Challenges of Regional Development

Financing: A Brief Historical Overview
As previously stated, the problem of development financing became a con-
stant in LA countries since their independence. Due to their structural
difficulties to save and manage their own capital, governments in the
region had been forced to rely on foreign means in order to carry out
development initiatives, associated with infrastructure facilities. The main
mechanisms used during the first decades of their political independence—
e.g., the nineteenth century and the first decades of the twentieth
century—were private bank loans and debt issuance. These resources

allowed LA countries to generate and develop critical infrastructure—rail-

ways and port complexes, for example—required by a development model
based on agricultural exports. Nevertheless, the onset of WWI constrained
the access to foreign capital. Consequently, development financing had to
be channeled through internal funds, which were known to be scarce. In
this context, some LA countries—particularly those with more complex
economies—initiated a new development strategy: the so-called ISI model.
Moreover, it is important to note that this new strategy of development
joined a revamped political and economic order. According to Ruggie
(1982), the principles of embedded liberalism dominated the postwar era,
where national economies remained relatively closed off from external
capital movements, highly regulated financial markets, and public sector
involvement in vast sectors of the economy. This vision of embedded lib-
eralism emerged as an historical response to the tension created by both
extreme liberalization observed during the first globalization wave and
those emerging from the highly protectionist environment irrupting after
1930. In any case, and despite the interest of US negotiators,2 the IFIs
related to Bretton Woods conferences were silent regarding developmen-
tal issues. However, with the passing of time and the advancement of the
independence process in the so-called Third World, these institutions
incorporated developmental goals and discourses, but all frequently
clutched to political and economic conditionalities (Coehlo 2012).
However, financial institutions established in Washington became key
actors in financing infrastructure projects around the world—unfortu-
nately, this lending practice was disrupted in the 70s and 80s (Sanderson
and Forsythe 2013).
Back in the early 70s, LA countries were among the most active partici-
pants in the oil-related credit boom with epicenters at New York, London,
and other major financial districts. Credit from transnational banks allowed
them to bypass the economic changes that were required due to leaving
the ISI model. However, cheap credit was an illusion, as loans were associ-
ated with flexible interest rates. When Mexico defaulted on its debt, a
long-term struggle started among sovereign debtors and creditors, which
tilted in favor of bankers and the so-called “lost-decade” of growth.
Financial development objectives, henceforth, were no longer considered
by US officials, nor by IMF staff (Chwierorth 2010).
Only after the Brady Plan was implemented during the end of 80s and
the beginning of 90s, did a new wave of credit-led growth erupted in the
region. This new process, however, was focused on the issuance of bonds,
starting an active sovereign emerging market bonds. However, instead of

just favoring the public sector needs, as in the 80s, capital flows were now
basically private, entering in the form of bonds and portfolio equity as well
as foreign direct investment (basically related to privatization programs).
Multilateral lending re-emerged as well, basically to finance utilities and
public works. In this new stage, the WB and the IDB took a leading role,
supporting structural reform policies (conditional lending). In this con-
text, IFIs were actively engaged in forcing members to liberalize their
capital accounts, unaware of the long-term effects, as this measure “was
unambiguously good” for them (as for the 2014 Nobel Prize Laureate,
Jean Tirole, as quoted by Chwierorth 2010: 12).
Despite their mathematical perfection, the reform policies financed by
the “Washington Consensus” institutions soon turned into failure. When
the succession of the financial crisis struck emergent economies (Mexico,
South East Asian Countries, the Russia Federation, Brazil, Turkey, and
Argentina), IFIs rushed to condemn local countries due to weak institu-
tions, malpractices on a macro level, and fierce populism but being inca-
pable to see any faults in their behavior. From a macro perspective,
Argentina’s 2001 default could be signaled as a leading example of this
pattern, despite the fact that the IMF previously complemented the local
authorities for their macroeconomic conduct. The highly contested water
privatization process in Cochabamba (Bolivia) could be signaled as an
example of WB’s3 short-sighted vision. Similar situations were observed
on other levels, and the message remained: more adjustments were needed,
growth will follow thereafter; more private involvement would come to
solve the problems of privatization. In short, for international agencies,
credit-related problems were linked to the mismanagement of developing
countries.
As social unrest increased, elected governments were pushed to choose
between their creditors or their voters. A new wave of leftist administra-
tions came to power, whose economic teams were highly distrustful of
neoliberal ideas, and privatization efforts were suddenly disrupted.
Henceforth, after 2002 several economies in the region began to embrace
Keynesian policies, and some of them were re-nationalizing firms related
to utilities and energy.
At this point, it must be said that this new political-economic stage was
enabled—and fostered—by the convergence of two international pro-
cesses: on the one hand, the boom in commodity prices; on the other
hand, the emergence of new poles in the international arena, PRC, in
particular. The conjunction of these processes essentially evolved due to

the development financing problem. In fact, the resources gained or
obtained through commodity trade and Chinese credits enabled LA gov-
ernments (South American ones, in particular) to bypass traditional IFIs.
However, when the commodity boom began to slow down some sov-
ereign countries decided to move to China—whose credits were not fined
without conditions from political intromission. Consequently, a small but
economically significant group of South American countries (specifically,
Argentina, Ecuador, and Venezuela) formed intensive financial relation-
ships with the PRC. In brief, it concerned countries with several difficul-
ties to borrow from traditional financial centers as they maintained
important disputes with former creditors. For them, a new political con-
sensus emerged: Beijing was replacing Washington.
Developing Finance in a Changing World: China,

New Development Finance Structures,
and Political Order
When the Chinese economic reforms were launched in the early 80s, its
economy, measured by GDP, was almost a quarter of the total GDP of
LAC. Nowadays, it is twice the size and increasing. Only in a few decades,
the PRC has become a leading world-factory producer, a giant global
trader, and a leading innovative country. In fact, China now ranks second
worldwide just behind the US economy, although it remains categorized
as a middle income country. Likewise, and after decades of being ranked
amongst the largest recipients of foreign direct investments, its go out pol-
icy and a fierce appetite first for resources and recently for technology
transformed China in a net capital exporter.
Due to the structural characteristics of its political system, the Chinese
authorities have always maintained a leading role in the process of direct-
ing outward capital flows. Notwithstanding the foregoing, an important
number of Chinese private firms have recently begun to establish invest-
ments abroad.
The go out policy was managed by governmental financing sources
since the launch and implementation of the aforementioned strategy,
involving a variety of public agencies and political actors, initially aimed at
financing infrastructure projects abroad. As we will see, infrastructure
projects were mainly financed by two banking institutions: the China
ExIm bank and the CDB.
However, Chinese financing is no longer constrained to aid and infra-

structure projects or restricted to developmental sources. Since the start of
the Asian financial crisis, and in order to help neighboring Asian counties,
the Chinese government launched a series of contingent loans or currency
swap lines (originally in US$), that came to complement the financial
assistance arriving from developed countries’ central banks’ sources.
The global financial crisis re-introduced the relevance of this idea, but
now, China transformed into a leading player as a net creditor. Henceforth,
new swap lines were now issued in RMB. The PBC became a very active
player entering into more than 30 bilateral currency swap agreements
since December 2008,4 including an important number of agreements
with South American countries (Liao and McDowell 2014). Argentina’s
US$11 billion swap arrangement is one of the most peculiar5 ones, not
just because of the funds involved, but because of the particular use made
by local authorities during the transition that took place after Mauricio
Macri’s administration lifted the so-called clamp on foreign currency
transactions previously in operation.
The decision to advance with the RMB internationalization process is
going in the same direction. The newly established RMB offshore markets
might be seen as a different source of project financing, although in its
initial steps. One of the leading and more innovative offshore markets is
London, a financial district that recently issued the first sovereign RMB
bond outside of China.6 Bonds issued in London, or other financial dis-
tricts certainly possess all the legal guarantees that similar papers might
grant. Additionally, authorities in China are aware of its relevance for
enhancing the RMB internationalization process as this interests them in
pushing for being including in the IMF’s exclusive group for Special
Drawing Rights (SDRs).
Last, but not the least, the strategic inclusion of a selected group of
local commercial banks as part of the go out policy, which explains their
increasing presence abroad.
In summary, the Middle Kingdom has rapidly transformed from a net
importer into a net exporter of capital. Chinese outward direct investment
is increasing rapidly, challenging established models of capital flows in the
process – Xi Jinping has recently declared that China’s foreign investment
in LA would reach the US$250 billion threshold during the next decade.7
This new status leaves China with new and challenging obligations.
Consequently, and despite the large amounts in financing development,
authorities are becoming aware of their global leadership and how this is
transforming their old lending practices. For example, they are becoming
forced to take environmental assessments into account or to include trans-
parency clauses in their credits.
Historically, their function as a donor was free from non-economic
assessments: Chinese credits were basically benefiting sovereign countries
in the South not really interested in governance related issues. However,
funds are no longer confined to developing partners, but are now becom-
ing global.
As a matter of fact, China is increasingly involved in financing develop-
ment projects all around the world. Development financing aid can be
traced back to the early years of communism in government, in the form
of donations directed to “friendly” regimes around the world with one
main conditionality: the recognition of the One China principle. To this
we should add the principle of non-interference and mutual benefit. In
summary, China’s development financing within the South-South coop-
eration framework initiated by Mao Zedong in the middle 50s (Xu and
Carey 2015a, b). Modern era (and widely dispersed) financing recognizes
its roots in Africa (Brautigam 2011; Cheng-Hin 2015),8 as China main-
tained deeper political and economic relations with the region since the
early 50s (Avendaño 2013).9
China’s financial aid continued after Deng Xiaoping’s reforms, although
the country now also benefitted from multilateral lending and external aid
packages.10 This second phase would embrace a strong orientation towards
economic development— mainly limited to the African continent.11
Furthermore, and in contrast to old development packages where political
interests predominate new loans, objectives become wider in scope
although economically driven and basically directed to boost Chinese eco-
nomic presence abroad.12
During both stages, Chinese financing was tied to governmental sources
and bilateral negotiations. After the financial reforms were passed, devel-
opmental funds began to be mediated by the China ExIm Bank and the
CDB, financial entities that were both created during the mid-90s and
cataloged as policy (financial) entities.13 As such, credits remain subordi-
nate to the approval of the MOFCOM, in both cases. Although some of
the credits granted by China’s policy banks are concessional, most of
the loans qualify as non-concessional, in the sense that they are tied to
market-based interest rates.14 Furthermore, Chinese credits have often
profited from sovereign guarantees, basically associated to earnings from
the export of natural resources—a practise originally introduced by Japan
and followed by China in Africa and later extended to LA. However,

developmental banks’ credit lines are also available to local firms, not just
public agencies or governments.15 Note that these two institutions are not
just confined to provide financing to developing countries, but they do
business with developed countries as well—as shown by the involvement
in UK nuclear energy plant financing. China’s policy banks are also
engaged in the funding of China’s SOE acquisitions abroad—including
funds for overseas acquisitions of oil companies (Sanderson and Forsythe
2013). Henceforth, being a key actor in the “go global” strategy launched
by the Chinese government. The role of policy banks in helping the coun-
try’s currency to internationalize has also become highly relevant, as they
increasingly settle their operations in RMB (Stanley 2014). In any case, as
their role in financing deepens, problems might also start to emerge, as
indicated by an increasing number of poor countries facing debt problems
with China.
China’s New Growth Model

Nobody can refute that the export-led growth model has transformed
East Asia, and China is not an exception, but rather one of the most suc-
cessful examples of such a framework. In brief, the PRC’s ascent has not
only shifted global wealth but has induced a commodity boom with it that
benefited Southern American countries the most.
As previously observed in the region, when planning their global inser-
tion, authorities followed an eclectic policy approach, which included the
control of key economic variables (i.e., exchange and interest rates). In
other words, they implemented a repressive financial model that enabled
the financing of the country’s accelerated industrialization. Industry also
benefitted from the presence of a devaluated RMB, allowing local manu-
facturers to maintain their wage-competitiveness. Low wages were main-
tained for a long period, due to the continuous arrival of new workers
from the countryside. Industrialization was reinforced by the presence of
a series of public policies and rules: for example, the FDI policy that favors
the entrance of foreign firms although forcing them to transfer technology
or forbidding them to participate in the local market. FX undervaluation
allowed authorities to accumulate foreign reserves, a strategy that progres-
sively shielded China against any global financial turmoil.
However, irremediably the model began to show signs of exhaustion.
It was the global financial crisis that permitted authorities to observe
limitations— particularly the inconvenience to rely upon economic suc-

cess in global trade. Initially, policy-makers sought that the shortfall was
attributable to exceptional circumstances and even managed through a
fiscal stimulus package. Additionally, this package would cause a real estate
boom but also a race to over—investment in regional SOEs and overca-
pacity. As the global economy did not recover, political cadres began to
accelerate their move towards a new process of economic accumulation.
This new process was at the center of internal consumption but was also
observable in the new role given to China’s OFDI. This “go global” policy
signals China’s transformation into a capital exporting country, although
this trend is also observed at other economic policy changes. On a micro
level, this is reflected by the fact that Chinese companies are now capable
of competing for international assets and putting them to productive use.
Whereas the Asian financial crisis came to demonstrate the fragility of
the global financial architecture and the inconvenience to rely on IFIs
funds—explaining its FX accumulation policy, the Global financial crisis
shows the risks of continuing with this policy—particularly after the per-
formance of T-bills. Henceforth, Chinese authorities decided to advance
with the process of capital account openness (Graph 5.1).
In summary, Chinese authorities decided to implement a new growth
model under which credits and investment flows (so-called OFDI) com-
plement the traditional trade links of the recent past. Graphically, this new
pattern corresponds to the accelerated increase in FDI flows, whose two-
digit figures are now eclipsing former growth rates—see Graph 5.2.
Since 2012, the growth rate of Chinese investments abroad has been
exhibiting a two-digit rate—resembling prior GDP figures.16 A large por-
tion of these funds are going to the USA and Europe, explained by the
Chinese firms’ drive for innovation and new technologies—as well as the
growing rejection that they observe abroad. LA countries also benefited,
although on a minor scale—funds were mainly directed at the purchase of
energy or raw materials companies. As China’s economic growth began to
slow down, reducing the historic FDI trend, the country became a net
exporter of capital.17
The process of RMB internationalization should also be seen through
the same lens: the interest of China to expand its global influence—in this
case, among players of the main financial districts. Financial international-
ization is also being channeled by political as well as commercial banks—as
explained throughout this chapter. An increasing number of scholars have
recently analyzed this loan pattern for LA, as China transformed into a
FX reserves (US$ dollars, in millons)

$50,00,000.00
$40,00,000.00
$30,00,000.00
$20,00,000.00
$10,00,000.00
$0.00
1990 1994 1998 2002 2006 2010 2014
Graph 5.1 FX Reserves (Source: Federal Reserve of St. Louis—Database)
A new growth model: GDP vs OFDI

24.0%
Annual growth rate
18.0%
12.0%
6.0%
0.0%
2011 2012 2013 2014 2015
Year
GDP (%) OFDI
Graph 5.2 China as a capital exporter

leading source of developmental funds (Gallagher et al. 2012).18 Chinese

capital flows arrive in the region, not just to finance infrastructure projects
but primarily to invest in natural resources companies—in particular, in
the oil and mining industries.19 Energy related credits, however, are some-
what special as they link the purchase of a commodity (oil, at market
prices) from local companies (generally, local SOEs) to the funds being
offered by the Chinese policy bank.20
The Chinese lending practices affect benefits and might also impose
costs on borrowers. On the one hand, as IFIs practises would suggest,
sovereign nations are free from economic constraints (and also from polit-
ical intervention), avoiding the scrutiny of creditors. Chinese lending has
also benefited sovereign countries during the last decade, particularly ben-
efiting Venezuela, Brazil, Argentina, and Ecuador. Credits were interme-
diated by political banks (CDB, ExIm Bank of China) mainly, although
commercial ones were also active. Loans were priced above institutional
(IFI) levels but below market rates—henceforth, benefiting some credi-
tors. On the other hand, the access to credit was often tied to the purchase
of Chinese goods or investments from Chinese firms. Furthermore, hid-
den costs in credit contracts might be important and largely unnoticed for
all interested parties. State-to-State negotiations were usually a secret
(eventually benefiting those from the government), lending conditions
often remained un-published, and claims from non-governmental voices
were generally not considered during negotiations. In summary, and
despite the fact that the arrival of funds permitted sovereign nations to
bypass the financial constraints, Chinese financing did not guarantee a
proper use of funds by developing countries, and critics began to emerge
(Xu and Carey 2015a, b).
However, Chinese development finance continuously evolves towards
better practises—although effort need to continue (Lin and Wang 2015).
The Chinese government is intending to improve governance practises,21
reduce aid-led-corruption, and so on. As recently as 2014, authorities
launched a series of new multilateral institutions in order to finance a series
of financial initiatives mostly directed at increasing the Chinese presence in
the world. However, as China’s financial relevance continues to grow, this
old financial relationship is being questioned—and for several reasons, not
just regarding its lack of transparency. In response, authorities began to
accept new (and more transparent) forms of financial relationships as those
envisioned by multilateralist institutions. This led to a third phase of
financial arrangements which, among other characteristic features,

detaches financial obligations from activities being funded. In this sense,

Chinese development funding is acting more in line with global financial
institutions—as might be the case for the flows that are being channeled
by the recently created AIIB.22 With headquarters in Shanghai and an
international board and technicians, the AIIB has US$100 billion as initial
capital.23
The so-called New Development Bank, another development bank in
which China participates alongside the rest of the BRICS countries, faces
similar challenges regarding governance, transparency, and stakeholder
engagement.24 Next, we should mention the SRF, which aims to become
the finance branch of both the Silk Road Economic Belt and the twenty-
first-century Maritime Silk Route (or “Belt and Road”) Initiative.25 Finally,
there is the recent announcement of the Shanghai Cooperation
Organization Development Bank, established by the SCO,26 with India
and Pakistan as two of their initial members. As observed in the past, most
of these funds go to finance infrastructure projects. But, in contrast to
previous loans going to Africa or LA, these new institutions are more
transparent and more receptive to delink financing from clauses with con-
tract provisions. The Chinese government is aware of all of these chal-
lenges, and seems to be actively working in that direction (IDS 2015). In
this sense, the previously mentioned “Africa Growing Together Fund” is
being opened to procurement and participation of all of the African
Development Bank members (Xu and Carey 2015a, b: 6). In summary,
the Chinese government has decided to transform its excess foreign
reserves into real investments around the world with returns stretching
into the long term future (Yu 2013).
In addition to the importance of policy banks abroad, commercial
banks are beginning to gain relevance abroad, as they become invincible at
home.27 For example, since 2013, loans from Chinese commercial banks
are used to finance electricity and railway projects in Africa. Commercial
banks are beginning to enter local financial markets in LA, as in the case of
the ICBC in Argentina or China’s Bank of Communication in Brazil. In
summary, nobody would contradict that these institutions “will increase
their weight in developed markets in the coming years” (The Economist
2016). In fact, China has moved “from the margins of development
finance to being a central actor and provider” (IDS 2015). To some
extent, it is normal to observe an increasing relevance of other sources of
financing, including the major role of OOFs, commercial financial institu-
tions, as well as SWFs. Consequently, the Chinese government is initiating
a third stage of financing, now expanding the scope of their credits and
borrowers.
China launched a series of dialogs with their counterparts, first in the
African continent and more recently in the region, followed by a series of
initiatives for cooperation that later induced the creation of particular
financial schemes (for instance, the CADF).28 As for the region, Chinese
lending gained relevance after the global financial crisis (Gallagher et al.
2012). In 2009, China decided to join the IADB, after contributing
US$350 million in funding. Later, this bank received funds from the Bank
of China and the ExIm Bank of China (Pérez Roldán et al. 2016). More
recently, Chinese authorities decided to sign a cooperation package with
the CELAC, aimed to increase the dragon’s financial assistance in the
region.29
Conclusions
Development financing might be considered as one of the recurrent prob-
lems faced by LA countries since their independence. Short of funds, gov-
ernments in the region had periodically turned to foreign capital in order
to advance with their investments projects. During their time as indepen-
dent States, they have made use of different sources and mechanisms in
order to finance its developmental needs. Each of these financing mecha-
nisms has been consistent with a specific international order and a particu-
lar model of development adopted in the region.
At first, LA countries—especially the South Americans ones— resorted
to bank loans and the bond market. These resources allowed them not
only to build their own States during their first years of independence but
also to define an international economic insertion based on an agro-export
model. However, the structural changes reported during the first decades
of twentieth century altered the aforementioned financial logic and the
international economic strategy. As a consequence of this new context, LA
governments decided to articulate an ISI model. This model was funded
mainly with their own resources, but also with external ones. In this
regard, it must be emphasized that since their institutionalization after
WWII, IFI’s—development Banks, in particular—have traditionally
focused on mobilizing long-term funds towards strategic sectors under
this new developmental model. Infrastructure was, of course, one of those
critical sectors. Nevertheless, these financial development mechanisms
eroded concurrently with the erosion of the Bretton Woods’ agreement.
After the arrival of the Debt Crisis in the first half of the 80s, the funds
provided by IFI were conditioned to the implementation of political and
economic reforms in order to create a neoliberal model under the
“Washington Consensus” paradigm.
During the boom in commodity prices, public funding constraints were
lifted and developmental financing problems faded. However, once the
boom transformed into a burst, policy-makers began to realize the chal-
lenges imposed by foreign lending and the insufficient funds maintained
to foster economic development, including largely forgotten infrastruc-
ture needs. Once again, the government of the region proved incapable to
meet development necessities with long term financing. Such dynamics in
financing, although autonomous, demonstrated a lack of sustainability
over time.
Regardless of the cycle, long-term development financing is still rele-
vant. Infrastructure is now considered to be, as in the past, key to eco-
nomic growth and development. Although relevant during the aftermath
of WWII, financial institutions located in Washington have forgotten this
premise. Nowadays, China seems to have become a critical agent of
change, called upon to fill the gap. In recent years, the PRC’s ascent
induced a revival of bilateralism, first benefiting Africa but recently expand-
ing to other latitudes. Afterwards, a South-South pattern emerged, which
made the availability of funds affordable and somewhat lifted political con-
straints. After years of conditionalities of the IMF, and structural reform
packages from the World Bank, the arrival of China was seen as a panacea
for developing countries’ rulers. In spite of the criticism that this funding
could cause, Chinese financing came to fill the gap left by traditional
donors and multilateralism.
Regardless of the sources, financing collateral obligations start to
recurrently constrain the region’s growth ambitions, when funds are
exogenous and long-term developmental objectives remain unclear.
When lenders are called upon to fill this gap, they will try to impose
their conditions, as IFIs have done in the past, and China might do right
now. Whether this would change in future would depend on ourselves,
by making our economies more resilient to external shocks, by improv-
ing our institutions, and overall, by beginning to think of long-term
development.
In light of the above considerations, South American countries– should
strengthen their savings in order to avoid external (political and economic)
conditionalities and construct a sustainable development model.
Notes
1. We do not consider donor funds, as benefited countries are not entitled to
their repayment.
2. Helleiner (2014) describes Harry D. White’s efforts to addressing this
topic at Bretton Woods meetings. Interestingly, US involvement in the
Latin American region during the late 30s and early 40s becomes crucial to
embrace this vision—missions in which White himself and Robert Triffin
were especially involved. These initiatives, in turn, were part of the famous
Good Neighbor policy toward the region installed by US President
F.D. Roosevelt in the 30s.
3. The 1998 Asian financial crisis was a significant event, signaling the begin-
ning of a worldwide movement to condemn the challenges imposed by
unchartered capital flows—including massive support for re-introducing
capital controls. In any case, industrialized countries led by the USA con-
tinued to push for market deregulation and capital account openness.
4. Currency swaps can be viewed as a credit line that both sides can draw
upon at a pre-determined exchange rate. US Fed liquidity swaps lines are
essentially repo transactions based on prevailing exchange rates, whereas
China’s bilateral currency swap agreements are designed to facilitate settle-
ments in renminbi.
5. The swap was initially supposed to last three years and allowed Argentina
to pay Chinese imports with RMB, but Argentina used up most of it in the
first two years, bringing in RMBs to boost the country’s foreign-currency
reserves, which had been on the decline (Buenos Aires Herald, Wednesday
25 December 2015).
6. Previously, the CDB issued an RMB bond in London (RMB 2 billion), the
first by a quasi-sovereign outside of China. The UK government issued a
landmark RMB bond (RMB 3 billion), the first non-Chinese issuance of
sovereignRMBdebthttps://www.gov.uk/government/news/china-chooses-
london-for-its-first-ever-sovereign-renminbi-rmb-bond-issued-outside-of-
china
7. “China’s Xi woos Latin America with $250 bln investments” Reuters.
January 8, 2015.
8. The role of China’s development finance in the “Africa rising” history is
certainly crucial. Guinea, a newly independent socialist government in the
early 60s, obtained an interest free loan from the PRC, a practise that
expanded to other newly-decolonized African states. Years later, China par-
ticipated in the TanZam railway between Tanzania and Zambia, which
involved the participation of Chinese public works companies but also
public funds from China.
9. Chinese (financial development) involvement in the region, on the other
hand, remained weak as most LA governments preferred to side with the
USA. Henceforth, it was the Nixon – Mao deal that permitted Sino—LA

political relations to be resumed.
10. As noted by Xu and Carey, the dual role initiated in the 80s (as donor as
well as receiver) permitted Chinese leaders to learn a key lesson: foreign aid
could play a catalytic role in economic transformation (Xu and Carey
2015a, b: 5).
11. By the time LA’s countries were relaying in IFIs and private markets,
China’s increasing relevance was circumscribed to the commercial realm.
12. Although it still occurs, competing for recognition no longer dictates
Chinese financing abroad- as can be observed by loans granted to various
projects in a few pro-Taiwanese countries.
13. The ADBC is the third policy bank installed as part of financial reforms of
the mid-90s, and falls under policy control of the State Council, as in the
case of the other two banks.
14. Concessional loans are not interest free, but they have a rate below the
market rate (PBC lending rate).
15. One of the most recognized cases is Petrobras, for which the CDB granted
two different loans, one in 2009 (US$10 billions) and another one in 2015
(US$3,5 billions), for which the Brazilian oil giant guaranteed the supply
of up to 200,000 barrels of oil a day to China’s state oil firm, SINOPEC,
for 10 years (http://www.reuters.com/article/us-brazil-petrobras-
china-idUSKCN0W001T).
16. According to the UNCTAD, China’s total outward FDI has skyrocketed
over the last 10 years, going from a mere US$5.5 billion in 2004 to
US$101 billion in 2013.
17. Thilo Hanemann and Daniel Rosen (2016) “Lower for Longer: The New
Normal of China’s FDI Balance” The Rodhium Group June 17, 2016.
18. In 2015, total loans from China’s developmental banks (CDB and Export-
Import Bank of China) reached US$550 billion, a multiple of the WB’s
roughly US$150 billion.
19. Chinese OFDI flows are difficult to measure, as most outward funds are
being channeled through tax heavens—such as the Virgin Islands for those
directed to LA.
20. In the region, Venezuela, Ecuador, and Brazil participated, with an amount
of US$59 billion during the 2008–2012 period, although most benefiting
Venezuela (US$44 billions).
21. The State Council has produced two different guidelines, namely
White Papers; one in 2011 and the latest one in 2014. These policy
guides are essential to understand the philosophy of Chinese foreign aid
practises.
22. “Nowhere to hide: China’s newest exports is its financial system, for good
and for ill”. Special Report: Finance in China—The Economist, May 7th,
2016.
23. This “multilateral development bank” that consists of 57 members, at

present, will focus on the development of infrastructure and other produc-
tive sectors in Asia (http://www.aiib.org).
24. Also with headquarters in Shanghai, this bank initiates operations with
US$50 billion in capital (http://ndbbrics.org/index.html).
25. Launched in December 2014, this initiative started operations with a
US$1.65 billion hydro project in Pakistan.
26. The conformation of the SCO or Shanghai Pact dates from 1996, and by
2001 it was comprised of China and five other central Asian countries
(Kazakhstan, Kyrgyz Republic, Russia, Tajikistan, and Uzbekistan). The
Silk Route Initiative gave a renewed impetus to this organization. Note
that Russia opposed the SCO Development Bank, suggesting that funds
would be better mediated by Eurasian Development Bank it controls
(http://www.eurasianet.org/node/72701).
27. Four Chinese banks are among the top ten leading banks according to the
Banker’s latest global ranking—two of them leading: ICBC and China’s
Construction Bank.
28. Following Prime Minister Li Kequiang’s speech to the African Union
(May, 2014), China created the “African Growing Together Fund” with
US$2 billion of initial assets, financed by the PBC.
29. More information can be found on http://www.chinacelacforum.org/eng/.
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CHAPTER 6
South America: Trade and Integration

in the New Global Trade Network
Wilson Pérez-Oviedo, John Cajas-Guijarro,
and María Cristina Vallejo
Introduction
From 1992 to 2014, the international trade network suffered important
structural changes. These changes included the strengthening of the
USA’s economic power after the fall of the Soviet Union in 1991, as well
as China’s (and the Asia-Pacific region in general) higher commercial
expansion and gravitational force, especially after China joined the WTO
in 2001. When it comes to the consequences of this for South America,
changes were felt in two different ways. The first included a favorable
“commodities boom” from 2000 to 2014, and a relative increase in the
exportation of primary goods, exacerbated by their high prices and
Chinese competition with manufactured products that used cheap labor.
W. Pérez-Oviedo (*) • M.C. Vallejo

Departamento de Desarrollo, FLACSO Ecuador, Quito, Ecuador
J. Cajas-Guijarro
Departmento de Ciencias Sociales de la Escuela Politecnica Nacional de la,
Universidad Central del Ecuador, Quito, Ecuador

DOI 10.1007/978-3-319-62551-5_6
122 W. PÉREZ-OVIEDO ET AL.
No South American country can be considered to be part of the core of

the global trade network. Currently, South American countries show
strong dependency towards core countries but, at the same time, have
weak links between each other as well as with other countries that are part
of the network. This is true even for Brazil, which can be considered to be
a South American “sub-core”. In addition to this, relatively unsuccessful
integration efforts are important aspects when it comes to the region’s
attempts of becoming part of the global network.
Our goal is to study the role played by South American countries in an
evolving global trade network. Given that traditional network indicators
are far too general, their usage was inappropriate for this study, so we
developed a set of different indicators instead. Technical details of the
methodology are explained in detail in Pérez-Oviedo et al. (2016).
After the introduction, the second section of this chapter explains the
methodology, which is based on the study of international trade from a
network analysis perspective. The third section focuses on understanding
the role of South America in the global trade context. The evolution of
South America’s integration efforts is analyzed in the fourth section. Finally,
the fifth section includes conclusions from the information presented.
International Trade from a Network

Analysis Standpoint
This chapter contains both a methodological and an empirical contribu-
tion. Our methodology is based on network theory. But instead of empha-
sizing on conventional indicators (such as centrality, agglomeration,
degree distribution, betweenness, etc.), for our study we used a different
approach. In our approach, higher exports led to income increases for
countries, expanding its aggregate demand (assuming a constant marginal
propensity to consume) and, therefore, increasing imports (assuming a
constant marginal propensity to import as well), but since imports are
equivalent to exports of other country, the last obtains new income that
expands its aggregate demand, and so forth, creating a “chain effect”.
Based on this logic, we were able to obtain an “income elasticity” of
one country relative to another, namely the rate of change in the income
of one country (j) when the income of the other country increases by 1%
(i). We named this indicator the “relevance index” of i on j. By doing this
for each pair of countries, we obtained an asymmetric matrix of relevance
indexes that captured the importance of each country relative to others.
SOUTH AMERICA: TRADE AND INTEGRATION IN THE NEW GLOBAL TRADE... 123
This measure has a strong advantage in comparison to the typical trade

indicator (a country’s share in global imports and/or exports), because it
encompasses the structure of the global trade network and the position of
every country in that network. Hence, our index was specifically devel-
oped for the international trade network, which is a directed and weighted
network composed by nodes with different sizes (each country’s GDP)
and directly-weighted links (flows of monetary payments for imports).
These indexes also have the advantage that they were obtained without
adding exogenous parameters, but instead by assuming that the network
structure remains stable as shocks spread. Additionally, these relevance
indexes, as well as the other indexes developed for this study (see below)
are comparable across countries and time.
In empirical terms, the contribution of this research is the analysis of an
international trade network comprised of 145 countries with the potential
of studying any international trade block. It also contributes by presenting
several indicators for a better structural understanding of the global trade
network that include the relevance index of one country on another, the
average relevance that a country has on the rest of the world (and vice
versa), the cohesion of each trade block, and even a generalization of the
Grubel-Lloyd index (1975) to evaluate the balance of industrial trade
within a group of countries. These indicators offer a better understanding
of the concrete conditions under which countries manage to integrate
themselves into the global market (Pérez-Oviedo et al. 2016).
Trade Networks and South America

in a Global Context
From 1992 to 2014, the global trade network suffered substantial changes.
We particularly observe the strengthening of the USA as a central eco-
nomic power after the fall of the Berlin Wall and the commercial rise of
China since 2001. On account of this, we looked at the evolution of the
global trade core, its two members, USA and China, and the relevance to
countries in South America.
In 2014, the USA had the highest relevance index (0.081). If this
country had grown (decreased) by 1%, the rest of the global economy
would have grown (decreased) by 0.081% (see Fig. 6.1). During the 90s,
this relevance increased, probably due to the extraordinary growth in pro-
ductivity that the USA experienced since 1994. For some, that growth was
based on computer science and information technology developments
0.10
0.08
0.06
0.04
0.02
United States China India Russia Brazil
Fig. 6.1 Relevance of selected countries on the rest of the world
that took place in this country and helped launch a “New Economy”
based on knowledge and information (Castells 2009). This increasing rel-
evance of the USA ended in 2000, which coincided with the burst of the
so-called “bubble of the dot coms” in March of that same year.
On the other hand, the Chinese pro-market reforms, led by Deng
Xiaoping since 1992, allowed China to reach yearly growth rates of
approximately 9% from 1992 to 2000. In addition to its impressive growth
during the 2000s, China increased its relevance in international trade, par-
ticularly since 2001 when it joined the WTO. In 2001, its relevance index
was only 0.013 but, by 2013, it reached 0.057, positioning itself as the
second most important country in the international trade network.
However, several elements will change the role of this country in that net-
work in the future as its lower economic growth, its reduced demand for
primary products, and Chinese leaders assigning more importance to
internal demand.
Russia and India also increased their relevance in the world trade net-
work during this period, but far behind the relevance of China and the
USA (global centers). In the case of South America, Brazil’s relevance
grew from 0.001 to 0.006 from 1992 to 2014. This shows that its
growth was far behind that of global centers, but, as presented below,
this growth was enough to consolidate Brazilian commercial unipolarity
in South America.
After understanding the evolution of relevant countries, central-

peripheral relations are identified in both the global and South American
trade networks (see Fig. 6.2). In order to do that, we developed a central-
ity index, with the idea that countries with a higher level of global central-
ity can be considered to be “centers” of the international trade network.
The index was calculated using the relative worst position in which a
country is placed, in terms of its relevance on all the members of the net-
work. The better the position the higher the centrality (see Pérez-Oviedo
et al. 2016). For instance, in 2014, the USA had the highest level of cen-
trality (137) of all the countries in the network. As such, the USA had, at
least, the eighth highest relevance (145–137=8).1 This spot was followed
by China (133 in 2014), which has moved to the center, particularly since
1995. Next came Germany, with a relatively stable centrality during the
analyzed period (131 in 2014). On the other hand, even though France,
the UK, Italy, Japan, and the Netherlands can be considered as part of the
center, these countries have lost centrality during this period, while Russia
and India have risen but without becoming part of the center (by 2014,
their indexes were 109 and 110 respectively). When it comes to South
American countries, Brazil had the highest index (102 in 2014), followed
by Colombia (71 in 2014), and Argentina (which dropped from 86 in
1992 to 65 in 2014).
The USA and China, as “centers” of the global trade network, also have
the greatest relevance on South American countries, described in Map 6.1.
Meanwhile, Map 6.2 shows the main trade relevance relationships among
South American countries (in both cases data correspond to 2013).2
The commercial relevance of the USA and China in relation to South
America is higher than that which the South American countries have
among themselves. Brazil is an exception to this in numerous important
cases. As such, there is an asymmetric structure among “global core”
countries and South American countries. For Colombia, Ecuador, and
Venezuela, the greatest influence comes from the USA, even though they
also experience important trade influences from China, which, in turn, is
the most relevant country for Chile, Peru, and Uruguay. The case of Brazil
is very particular because its relation with China and the USA is also very
asymmetric as it is influenced greatly by both countries, while its relevance
on them remains minimal. However, at the same time, Brazil is important
for Argentina, Bolivia, Paraguay (first relevance), and for Chile, Peru, and
Venezuela, while Brazil is just behind the USA and China in terms of its
power of influence. Brazil is also important for Colombia and Ecuador.
140
130
120
110
100
90
80
United States China Germany France United Kingdom Russia India
100
80
60
40
20
Argenna Bolivia Brazil Chile Colombia

Ecuador Paraguay Peru Uruguay Venezuela
Fig. 6.2 Centrality in the global and regional trade networks. (a) Central econo-
mies. (b) Brazil, a sub-center in the South American periphery
Map 6.1 Trade relevance of the USA and China on South America (2013)
(Note: Nodes are proportional to the centrality level of each country, while links
are proportional to the relevance of one country to another)
In other words, the current structure of global trade places South

American countries in a periphery. The countries of the region have few
and low relationships among themselves, while they have many and
highly dependent relations with the USA and China. This follows the
classic Smith and White (1992) distribution that states that “peripheral”
countries maintain a scarce trade relationship between each other—in
spite of their geographic proximity—but are commercially dependent on
“core” countries.
Based on Brazil’s relevance in South America and its asymmetric com-
mercial relevance with core countries, it can be considered to be a
regional “sub-core”. Also, based on the commercial relevance of Brazil
and Argentina (the two largest economies in the region), we concur with
Schenoni (2014) who stated that: “[…] through the historic process of a
Map 6.2 Trade relevance among South American countries (2013) (Note:
Nodes are proportional to the GDP of each country in current US$, while links are
proportional to the relevance of one country to another)
Brazilian-Argentinian bipolarity to their current state […] we can con-

clude that for the second lustrum the South American subsystem will
turn into a unipolar system given that the regional power of Brazil was
three times larger than that of Argentina.” It is also interesting to note
that the South American country most influenced by Brazil and Argentina
is Bolivia, which has been increasingly influenced since 2000.
Consequently, Bolivia seems to be more oriented toward the Atlantic
Ocean now, and therefore, its integration into the MERCOSUR
(achieved in 2016) makes sense.
Trade Integration Structures in South America

Even though the integration of the countries south of the Rio Grande is
part of the LA political, and even academic, rhetoric, it is still a pending
task. In this section, we evaluate the development of five sub-regional
processes that include: the CAN, the MERCOSUR, the ALBA, the AP,
and the UNASUR, comparing them with the NAFTA,3 the ASEAN,4 and
the African Union.5 It should be noted that the ALBA, the UNASUR, and
the AP could only be analyzed from their corresponding inauguration
years (2004, 2011, and 2011 respectively). However, given that there are
historical tendencies that seem to remain in place even after the official
creation of the blocks, for comparative purposes, the data of these three
blocks is included for the entire period (from 1992 to 2014). To better
understand the reality and trajectory of each trade group, a short summary
of their origin and history is presented as well.
Regional Integration Efforts

The CAN currently consists of Bolivia, Colombia, Ecuador, and Peru, and
has had a very low relevance index in the global trade network (from
0.002 and 0.003 between 1992 and 2014, see Fig. 6.3a).6 The CAN had
a poor performance in the 90s, except for the common external tariff,
established in 1995, and helped to sustain interregional trade. During
this period trade liberalization, the privatization of state companies, the
opening up to international capital flows and financial liberalization were
common (González Arana 1999). These neoliberal transformations led to
a reassessment of the ambitious integrationist proposal of 1969, which, at
its very beginning, was strongly marked by the ideological framework of
ISI with the purpose of creating a common market. It can be stated that
0.0140
0.0120
0.0100
0.0080
0.0060
0.0040
0.0020
AP MERCOSUR CAN UNASUR ALBA
0.0900
0.0800
0.0700
0.0600
0.0500
0.0400
0.0300
0.0200
0.0100
Fig. 6.3 Regional blocks and the rest of the world. (a) Average relevance of
blocks on the rest of the world. (b) Average relevance of the rest of the world on
the blocks
this block of countries has gradually disintegrated as several of its members

have signed free trade agreements on their own (Colombia signed treaties
with the USA, Canada, Mexico, and the EU, among others; Peru signed
treaties with the USA, Canada, China, and the EU, among others). In
addition to this, Venezuela left the CAN in 2006 and became a full
ember of the MERCOSUR in 2012, while Bolivia became part of the

m
MERCOSUR in 2016 continuing to be a member of the CAN. On the
other hand, Ecuador was added in 2016 to an agreement that Peru and
Colombia had previously signed with the EU. Ecuador is in a disadvanta-
geous position vis-a-vis its Andean trade partners, because it has a dollar-
ized economy and, therefore, it is unable to manage its nominal exchange
rate. This situation has caused friction among the CAN members. Between
2009 and 2014 the relevance index of the global economy on the Andean
block showed a slowly growing trend from 0.029 to 0.034.
The MERCOSUR members currently include Argentina, Brazil,
Paraguay, Uruguay, Bolivia, and Venezuela (Venezuela was suspended in
2016). The MERCOSUR shows a consolidated position as the second
most relevant South American trading block, whose relevance index on
the global trade network increased steadily for most of the 1992–2014
period, going from 0.002 in 1992 to 0.004 in 2011 (see Fig. 6.3a).
However, the process was not monotonous as the economic and trade
liberalization period in the 90s weakened sub-regional trade (Caetano
2011) and countries in the region took on bilateral trade initiatives.
However, the block has gained relevance, especially since 2004, and its
best performance was registered during the commodities boom, which
corresponds to the rise of the so-called “progressive governments” of Luiz
Ignacio Lula da Silva in Brazil, Néstor Kirchner in Argentina, and Tabaré
Vásquez in Uruguay. During this period, a larger social dimension and a
broader political context were incorporated into the agreement, giving the
state a fundamental role in development (Botto 2011). Thus, the rele-
vance index of the group increased to almost 0.010 in 2012 after over-
coming an international crisis in 2008 and 2009, which had a negative
impact in the region. After 2012, the relevance of the MERCOSUR
started to decline once more. In summary, between 2002 and 2009 the
relevance index of the global economy on the MERCOSUR decreased
from 0.029 to 0.014. Since then, member countries have had a weaker
position regarding fluctuations in the global economy. By 2013, this indi-
cator reached 0.017.
The electoral triumph of Mauricio Macri in Argentina in 2015, and the
removal of Dilma Rousseff in Brazil in 2016, marked the end of a political
era in the MERCOSUR. This delayed the consolidation of a customs
union, and extending the exemptions of the common external tariff for
several years. Intraregional trade has also been affected due to the reduc-
tion in trade flows between Argentina and Brazil in 2015 (IDB 2016).
Since it was created in 2004 up to 2013, the relevance of the ALBA7 in

the global trade network has fluctuated between 0.001 and 0.0023 (see
Fig. 6.3a), following a path similar to the CAN. In both cases, there was a
weak positioning in the international trade network. However, it is impor-
tant to note that the ALBA, unlike other integration organizations, did
not adjust to traditional trade integration mechanisms and instead pro-
posed alternatives to such. One of the alternatives proposed was the TCP,
defined as “instruments of solidarity and complementary exchange among
countries, aimed to benefit the people.”8
The ALBA is the South American trading block most vulnerable to the
rest of the world’s income fluctuations (see Fig. 6.3b). Even though the
momentum of progressive governments may have contributed in the less-
ening of the block’s vulnerability (from 2006 to 2011 the effect of the rest
of the world on the block reduced from 0.083 to 0.029), since 2012, this
trend reversed, without prospects for recovery.
The AP was created in 2011 by Chile, Peru, Colombia, and Mexico9
(the largest LA economies in the Pacific Coast) oriented towards trade
integration and the free movement of goods, capital, and people among its
members. Geographical interest lies in the Pacific basin and cooperation
with Asian countries. According to Turzi (2014) “this new group will be
politically pragmatic, open in trade, financially liberal, and more functional
for the interests of the USA in geopolitics.”
Regarding the importance of the AP in the international trade network,
its relevance index reached 0.014 in 2014, becoming an important trading
block in the region. Nonetheless, this block is more vulnerable to the rest
of the world’s income variations compared to other South American trad-
ing blocks. This is especially true since 2009, as the corresponding index
went from 0.054 to 0.067 between 2009 and 2014 (see Fig. 6.3a).
The Influence of the USA and China on the Southern Blocks

Now we analyze the relevance of the USA and China (“global centers”)
in the global trade network and on the South American trading blocks.
Since 2006, the USA decreased its relevance on the South American
blocks. Nevertheless, after the crisis of 2009, this relatively favorable con-
dition for South America was reverted and, from that year, most of the
regional blocks record a greater effect from the North American country
(see Fig. 6.4a). One particular case is the relevance of the USA on the
ALBA. That relevance was 0.1304 in 2013, something against the anti-
0.3000
0.2500
0.2000
0.1500
0.1000
0.0500
AP Average relevance on the world MERCOSUR CAN UNASUR ALBA
0.0600
0.0500
0.0400
0.0300
0.0200
0.0100
AP Average relevance on the world MERCOSUR CAN UNASUR ALBA
Fig. 6.4 Influence of global centers on the South American blocks (a) the USA
(b) China
USA rhetoric of this group, since the relevance of the ALBA on shocks in
the USA income was higher than that vulnerability suffered by the world
(which was just 0.0778 in that year) and even higher than the vulnerabil-
ity of the CAN.
On the other hand, the average influence of China on the rest of the
world, as well as on all South American trading blocks, has increased expo-
nentially (see Fig. 6.4b). From 2000 to 2013, the Chinese relevance grew for
all South American blocks: the UNASUR (0.006–0.046), the MERCOSUR
(0.005–0.040), the CAN (0.005–0.041), and the ALBA (0.004–0.038).
The continuously growing trend of this indicator with regard to all South
American trading blocks, and even with regard to the AP, shows that these
blocks are increasingly vulnerable to a China’s hypothetical crisis, although
the relevance of the Asian giant on these blocks is below its world average.
Evaluating South American Integration

The processes of regional integration are evaluated using the cohesion
index (see Pérez-Oviedo et al. 2016) calculated for each block. This index
is calculated as the ratio between the strength of income interactions
within members of each group and the income interactions between the
group and the rest of the world (see Fig. 6.5).
During the study period, none of the analyzed regional blocks have
achieved the high cohesion index reached by the MERCOSUR in the 90s.
The dynamic of these indexes has not been monotonous as intragroup
trade interactions in the South American blocks weakened by 2004, while
interactions among group members and the rest of the world have
strengthened. However, by 2011 certain increases in the cohesion index
were recorded, not only for the MERCOSUR but also for the UNASUR.
0.140
0.120
0.100
0.080
0.060
0.040
0.020
Fig. 6.5 Cohesion of the South American blocks

It is possible that the MERCOSUR had more strength to push the entire
region to greater internal cohesion, especially due to the consolidation of
Brazil’s trade relations with the rest of South America. Since 2012, how-
ever, the regional cohesion seems to be decreasing again (see Fig. 6.5).
Figure 6.6 presents regional block cohesion indexes together with the
percentage of primary products in total exports. It can be seen that the
ALBA and the CAN show similar positions to the African Union. For
instance, both the ALBA and the CAN have low internal cohesion and
more than 50% of their exports are primary goods. The MERCOSUR
90%
80%
PERCENTAGE OF PRIMARY EXPORTS
70%
60%
50%
40%
30%
20%
10%
0%
0.000 0.000 0.001 0.010 0.100 1.000
INTRA-BLOCK COHESION (LOGARITHMIC SCALE)
AP NAFTA European Union African Union ASEAN MERCOSUR CAN UNASUR ALBA
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
AP NAFTA European Union African Union ASEAN MERCOSUR CAN UNASUR ALBA World (average)
Fig. 6.6 Intra-block cohesion vs. percentage of primary exports

shows a similar cohesion index to the NAFTA but has higher primary
goods participation when it comes to exports. On the other hand, the
UNASUR shows a position similar to that of the MERCOSUR, revealing
once again the importance of the latter in the international trade of the
former. Figure 6.6 shows a negative correlation between the group’s share
of primary exports and its level of internal cohesion, which could signify
that, in the blocks that are specialized in the export of primary products,
members tend to interact more strongly with countries outside of the
group. This occurs particularly with manufacturing countries, which
reduces internal cohesion levels. Meanwhile, when it comes to industrial-
ized groups, members have more opportunities to strongly interact with
one another and exchange manufactured products.
Figure 6.7 shows the relevance of each trading block on the rest of the
world (interpreted as a measurement of the block’s importance in the
global trade network) and the share of primary products in the block total
exports. As in the case of block-cohesion, there is also a negative c orrelation
between the group’s relevance index and the group’s share of primary
exports. In South America, the ALBA and the CAN are less relevant on the
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
0.000 0.001 0.010 0.100 1.000
AVERAGE RELEVANCE ON THE REST OF THE WORLD (LOGARITHMIC SCALE)
AP NAFTA Unión Europea Unión Africana ASEAN

World (average) MERCOSUR CAN UNASUR World (average)
Fig. 6.7 Average relevance of the block on the rest of the world vs. percentage
of primary exports
commercial world and have the highest concentration of primary product

exports. The MERCOSUR, on the other hand, is the South American
block with the greatest impact on the world. It has a low concentration of
primary exports, which generates a similar tendency for the UNASUR.
South American regional integration processes can also be evaluated by
studying the balance of the industrial (non-primary) trade within each
group. Grubel and Lloyd (1975) define equilibrium of industrial trade
between two countries when the amounts of manufacturing that both
countries sell to each other are equivalent. We generalized this idea by
calculating the industrial trade balance between one country of the block
and the rest of the block considered as another country, and then we built
an index taking the average of that country-block balance for all the mem-
bers of the block (see Pérez-Oviedo et al. 2016). The more balanced the
industrial trade within the group, the more that the integration process
generates equal benefits for all its members in terms of industrialization
incentives. On the other hand, the more unbalanced the industrial trade
within the group, the higher the possibility that the block’s manufacture
demand is asymmetrically pushing forward only some of its members.
With the index explained above, we find that the ALBA not only exhib-
its less balanced industrial trade but its index has drastically deteriorated
since 2006 (see Fig. 6.8). Although this tendency can be worrisome, as
the official creation of the group took place in 2004, it is important to
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
AP NAFTA European Union African Union ASEAN

MERCOSUR CAN UNASUR ALBA
Fig. 6.8 Intra-block industrial trade

note that the ALBA was created to serve mainly political purposes rather
than commercial goals.
The CAN and the MERCOSUR show better trajectories (which seem
to explain the UNASUR dynamics). Although there is still a gap regarding
the balance achieved by trade groups such as the NAFTA or the EU, their
integration processes generate similar benefits for all of its members in
terms of industrialization incentives (see Fig. 6.8).
Figure 6.9 shows the interaction between the blocks’ industrial trade
balance and the percentage of export of primary products, noting that
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
- 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00
INTRA BLOCK INDUSTRIAL TRADE
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
AP NAFTA European Union African Union ASEAN MERCOSUR CAN UNASUR ALBA World (average)
Fig. 6.9 Intra-block industrial trade vs. percentage of primary export

(in general terms) there is a negative correlation between these two. In the

case of the South American blocks, on the one hand, the MERCOSUR
has the highest potential of resulting in effective regional integration as it
shows a considerably balanced industrial trade and does not exceed 50% of
exports in primary products. In other words, the MERCOSUR possesses
a relatively high level of industrialized exports that are shared evenly
among the members of the group.
The CAN, on the other hand, is a regional group that, at first sight,
shows a “counter-intuitive” performance due to its high balance in indus-
trial trade within the region and the fact that the proportion of primary
products in its exports exceeds 50% of total exports. In other words, the
incentive for industrialization originated in its trade structure—although
balanced—is not sufficient to get this group out of the primary specializa-
tion trap. It could be said that all members of the group share the entrap-
ment in the primary specialization in a balanced way.
The ALBA shows unbalanced industrial trade that varies strongly
between 0.16 and 0.74 (out of 1). On the other hand, its exports are
mainly primary goods. Therefore, the ALBA does not possess favorable
conditions to foster its members’ industrial exports.
In summary, the MERCOSUR presents the most favorable results, the
CAN seems to be trapped in balanced primary specialization, and the
ALBA seems to be an extremely unbalanced block. These extreme situa-
tions ensure the UNASUR ends up in the middle.
Finally, Fig. 6.10 compares the industrial trade balance and the intra-
group cohesion level. The MERCOSUR seems to exhibit the best regional
performance, probably even better than the AP, because it has the highest
levels of cohesion and industrial trade balance. The ALBA is in the worst
position. Meanwhile, the CAN shows low cohesion, a high balance, and a
low level of industrial trade. Perhaps members of the CAN are strongly
tied to the fluctuations of the global centers, with a “similar stagnation”
regarding the export of primary products, as mentioned above.
Conclusions
This document analyzes the position and links of the South American
countries in the global trade network for the period 1992–2014. It showed
the relevance, cohesion, and balance of intra-block industrial trade of the
South American integration and trading blocks. For this purpose, a set of
new, and more appropriate, network indicators was developed. Using our
1.000
INTRA-BLOCK COHESION (LOGARITHMIC SCALE)
0.100
0.010
0.001
0.000
0.000
- 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00
INTRA BLOCK INDUSTRIAL TRADE
0.14
0.12
0.1
0.08
0.06
0.04
0.02
AP NAFTA MERCOSUR CAN UNASUR ALBA
Fig. 6.10 Industrial trade balance vs. inter-block cohesion
indexes we found that the core of the global economy consist of the USA
and China, as the main actors, followed by Germany, in a stable position,
and France, the UK, Italy, Japan, and the Netherlands, losing their central
status but still part of the core.
None of the South American countries can be considered part of the
core of the global trade network. These countries show strong and depen-
dent links towards core countries and relatively weak links between them-
selves. This is true even for Brazil which, however, plays a “sub-core” role
in the region. Specifically, the South American countries have a lower
commercial relevance among themselves than the relevance that China

and the USA have on the region. Brazil is the only exception, since it has
a high relevance on many of the other South American countries.
For Colombia, Ecuador, and Venezuela, the greatest influence comes
from the USA, even though these countries also experience an important
trade influence from China. The Asian giant has a stronger influence on
Chile, Peru, and Uruguay. The case of Brazil is very particular because its
relation with China and the USA is also very asymmetric, as it is influenced
by both countries while its relevance on them is minimal. However, at the
same time, Brazil is important for Argentina, Bolivia, and Paraguay. For
countries such as Chile, Peru, and Venezuela, Brazil’s relevance is behind
only the USA and China. Brazil is also important for Colombia and
Ecuador. Finally, Bolivia not only receives a greater trade influence from
Brazil and Argentina, but the influences from these have grown substan-
tially since 2000. Consequently, it can be said that Bolivia is more oriented
toward the Atlantic, and therefore, its integration into the MERCOSUR,
which took place in 2016, makes sense.
The relevance index of the USA on the ALBA, which reached levels of
0.1304 in 2013 (the relevance index of the USA on the world was just
0.077 that year), is a result of the group’s anti-US rhetoric.
None of the analyzed regional blocks has recorded, during the period
studied, the high cohesion index reached by the MERCOSUR in the 90s.
The dynamic of these indexes has not been monotonous. The intragroup
trade interactions in the South American blocks have weakened from
2004, while the interactions among the members of the group and the
rest of the world have strengthened. The ALBA and the CAN show similar
position that the African Union, i.e., they have low internal cohesion and
more that 50% of their exports are primary goods. The MERCOSUR
shows similar cohesion index to the NAFTA but higher primary goods
participation in their exports.
In the South American region, the ALBA and the CAN are South
American blocks that have less relevance on the commercial world and, at
the same time, are the ones with more concentrated export in primary
products. The MERCOSUR, on the other hand, is the South America
block with the greatest impact on the world, together with a low concen-
tration on primary exports.
In the South American region, the ALBA not only exhibits the least
balanced industrial trade but this index has deteriorated since 2006. The
CAN and the MERCOSUR show better trajectories, which explain the
movement of the UNASUR as a whole. Although there is still a gap

regarding the balance achieved by trade groups such as the NAFTA or the
EU, their integration processes generate similar benefits for all of its mem-
bers in terms of industrialization incentives.
In summary, the MERCOSUR presents the most favorable results, the
CAN seems to be trapped in balanced primary specialization, and the
ALBA seems to be an extremely unbalanced block. These extreme situa-
tions make the UNASUR end up in the middle.
Notes
1. The maximum value this index could reach is 144 (the number of all the
countries that are part of the network minus one). A country can have, at a
minimum, the first highest relevance spot (145–144=1).
2. At the time these calculations were made, 2014 data for Venezuela was not
available.
3. NAFTA includes Canada, the USA, and Mexico. The free trade agreement
between these countries became valid in 1994.
4. The ASEAN was created in 1967 and is comprised of ten member coun-
tries: Malaysia, Indonesia, Brunei, Vietnam, Cambodia, Laos, Myanmar,
Singapore, Thailand, and the Philippines.
5. The African Union was formed by 54 African countries and has been func-
tioning since 2001. It includes almost all of the countries of the African
continent, excluding Morocco.
6. For the CAN indicators, Venezuela is considered until 2006, when it with-
drew from the group.
7. Current members include Antigua and Barbuda, Bolivia, Cuba, Dominica,
Ecuador, Grenada, Nicaragua, Saint Kitts and Nevis, Saint Lucia, Saint
Vincent and the Grenadines, Suriname, and Venezuela.
8. www.alba-tcp.org.
9. Although Mexico is not a South American country, it is part of the AP and,
as such, is part of the analysis for comparative purposes.
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CHAPTER 7
Energy Integration in South America

and Global Geopolitics
Carolina Viola Reyes
Introduction
The end of the progressive and post-neoliberal era, that characterized the
South American politics and economy during the first decade of the
twenty-first century, brought profound changes of how the regional area
was perceived, and thus its regionalization processes. This event creates a
setting full of uncertainty regarding the direction that social, economic,
and political integration and stability will take in South America. However,
its cyclical link can provide clues about the direction to follow, considering
its close link with accumulation processes on a global scale. When we con-
sider the strategic character of the region, rich in natural resources, we can
see that it is impossible to understand the regional dynamics in an isolated
form and without contemplating the processes that occur amidst the geo-
politics of global capitalism.
Oil and gas have played a fundamental role in the regional integration
proposals since the past century. The energetic integration of the region
has been a central part of the agenda of South American and LA integra-
tion since the 90s, occupying a central position in the proposal of
C.V. Reyes (*)

Pontifica Universidad Catolica del Ecuador, Quito, Ecuador

DOI 10.1007/978-3-319-62551-5_7
148 C.V. REYES
emispherical integration driven by the FTAA, as well as in the proposals

h
of post-neoliberal integration in the first decade and a half of the twenty-
first century.
Although until 2015, oil and gas were considered to be a potential
engine of regional integration, the drop in hydrocarbon prices in recent
years—the so-called end of the commodities boom—contributes to the
economic, political, and social crisis faced by the countries that served as
pillars of post-neoliberal integration, as a consequence of the proposals of
regional integration driven by these parties. The extent of the crisis has
led many intellectuals to affirm that the region finds itself at the end of a
cycle and to demonstrate, once more, the weaknesses and limitations of
the extractivist model as a first pillar of economic integration in South
American developmental strategy.
The crisis originated from a combination of events that took place on
different scales of the geographic space. This affects regions in a differen-
tial form, at the same time alternating the logic of the visualization of the
territory.
With a focus on geopolitical criticism, this chapter analyzes the dynam-
ics of the reconfiguration of the geopolitical oil map in South America, in
the context of the end of the golden commodities decade. For this pur-
pose, we will identify the power relations and the conflicts generated, in
and among, the different scales of spatial analysis: global, governmental,
and regional; this analysis will show the limits of post-neoliberal energy
integration, facing a crossroads today.
South American Oil in Global Energy Geopolitics

South America is a region with abundant natural resources. Oil is a funda-
mental source of wealth, which places the region in a central position in
global energy geopolitics. The existence of 329 billion barrels of oil
reserves has been established, equivalent to 19.4% of global reserves at the
end of 2015; with a growing percentage since 2001 (BP 2016). This
growth is based on the certification of new reserves found in Venezuela in
the Orinoco Belt,1 in the pre-salt layers, and in deep waters of the Brazilian
maritime platform; to which modest certifications of reserves in Ecuador
and Colombia are added. At current consumption levels, the ratio of
reserves/production is greater than 100 years supply, able to be self-
sufficient; it is the regional bloc with the second highest availability of oil,
just behind the Middle East (Fig. 7.1).
ENERGY INTEGRATION IN SOUTH AMERICA AND GLOBAL GEOPOLITICS 149
at end 2015
at end 2013
at end 2004
at end 1994
0,0 5,0 10,0 15,0 20,0 25,0

Reservas probadas de gas natural Reservas probadas de petroleo
Fig. 7.1 The evolution of the share of South American oil and gas reserves
(Source: BP 2016)
Sufficient gas fields are added to the significant crude oil reserves to
boost interregional trade. At the end of 2015, 3.9% of global natural gas
reserves was accounted for; growth was shown during the last two decades,
even though at a slower pace regarding oil, rising from 5.3 trillion m3 in
1994, to 7.4 trillion m3 in 2015 (BP 2016).
While these resources are abundant, they are located in concentrated
areas. On the one hand, 17.5% of global oil reserves is concentrated in
Venezuela, almost 92% of the regional total; its share in gas reserves is less:
2.7% of global reserves, equivalent to 78% of the reserves of the region.
Chile, Uruguay, and Paraguay are on the other side; net importers of
hydrocarbons (BP 2016). The asymmetry in the distribution of resources
determines the needs to consolidate an energy integration strategy that
would guarantee the stable and safe supply of energy, in the interest of
consolidating a regional development project.
In spite of its potential, the sub-region does not manage to be self-
sufficient. This is mainly due to tension and rivalry between countries that
have delayed the implementation of supply agreements and joint intercon-
nection projects, on various occasions.
The energy matrix of the region is intensive in hydrocarbon. In 2015,
energy consumption was 692.8 million tons equivalent of oil. Oil repre-
sented 48% of the total, followed by natural gas at 22%, biomasses at 3%,
and carbon at 4.6% (BP 2016). The level of oil and gas consumption has
increased during the last decade, in spite of the increase in the c onsumption
150 C.V. REYES
of hydroelectricity; the demand for oil and gas in South America is inelastic,
in other words, it does not respond to changes in the market price of these
products. This explains the subsidies, which have characterized the energy
policies of all the producing countries in South America. This policy has
remained in place during the neoliberal period, as well as during the post-
neoliberal phase of the first decade of twenty-first century. The huge risk that
it implies for a government to withdraw a subsidy that, in one form or the
other, alleviates other systematic inefficiencies—inherent to the countries
that depend on the export of energy—partly explains the persistence of a
non-focalized subsidy policy beyond the governments’ ideological symbol.
It should be emphasized that during the golden period of oil prices, no
significant improvement was registered in terms of the intensity of energy.
This data shows the persistence of a matrix that is rich in hydrocarbon, as
well as the intense reprimarization process that characterized the “pro-
gressive neo-development”. This implied that, regardless of institutional
design, a progressive increase in activities with a high use of energy and
other materials would occur, such as the extraction of natural resources
like oil, gas or others that are linked to agroindustry—for example, soy-
beans in the Southern Cone.
Changes in the Global Geo-Economy

The presence of China in Africa and LA has activated and diversified the
geopolitical competition between the main oil consumers in the world:
China and the USA, followed by other traditional and emerging econo-
mies. Old and new stakeholders compete to secure the supply, based on
diverse economic, political, and military-like strategies, which aim to
establish favorable relationships with the governments of the supplier
countries. This “competition” has consequences in impacted extraction
areas, namely locally, in the areas where the resources are extracted.
A study by the IEA identified oil investments made by the Chinese
government in 40 countries (IEA 2014). This tendency responds to the
“Go Global” strategy that aims to internationalize the Chinese state-
owned companies, opening up new markets, improving their competitive-
ness, as well as incrementing productivity and capacity for innovation; it
also brings the geographic and sectoral diversity of Chinese assets abroad.
In this strategy, the NOCs take on a fundamental relevance. At the end of
2013, Chinese assets abroad represented 6% of the GDP, a limited share,
however on the road to expansion (OECD 2014).
In 2014, Chinese loans in LA exceeded the resources granted by the

WB and the IDB put together. The main beneficiaries in order of impor-
tance were Venezuela, Brazil, Argentina, and Ecuador (Gallagher and
Myers 2014). The internationalization of the Chinese capital is linked
predominantly to investment in national resources, as the abundant avail-
ability of oil in South America is fundamental for China. This assertion is
shown by the volume of resources received by Venezuela, Brazil,
Argentina, and Ecuador. All of these are South American countries with
oil resources that have established advanced oil sale agreements as a safe-
guard for their loans.
The Chinese loans do not incorporate political conditions—for the
reason they have been received well in a region that is used for political
blackmail and for packages with structural adjustments by the Bretton
Woods institutions, but they do enter into contracts for services and
goods with Chinese companies. In many cases, the contracts for the con-
struction of infrastructure are “turnkey” projects, under the responsibil-
ity of the Chinese government, translating into a promotion policy for
Chinese exports in LA, through which the resources granted by the
Chinese Banks can be transferred to companies in charge of the imple-
mentation of the projects.
Between 2007 and 2015, Venezuela received US$65 billion distributed
over 17 loans to fund mining, infrastructure, and energy projects; around
US$12 million were allocated to the activities of Sinovensa in the Orinoco
Belt, improvements in oil production and refining capacity of PDVSA; an
important part of the remaining US$50 billion was tied to advanced oil
sales contracts. In Brazil, loans rose to US$29 billion distributed over 10
loans, out of which a loan of more than US$10 billion granted by
SINOPEC and the CDB stands out, for the development of pre-salt
basins; in Argentina loans reached US$19 billion and in Ecuador US$15.3
billion. In the case of Argentina, Venezuela, and Ecuador, the flow of
Chinese capital has become a fundamental source of capital, considering
the difficulties that they encountered to enter into global capital markets,
punished by the country risk assigned to them by rating agencies (Gallagher
and Myers 2014).
Today, South America represents 10% of China’s oil supply and just a
fraction of the supply of carbon and gas that is imported by the Asian giant
(CEPAL 2016). However, there is a clear intention from the Chinese
government to strengthen these links. This decision is displayed on
two levels: a commercial one, led by the Chinese companies and their
152 C.V. REYES
CEOs—that have the rank of a Vice-minister with great decision-making

capacity and influence in national energy politics—and the relationships
that they establish with their counterparts for the implementation of the
projects; and another one, led by diplomacy that accompanies the expan-
sion of Chinese capital in the region, establishing cooperation agreements
in different areas. This strategy has allowed China to place itself among
the top five oil export destinations for Venezuela, Brazil, Argentina, and
Ecuador.
There is no registered export of gas from South America to China.
However, liquid gas is exported from Asia-Pacific to refineries in Chile, at
much higher costs compared to Bolivian gas (National Energy Commission
for Nation Development in China). This aspect shows, once more, how far
away we are from the consolidation of an effective integration strategy.
The importance of oil reserves in South America, concentrated mainly
in Venezuela and Brazil, and to a lesser extent in Ecuador, Colombia,
Peru, and Argentina (BP 2016), explains the interest in expanding invest-
ments and signing long-term agreements in the region. The Chinese capi-
tal gains importance as funders of large infrastructure projects, at the same
time guaranteeing China’s supply of raw materials under favorable condi-
tions. This has enabled a greater diversification of the destination of South
American exports, amplifying their range of possible buyers and allowing
them to renegotiate the exchange conditions. However, the quick pace of
borrowing has already struck an alert regarding the existence of a ten-
dency towards a new dependency, while the relative benefits of this diver-
sification need to be re-evaluated (Fig. 7.2).
The persistence of this logic of the extractivist visualization of territory
is shown in the structure of exports of the South American countries:
between 2002 and 2014, the structure reprimarized at around 8% (ECLAC
2015). This scenario is producing the same primary export pattern with
China, which still exists with the USA, inherited from the previous
century.
It is worth mentioning that the diversification of markets does not
mean the questioning of the extraction mode that prevails or the con-
cept of oil and gas as “commodities”; namely a product whose purpose
is to feed the production processes in the center of the system.
Therefore, this new Chinese–South American relationship deepens the
consolidation of the region as extraction territory, with all of the eco-
nomic, social, and environmental consequences, incurred by this condi-
tion (Bunker 1984).
2002 2009 2014
96,4
90,5
94,2
93,8
97,1
89,3
90,8
85,3
85,2
81,47
86,2
89,6
84,2
83,6
86,6
85,9
79,3
74,95
83,0
82,4
76,3
82
76,3
69,4
74,4
67,4
67,9
70,8
63,3
65,2
61,9
60,5
47,4
NA
IL
RU
LA
A
UA
UA
VI
IL
BI
IC
DO
AS
E
TI
PE
CH
LI
ER
ZU
G
UG
BR
UA
EN
BO
LO
RA
M
NE
UR
EC
G
CO
RA
PA
AR
VE
SU
Fig. 7.2 Share of primary exports in total exports (Source: http://interwp.
cepal.org/sisgen/ConsultaIntegradaFlashProc_HTML.asp)
The Collapse of Oil Prices

Between June 2014 and June 2015, oil dropped to 70% of its value.
Related to oil prices, gas prices also dropped, however, with distinct differ-
ences depending on the market. Gas prices are not homogenous as they
vary per trade region. The reference markets are: commercialized LNG in
Japan, natural gas in the UK, natural gas in Canada, LNG of German
exports, Henry Hub in the USA, or related to oil in the OECD (BP 2016)
(Fig. 7.3).
Today, the future of oil prices raises a question. While there is consensus
they will not reach the levels of the recent past again, predictions from
consulting firms and energy departments of the Government and compa-
nies change and constantly contradict each other, showing their specula-
tive nature.
The starting point for this analysis is the cyclical nature of the behavior
of commodity prices, and in particular, oil prices. This behavior accompa-
nies the crises—which are also cyclical—that characterize the capitalist
economic system. It is not the first time that we find ourselves facing an
abrupt drop in prices determined by geopolitical events. Oil is a commod-
ity whose price is not determined based on the “fundamentals” of supply
and demand. It shows behavior that is extremely sensitive to circumstances
and speculative pressure.
154 C.V. REYES
120,00
100,00
80,00
60,00
40,00
20,00
0,00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Dubai Brent
Nigerian intermediate West Texas Intermediate
Fig. 7.3 The evolution of oil prices (Source: BP 2016)
The demand for oil has contracted during recent years due to the eco-
nomic deceleration that affects emerging economies, mostly China, as well
as developed economies. This contraction of demand is confronted with a
sustained increase in supply, originated by the spectacular growth in the
production of shale oil and gas in the USA, as well as in the numerous
investments in exploration and development carried out during the period
of high prices, when the investment in the sector was highly profitable.
This investment flow, as well as the inclusion of energy in the hot points of
the security strategy of countries, regardless of their size, considerably
expanded extraction horizons. Geopolitical issues, such as the standardiza-
tion of relations with Iran and its return to the global oil and gas market,
or the progressive recovery of extraction in Iraq, may be added.
From the perspective of the producers, the OPEC has not managed to
prevent the drop in prices. On the one hand, there is Saudi Arabia’s refusal
to reduce the injection of oil on the market, interested in cornering the
production of shale in the USA, which would be considered unsustainable
at such low prices. Several analysts indicate that, in reality, the Saudi drive
would not give the desired results. While some small companies have gone
out of business, they have been absorbed by the larger companies special-
ized in extraction in complex conditions (US EIA 2014, 2015).
Hence, we would face a process of auto-purification of the shale sector,
more due to its failure than anything else. On the other hand, recent
investments in Chile and Argentina indicate that large companies do not

have the intention, for the moment, to abandon these projects. Finally, the
South American oil economies—Venezuela and Ecuador—and several
Arabic countries, need income from oil to keep their economies running,
demanding a clear decision from the OPEC.
The drop in prices mainly effected the oil states, meaning those states
in which there is a very high share of oil extraction in the GDP (at least
10%), as well as the share of oil exports compared to total exports (at least
40%), putting oil extracting in the center of the accumulation of capital
(Karl 1997). According to data from the ECLAC, oil formed a share of
52.3% of total exports in Ecuador and 85.1% of total exports in Venezuela
in 2014 (ECLAC 2015). The immense dependencies of these countries
upon their oil income cause variations in prices to have a huge impact.
This partly explains the change in tendency that occurs and is observed by
the governments of the region.2
Energy Integration in South America:

Facing a Turning Point
The energy integration initiatives experienced in LA have been a sectoral
reflection of practices, deployed by the different parties that aim to restruc-
ture the South American area, according to dominant development con-
cepts and the role imposed on, and adopted by, the region in the capitalist
strategy of unequal geographic development.
“The asymmetry of exchange, qualified as crucial for the economic logic

of imperialism, arise from monopolistic competition. The resulting
inequalities adopt a specific spatial and geographic expression, normally
as a concentration of privileges and power in some places more than oth-
ers. (…) the two main initiatives that have been adopted (to preserve
their monopolies) are the massive centralization of capital, that claims
possession by means of financial power, the economies of scale, market
scale and the envious protection of technological advantages by means of
patent rights, licenses and rights regarding intellectual property” (Harvey
2003: 86)
In this map of the geopolitics of global capitalism, South America has

established itself as an extraction territory, useful for the processes of capi-
talist accumulation in the center of the system.
156 C.V. REYES
South American Energy Integration: The Twentieth

Century
From the 70s to the 90s, initiatives in the field of energy were defined by
a closed regional logic based on the substitution of imports (ISI), driven
by the ECLAC, and financed by the IDB, the IMG, and the WB. This
developmental and nationalist strategy emphasized the planning role of
the State, as the main player in the industrialization process. The domi-
nant development model favored the large infrastructure projects, with
the purpose of improving the capacity of extraction and circulation of raw
materials necessary for the process of national, regional, and global accu-
mulation. Large hydroelectric plants and transport infrastructure were
constructed: gas pipelines and oil pipelines in Ecuador, Colombia, Bolivia,
Argentina, and Brazil. A push was also given for the creation of state-
owned oil and gas companies, with the purpose of increasing extraction
levels, in midst of a wave of nationalization led by the OPEC member
countries. In South America, the Venezuelan state-owned PDVSA fell in
1976, three years after the state-owned CEPE in Ecuador: state-owned
companies led the nationalization process, meaning an important capital-
ization with the public sector’s money.
The drop in oil prices in the 80s, caused by the injection of crude oil
into the market coming from the strategic reserve of the IEA,3 affected
those countries that had gone into debt during the petroleum boom. The
increase is interest rates by the USA FED added to this and sent the debit
contracted by South American countries through the ceiling. It was no
longer possible to keep the industrialization process running.
The failure of the ISI was “solved” with a new recipe of “expert knowl-
edge” from the international financial institutions. A response for the total
opening of a market, the privatization and deregulation of the economies,
and the abandonment, by the state, of its planning role in favor of the
market; an almost opposite recipe. This model accompanied the globaliza-
tion process that rapidly expanded at the end of the twentieth century,
looking for new markets and temporary area solutions for the crisis of
over-accumulation in the center of the system, in territory traditionally
excluded from the process of global accumulation.
International and regional credit organizations used the region’s needs
for funding, to impose a new strategy, conditioning the delivery of
resources to restructure national energy policies in production countries.4
Hydrocarbon was denationalized, state-owned companies weakened;
a process of fiscal and environmental deregulation imposed on the oil

sector, upstream activities liberalized, and contracts for exploration and
development modified, with the purpose of attracting foreign investment
to the sector. This way, energy in South America became a new opportu-
nity for transnational investment and global speculation of commodities.
In a complementary way, the USA presented the Hemispheric
Energy Initiative, with the objective of increasing the participation of
its transnational companies in the process of the privatization of energy
in LA. Since 1990, five meetings have been held with energy ministers
in the framework of negotiations of the FTAA and the South American
summits.
The hemispheric focus of the energy integration has succumbed amidst
increased questioning of the FTAA. The new century will be the scenario
for a decision from the South American presidents to move towards the
formation of a common South American integration area in which energy
will play a fundamental role. The Brazilian leadership in this process is
apparent, in particular since the arrival of Lula da Silva. From there on, the
discussions shift regarding energy integration of the hemispheric environ-
ment into the region and sub-region.
Energy Integration in the Twenty-First Century:

Future Limits and Challenges for the Region
This change in focus of energy integration was accompanied internally by
a re-nationalization process of hydrocarbon resources, in a certain way
reversing the privatization wave that occurred at the end of the twentieth
century. This de-privatization was driven by the framework of the ascent
of progressive governments in Brazil, Venezuela, Bolivia, Ecuador, and
Uruguay; Colombia and Peru kept the open governance model.
This modification of the governance system will allow for increased
participation and control of the state regarding oil and gas resources.
Venezuela, Ecuador, and Bolivia will renegotiate oil contracts so that the
State could obtain an increased income due to the extraction of its
resources and, reconsidering the modes of participation, guaranteeing an
increased control of Petrobras by the state, through a capitalization of
companies with public funding (which also partly came from China) for an
estimated value of US$79,000 million (La Nación 2010).
The post-neoliberal model redeems the role of the state as planner, regu-
lator, and engine of the regional integration process, while m
aintaining the
158 C.V. REYES
development model based on extraction as a main form of accumulation.

This will be the umbrella for the energy integration proposals driven by
South American progressivism.
The integration proposal has a funding scheme favoring agreements
with various Bretton Woods institutions: the NFC, the BNDES, the
BANDES, and China (through its public and development banks). The
capital of emerging economies stands out in the funding of infrastructure
development for the “post-neoliberal” integration of the sub-region,
marking a difference compared to the era during which the funding of
infrastructure in the region came from the WB and the IDB.
The importance of oil and gas in the geopolitics of South American
integration, and specifically in the creation of a geopolitical bloc, under
the umbrellas of the UNASUR and the extended MERCOSUR, has gen-
erated numerous analyses about its potential as an integrating engine in
the region. This can be seen in the regional projection strategy of Brazil
and Venezuela, where 0.9% and 17.9% of global reserves are concentrated;
they consolidated into pillars of the regional integration. These leaders did
not manage to reach an agreement regarding energy integration in South
America, showing substantial differences in strategic political focus that
characterized the proposals that they carried forward.
The Brazilian energy integration strategy was formed in the UNASUR,
based on the IIRSA,5 and the creation of the South American Energy
Council.6 The Venezuelan government of Hugo Chavez qualified the
regional hemispheric integration project of the USA as unfeasible—in
other words, IIRSA, as an axis for the creation of a sovereign energy
integration proposal from South America. The integration agenda
focused on the improvement of the circulation paths of merchandise that
would enable the trade of products with Asia-Pacific would suffer—
according to Chavez and other critics, such as Evo Morales—from a capi-
talist vision for the future of the region. On the other hand, Brazil’s
leadership, its companies, and development banks imprinted the Brazilian
regional projection agenda in the IIRSA. Thus, the mistrust expanded
from Venezuela towards the Southern Cone, where the Brazilian sub-
imperialist practices had historically imprinted its bilateral relations with
asymmetric connotations.
As an example of this asymmetric relationship, we can highlight the
trade flows of Bolivian natural gas with Petrobras, repeatedly ques-
tioned for being detrimental to the rights of the people and the Bolivian
state. Similarly, the asymmetric terms of trade of the energy surplus of

the Itaipú Dam is known; the hydroelectric plant is a binational project
between Brazil and Paraguay, leaving Brazil with huge benefits, com-
pared to scarce benefits left for Paraguay. In addition to the difficult
relationship with the Brazilian giant, there are geopolitical differences
with historical roots, such as those that exist between Bolivia and Chile,
Bolivia and Peru, or Argentina and Chile. These have shown to be huge
barriers for the consolidation of energy integration in South America,
avoiding regional self-sufficiency and the creation of interconnecting
physical constructions that are necessary to that effect.7 This situation
has limited the integrating potential of energy resources up to today.
An emblematic conflict that seriously affects regional energy security is
the one that involves Peru, Bolivia, and Chile; it has its origins in the
“Saltpeter War”. Between 1879 and 1883, this war, which originated
from the dispute between the local bourgeoisie regarding guano and salt-
peter, which were both valuable commodities in the global market at the
time, resulted in Bolivia’s loss of access to the sea. The diplomatic conflict
still exists to the present date, and one of its consequences is Bolivia’s
refusal to supply gas to Chile. The consequences are relevant, as the costs
of Chilean supply are very high and are reflected in the energy bills paid by
its citizens and its productive machinery.
In parallel to the IIRSA-UNASUR proposal, Chavez presented a
counter-proposal of the Petroamerica project. This initiative for integra-
tion aimed to coordinate energy policies and the state-owned companies
of the LA countries in three sub-regional blocs: Petroandes, Petrosur, and
Petrocaribe.8
The Venezuelan initiative was presented as complementary to the
UNASUR, determining its harmonization on this platform during the 1st
Energy Summit on Isla Margarita. In the same location a year later, the
Energy Council of the UNASUR was created. Petroamerica put the focus
on the formation of the public stakeholders and the states, reserving a
fundamental role for them, regarding the future of energy in each nation
and region. It aspired to respond to the demand for a sovereign regional
integration project that would mean breaking away from the neoliberal
past. While the Brazilian and Venezuelan initiatives both agreed to demand
a sovereign point of view from the Southern point of the Americas, regard-
ing energy, they differed in their degree of radicalism and the extent of
their demands.
160 C.V. REYES
Almost a decade later, while entering into a new economic, social, and
political context, we can evaluate how these strategies have evolved. We
find ourselves facing a turning point, defined by the structural weakness
from which both proposals suffer, in other words, the impossibility of
overcoming the extractivism and the economic, political, and social
pathologies generated.
The stagnation from which the Venezuelan proposal suffers, while fac-
ing increasing internal instability, and the profound economic crisis that
has submerged the oil giant into chaos since the death of Hugo Chavez,
puts its continuity in doubt. The weakness of the Venezuelan political class
is indicated by the drop in resources of oil profits, putting its incapacity to
overcome its condition of “Petrostate” on the table. Trade with Petrocaribe
has declined and will not be maintained during a change in the govern-
ment; in parallel, the ambitious binational projects such as the Abreu de
Lima Refinery in Brazil, and the Pacific Refinery in Ecuador. In both cases,
South American funding has been replaced by Chinese funders undermin-
ing projects of its potential integration.
In other cases, barriers for the intensification of the process have come
from the national interests of the South American countries, such as in the
case of the mega-construction of the Gas Pipeline of the South, which
aspired to coordinate the gas supply in the Southern Cone. Differences
regarding mapping, which reflected the Argentinian, Chilean, and
Brazilian geopolitical interests, added to Shell’s lobby, for whom the inter-
connection did not turn out to be good business, slowed down the project
driven with force by Hugo Chavez. This project aspired to be the emblem
of Petroamerica.
Meanwhile, the integration proposal in the framework of the
UNASUR also suffered a setback. The pivot of this strategy is currently
facing a profound political crisis that has led to the recent impeachment
of President Dilma Rosseuff. The difficulties and the crisis in politics
and its institutions are accompanied by the resurgence of a conservative
political class that could tend to isolate them from South America, los-
ing the regional projection gained during the last two decades. After a
decade of effervescence, due to the emergence of new leadership in
the region, that proclaimed to relaunch South America as a geopolitical
enabler, and at the same time, an area of synergies and partnerships,
the countries close themselves off, to defend their stability in the face
of increasing dissatisfaction generated by the economic crisis affecting
them today. Oil resources are sold once more to the highest bidder,
putting the strategic concerns regarding the utilization of the resource

aside, in favor of an immediate logic that supports the generation of
immediate income.
Conclusions: The Limits of South American Energy

Integration
The geopolitics of oil in the region cannot be analyzed without consider-
ing the global implications determined by the physical distance between
providers and consumers, the emergence of new poles of global capitalist
accumulation, and the growing economic and social political difficulties;
namely, within the framework of interrelations and contradictions that
occur on different scales of analysis of the regional reorganization of areas
regarding oil resources.
These interrelations interfere with intentions and real possibilities, to
drive integration projects that favor regional energy sovereignty, over
security concerns imposed by global consumption centers beyond South
American borders. The location of the region in the geopolitics of capital-
ism is decisive at the time of implementing policies in this sector.
The region has potential for integration through its enormous energy
resources, however to the present date they have not managed to create an
energy development project that puts the region in the center of its
operations.
In the golden era of oil prices, there were good intentions and several
isolated projects were finalized. However, the peripheral location of the
region determines that, beyond the pompous discussions about the cre-
ation of an autonomous South American bloc with potential to climb up
in the global geopolitical game, integration enters into permanent conflict
with the different national and immediate interests of its members. These
interests express the constraints of local capital, or the need to maintain
economic, political, and social stability, which prevail over other long-term
strategic concerns.
At this point, it is necessary to show the connection between the
increasing instability that affects the South American countries, the drop
in commodity prices and the reprimarization of their economies. Primary
products represent the majority of exports of the sub-region; low prices on
the international market condemn national budgets, and consequently,
the real possibilities for investment in the consolidation of the integration
process. Similarly, the crisis in oil prices has pushed exporting countries to
162 C.V. REYES
desperately search for resources, establishing the priority of utilizing its

extraction potential as an immediate source of liquidity—as in the case of
the advanced oil sales agreements with China—rather than as a strategic
tool for regional integration.
Finally, the internal crisis that affects the pillars of post-neoliberal energy
integration today creates serious doubts about the continuity of its pro-
posals. A change in Venezuelan politics, as is currently ongoing, will trans-
late into changes in the strategy of the insertion of the country in the
international economic system and in the region. In the case of Brazil, the
pressure caused by the Petrobras scandal, and the need to promote invest-
ment to exploit pre-salt reserves, led to the recent decision to withdraw
the fixed participation quote of Petrobras in other fields, completely open-
ing up these reserves to foreign investment. These facts make us ask our-
selves if we are facing a new re-privatization phase of energy in South
America.
Notes
1. Renamed as Belt by Hugo Chávez in February 2014 by President Nicolás
Maduro (Reuters, 18 February 2014).
2. This is the case in Argentina and Brazil; changes are expected in Venezuela
and probably in Ecuador.
3. The IEA is the cartel of the oil importer countries. As a result of the two oil
conflicts, the countries of the IEA implemented a strategic re-service that
would enable them to combat price wars driven by the OPEC countries and
to face sudden shortages.
4. The WB launched its “Energy Strategy” in 1992, focused on private invest-
ment, commercial orientation of state-owned companies, and new regula-
tory frameworks (Arelovich 2012: 18).
5. In the project portfolio of IIRSA, there are projects, such as the extension
of the oil pipeline in Northern Peru, the gas pipeline in Northeastern
Argentina, the gas pipeline of URAPABOL trache 1 and 2, and the gas
pipeline Brazilian Aldea (Argentina) – Uruguaiana – Brazil, bordering US$5
billion (IIRSA, n/s).
6. The “Council” was formed during the 1st Energy Summit on Isla Margarita,
Venezuela in 2007. Data available on the official UNASUR website. http://
www.unasursg.org/es/node/251
7. In this context, we refer to the failure of highly important constructions
such as the gas pipelines of the South, prompted by the Petroamerica
Initiative.
8. The greatest achievements were obtained in the area of Petrocaribe, where

a scheme for oil cooperation was established, for food that would alleviated
the energy bill of the Caribbean countries for almost a decade.
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CHAPTER 8
Productive Integration in South America

and Its Insertion into GVCs:
The Automotive Industry
Uallace Moreira Lima
Introduction
In 2000, the inter-regional trade among Argentina, Bolivia, Brazil, Chile,
Colombia, Ecuador, Paraguay, Peru, Uruguay, and Venezuela totaled
US$71,242 billion. In 2014, the trade among these same countries
jumped to US$110,773 billion, a 205.5% rise representing an average
growth rate of 13.7% between 2000–2014 (CEPAL). Even though that
is a considerable growth for trade among South American countries, it
is interesting to notice that concealed behind those highly positive results
there are regional production structures directed to a notably low level
of integration, mostly resulting on a poor use of economies of scale and
specialization. It is also possible to notice certain difficulties on develop-
ment processes for new capacities and production of goods and/or
U.M. Lima (*)

Faculdade de Economia, Universidade Federal de Bahia (UFBA),
Salvador, Brazil

DOI 10.1007/978-3-319-62551-5_8
166 U.M. LIMA
specific services with more advanced technology and added value. These
issues affect a proper and competitive international insertion of South
American countries into global trade.
Such issues become even more relevant when we understand that the
international trade is notably marked by a broad productive integration
process among countries from the same region so as to obtain, collectively,
a more competitive external insertion within GVCs logic. Productive inte-
gration is associated to developing the process of fragmenting production
into regional bases among international groups enabling an international
distribution of work within a certain production chain, where as a coun-
terpart intra-industrial trade fluxes are consolidated and parts, compo-
nents, and industrial processing are imported while more complex
components or final products are exported.
Productive integration represents one of the aspects of the productive
globalization process—production internationalization—which is associ-
ated to the expansion of FDI and to the contractual relations that contrib-
ute to a global production growth. These features are part of new strategies
for production internationalization, which consists on industries moving
from entities nationally limited to a fragmented business network globally
spread, leading companies to engage in the production of certain goods
and/or services from conception to final consumption. Such new strategy,
which grew stronger due to productive globalization concepts during the
90s, is best known as GVCs and is strictly connected to the process of
productive integration, i.e., production fragmentation and integration
walk side by side.
According to Estevadeordal et al. (2012) and Baldwin (2013), one of
the main features of GVCs is the fragmentation of production that leads
to the extinguishment of the need to acquire proper knowledge on every
level of any goods production and allows developing countries to associ-
ate with a cross-borders cooperative network, sharing production and
obtaining expertize in only one or few steps of the production activities
within the manufacturing process of final goods. The automotive indus-
try is clearly one of the main industries affected by the transformations
on production internationalization. Biesebroeck (2009) suggests that,
from a geographical point of view, the global automotive industry, as
many others, is in the middle of a deep transitioning process. Since the
early 80s, there has been a transitioning process from local national
industries, limited to a number of countries, to a fully integrated global
industry.
PRODUCTIVE INTEGRATION IN SOUTH AMERICA AND ITS INSERTION... 167
For Sturgeon and Biesebroeck (2009), the analysis of transforma-

tions on the automotive industry production allows us to state that the
dominating trend for the sector is regional integration, a pattern that
has been growing stronger since the early 80s both for political as for
technical reasons. For instance, in North America, South America,
Europe, South Africa, and Asia the production of regional parts tend to
supply final assembly plants that produce to regional markets—mostly.
Progressively, major companies of the automotive industry require their
main suppliers to be present globally in order to be considered for
manufacturing new parts since the vehicles developed in the company
headquarters are manufactured in a number of regions, thus deepening
and broadening the relation between suppliers and assembly plants.
However, according to Sturgeon and Biesebroeck, it is important to
consider that the automotive industry is not totally global yet, since
there still is production and sales concentration in certain regions,
besides not being connected to the strict geography of nation-states or
specific locations.
Within such a scenario, the present article aims to analyze how the
automotive industry GVC works, trying to understand its dynamics and
tendencies taking into consideration the organization of productive pro-
cesses in South America, starting from the idea that productive integration
is a phenomenon with limited occurrence despite the existence of plenty
of diverse industrial structures and the notable presence of major multina-
tional companies in the region, especially when dealing with the automo-
tive industry. Therefore, the present article is divided into two sections, in
addition to this introduction. In the first section, the automotive industry
GVC dynamics and the relevance of productive integration is analyzed. In
the second section, the automotive industry production dynamics within
global and South American economies is presented, analyzing the produc-
tive integration in that region.
The Dynamics of the Automotive Industry GVC

Between 1980 and 1990, the relation between suppliers and assembly
plants changed substantially. Companies from Europe and North America
struggled to correspond to competition from Japan and other Asian coun-
tries. The vehicle manufacturers from North America and Western Europe
reduced their level of production within their national markets and started
to transfer certain roles, such as producing designs, engines, transmissions,
168 U.M. LIMA
seats—among other interior parts, tires, batteries, etc. to their main

suppliers.
Those changes on automotive industry present three trends of conver-
gence for car assembly strategies starting in the 90s, such as: (a) producing
where it is sold; (b) designing a common chassis—platforms—capable of
receiving adaptations, different levels of finishing, and specific features for
local conditions, i.e., market adaptation; (c) using global framework to
create a better generic assembly capacity and freedom from producing
specific models, seeking greater flexibility for their plants. Because of these
three principles, the escalation of global suppliers is the most remarkable
feature of the automotive industry beginning in 1990. Several of those
suppliers became the favorites of some assembly companies in their global
expansion due to their capability to meet the demands of the manufactur-
ers. Among those demands there is a growing need for investment on new
productive plants located wherever the manufacturers establish new
assembly lines (Torres and Cario 2012).
That new scenario caused the parts industry within these economies
to be considerably restructured as a result of a combination of changes in
the relation between suppliers and assembly plants, aside from the grow-
ing reach of global assembly companies. There was a change in design-
ing, from assembly companies to suppliers, along with the increase of
dialog around projects from both parts. Suppliers, previously producing
pre-projected parts (e.g., batteries) for several companies during mass
production times, began to adopt a personalized production strategy
and adapt their products to the needs of specific companies. Similarly, a
number of outsourced companies that had worked with projects from
assembly companies, started to offer their own design solutions.1 In both
cases, the assembly company determines general performance specifica-
tions as well as information about an interaction interface with the rest
of the car and the supplier provides a design solution using their own
technology (Humphrey 2013). Humphrey (2013) says the production
process of the automotive industry started to present the following
characteristics:
1. Assembly companies increased the required production scale to

share the design costs of the vehicles. However, innovations and
designs are still concentrated on the companies’ headquarters
although they have the possibility of distributing such activities to
other companies within the global value chains.
2. Huge global suppliers provide the main systems to the assembly

companies, being closer to assembly plants than first level suppliers.
These companies demand global reach in order to follow assembly
companies to a number of places worldwide. They must be able to
design and innovate to provide black-box solutions to their cus-
tomer demands. Black-box solutions are those created by suppliers
using their own technology to meet the performance requirements
and interface established by assembly companies.
3. First level suppliers are companies that supply directly to assembly
plants. Some of these suppliers have evolved to full global suppliers.
First level suppliers must have innovation and design capacity,
although their global reach is limited, which is the main difference
between them and major global suppliers. In fact, first level suppliers
are associated with products from a more intensive sector, techno-
logically speaking, than second and third level suppliers.
4. Second level suppliers are companies that most of the times work
with projects provided by assembly companies or major global sup-
pliers. They require expertise on engineering processes in order to
meet the cost and flexibility requirements. Besides, the capability of
meeting the quality requirements and obtaining quality certification
(ISO9000 and most recently QS900) is essential to continue on
business. These companies can only supply a limited market, how-
ever there are some signs of growing internationalization.
5. Third level suppliers are companies that supply basic products. In
most cases, elementary engineering abilities prevail. In that level of
most component chains, expertise level and investment on person-
nel training are limited. At this point within the chain, companies
compete mostly over price.
After these characteristics began to prevail in the global automotive

industry, it was necessary to take into consideration the criteria used by the
assembly plants to select their suppliers involve: pricing, technological
quality, and capability. According to Torres and Cario (2012), it is also
important to notice that first level suppliers are increasingly accountable
for new processes. For example, the trend towards production modular-
ization results in first level suppliers being responsible for manufacturing
more complex products, besides becoming bound to follow a just-in-
time delivery system and sharing research results and developments.
Occasionally, first level suppliers are responsible for the coordination of
170 U.M. LIMA
parts and components supplied to second level suppliers. The increase of

demand for improvements from first level suppliers has led, on one hand,
to the deverticalization of assembly companies transferring a percentage of
car assembling and manufacturing to other companies, and, on the other
hand, to a vertical integration of first level suppliers through company
mergers and acquisitions. Consequently, the transformations on the
automotive industry GVC have created two different categories of suppli-
ers, namely: global and local suppliers. In the first category are the major
global suppliers and first level suppliers. The difference between the two of
them is precisely the global reach of their operation, since a major global
supplier has the capacity to meet their clients demand on several markets,
whereas first level suppliers frequently limit their operations to a smaller
number of markets. Major global suppliers are also accountable for orga-
nizing the rest of the GVC, managing second level suppliers, and develop-
ing supply systems in different locations, responsibilities exclusively
attributed to global suppliers, since first level suppliers do not have a rea-
sonable sized global reach. In the second category are the second and
third level suppliers offering car parts in a more standardized fashion and
not requiring production synchronization in a global level.
Assembly companies have recently followed a strategy known as Follow
Sourcing to choose their first, second, and third level suppliers. Such strat-
egy is noteworthy for giving preference to using the same suppliers in sev-
eral locations as long as such companies present verified global supplying
capacity that is, follow sourcing—the system where suppliers follow assem-
bly companies to every new location they choose to start marketing. It is a
logical consequence for suppliers to be accountable for a growing number
of items within the project and for a greater similarity of models among
markets (Humphrey 2013). Adopting a follow sourcing strategy, assembly
companies choose to keep their same suppliers when deciding to introduce
a new model or start a new production plant in a new market guaranteeing
the components are the same in each of them. Besides, a follow sourcing
company is also going to be responsible for guaranteeing that the rest of
the supply chain follows the assembly company standards. Building a follow
sourcing relation shows not only a close relation between assembly plants
and suppliers, but also evidences that suppliers have started to play a more
important role in the automotive industry production process.
Following a more critical approach, Leite (1999) notices that, even con-
sidering the positive aspects of productive globalization and production
internationalization though the automotive industry GVC, it is relevant to
observe the existence of two different forms of relationship between assem-

bly plants and suppliers that constantly implies some risks to those coun-
tries where assembly companies and their suppliers are established. The
first one is the relationship with suppliers of great volume, which basically
produce sub-systems of higher added value, with whom assembly compa-
nies establish exclusivity contracts. Those are generally major companies
with scale capacity large enough to guarantee both the needed investment
for technological updating and improvement and competitive costs. They
are classified as core suppliers. The choosing of a supplier is conducted
through benchmarking, i.e., implementing a politic for comparison of
prices among a number of suppliers, including foreign companies, based
on certain demands of quality and deadlines. Once a company is chosen,
assembly companies start to have a more solid relation with it. The second
type of relationship is established with commodities suppliers in which
assembly plants, instead of establishing exclusivity relations, seek at least
three different suppliers simultaneously in order to choose which suits
their needs better regarding cost, quality, and deadlines at different
moments. According to Leite (1999), the consequences of such strategies
are a process of market concentration with elimination of small suppliers,
industry denationalization in developing economies and intensification of
work conditions within companies.
Fragmentation processes are associated with developing complex sup-
ply networks in which a part or component manufactured by a certain
supplier can supply several production lines of distinct companies. Besides,
that same supplier can acquire parts and components from a wide network
of subsidiary suppliers, which have their own supplying contracts estab-
lished with other manufacturers of parts and components. Production
fragmentation, therefore, is able to not only comprehend numerous links
within the productive chain but also to largely reproduce each of the many
stages of the productive process.
That way, productive integration should be understood as the evolu-
tion of the productive fragmentation process to regional bases, groups of
countries or worldwide, which can lead to the creation of an international
division of work in the cycle of a certain productive chain producing the
consolidation of intra-industrial commercial fluxes, where parts and com-
ponents are imported, final or more complex products are exported, and
industrial processing is conducted. However, it is important to notice
that, in particular cases, there are circumstances in which an outsourcing
process leads exclusively to the building of a local network of suppliers,
172 U.M. LIMA
representing a production outsourcing process without integrative

production.
Additionally, productive integration allows not only commercial trans-
actions but also establishes partnerships for building strategic alliances that
comprehend a balance between the principles of cooperation and
competition, which can take diverse institutional shapes. Three of those
forms are noteworthy: (1) Alliances based on joint integration of activities
that lies upon an evolution as a more advanced stage within the produc-
tion chain and goods trading, which would hardly be properly achieved by
members individually; (2) Alliances based on additive configurations, i.e.,
articulating two or more companies of a particular industry in a way that
increasing scale, internal marketing widening, and mitigation of competi-
tion is possible; (3) Alliances based on a complementary setting, which
integrates two or more companies in such manner that allows an aggluti-
nation of complementary activities and competencies controlled by each
of its members, increasing the their competitiveness. That movement is
generally coordinated by large companies partnered with small and
medium sized companies, generating commercial and investment fluxes
among countries, and it is frequently encouraged by commercial liberation
or integrative deals.
An interesting fact to be taken into consideration is that the transfor-
mations and expansion of the automotive industry GVC presented here
are associated to the strengthening of developing economies, such as
BRICS, among other Asian and LA countries, and Brazil and Argentina
where a great part of the automotive industry is concentrated. That can be
easily observed when analyzing the production indexes of the sector, the
foreign direct investment and the activities of these companies in South
America. Estevadeordal et al. (2012), Baldwin and Robert-Nicoud (2010),
observe that the processes of distribution of GVCs have spread asymmetri-
cally, thus certain regions advanced greatly into global commerce via
GVCs, such as some Asian, European, and North American countries,
while other countries from regions, such as Africa and LA are still marginal
to such processes. Said asymmetrical process, concentrated on developed
economies, can be recognized through production indexes and automo-
tive industry integration indexes that are to be discussed in the following
topics of the present article.
For LA, the MERCOSUR in particular, productive integration is a phe-
nomenon of limited occurrence, despite the existence of industrial struc-
tures reasonably diverse and the remarkable presence of transnational
companies within the region. Recently, authorities responsible for decision

making in the MERCOSUR relaunched initiatives aiming the promotion
of productive integration, however, it seems that, from an economic agent
point of view, the remaining obstacles to a working customs union signifi-
cantly reduce the incentive to developing a regional productive integration,
which immensely compromises and limits the efficiency of communitarian
initiatives aiming this goal (Machado 2010).
Mapping of the Automotive Industry: Global

and South American Production
The average rate of the automotive industry production growth between

2000 and 2015 was 1.1%, mainly recovering from the growth rate drop in
2009 after the international crises. In South America, as shown on
Table 8.1, its average growth rate was 2.2%, a value higher than the EU or
North American growth rate. However, it is important to say that until
2013, South America presented an average growth rate above 8.0%,
figures higher than any other region. This elevated rate was connected
to a larger regional dynamism, especially considering the growth of
the Argentinian economy, and that the Brazilian economy was showing
considerable economic growth. These countries are the main production
Table 8.1 World motor vehicle production—All types—Growth rate total and
by region—2000/2015
2000 2001 2003 2005 2007 2009 2011 2013 2014 2015 Average
rate
Total 3.6 −3.4 3.0 3.6 5.6 −12.5 2.8 3.7 2.9 1.1 1.1
Production
EU 1.0 0.5 6.0 −0.8 5.6 −17.2 3.4 −0.3 5.8 6.1 1.0
North 0.0 −10.5 −2.9 0.5 −2.7 −32.5 10.4 4.3 28.8 −1.2 −0.6
America
South 23.5 1.9 1.5 16.7 15.2 −4.1 −3.3 8.3 −17.1 −20.6 2.2
America
Asia-Oceania 6.0 −0.2 10.3 3.3 8.7 1.6 −0.8 4.8 3.6 0.8 3.8
Africa 5.0 23.9 38.5 23.8 −4.4 −28.5 12.9 8.5 13.1 16.2 10.9
Source: OICA
North America: USA, Canada, and Mexico
South America: Argentina, Brazil, Chile, Colombia, Ecuador, Peru, Uruguay, and Venezuela
Asia-Oceania: Australia, China, India, Indonesia, Iran, Japan, Malaysia, Pakistan, the Philippines, South
Korea, Taiwan, Thailand, and Vietnam
174 U.M. LIMA
and sales markets in South America considering the automotive industry.

That can be confirmed by observing that the vehicle production growth
rate in the region presented negative indexes for 2014 (−18.4%) and 2015
(−20.6%), exactly when the Brazilian economy, as well as the Argentinian,
started to face a deep economic and political crisis. Even considering that
those two countries represent the major regional markets, the economic
crisis in South America that deepened after 2014 in several countries, has
affected regional production and sales in the automotive industry.
Another observation about the automotive industry growth rates is
that the saturation of existent major markets in Europe and North America,
especially after the crisis of 2008, is also associated with an expectation of
rapid growth rates in emerging markets that led vehicles manufacturers to
transfer their productive activities into new markets, following the changes
that restructured the automotive industry production process within a
GVC logics, as mentioned previously. Another interesting fact is that the
greatest dynamism is found in Asia-Oceania, where the average growth
rate is 3.8% and Africa (10%).
The differences among growth rates will be reflected on the involve-
ment of those regions in the total production value of motor vehicles in
the global economy, as seen on Table 8.2. South America, up to 2009—
when production growth rates began constantly to be above average,
also started to present participation gain on total production value, mov-
ing from a participation of 3.6% to 6.1% in 2009. However, due to the
Table 8.2 World motor vehicle production—All types—Percentage share by

region—2000/2015
Regions 2000 2001 2003 2005 2007 2009 2011 2013 2014 2015
EU 29.4 30.6 29.6 27.3 27.0 24.7 22.1 18.5 19.1 20.0
North America 30.4 28.1 26.8 24.6 21.1 14.2 16.8 18.9 23.6 23.1
South America 3.6 3.7 3.4 4.5 5.0 6.1 5.4 5.3 4.2 3.3
Asia-Oceania 30.8 31.8 36.2 38.8 41.9 51.5 50.7 52.4 52.2 52.6
Africa 1.9 0.7 0.7 0.8 0.7 0.7 0.7 0.7 0.8 0.9
Total 95.9 94.9 96.7 96.1 95.7 97.2 95.7 95.9 100.0 100.0
participation
Source: OICA
negative growth rates observed during the economic crisis that hit the
region, participation fell back to 3.3%, lower than the values obtained in
2000. The highest participation gain in the total production of the auto-
motive industry was noticed in Asia-Oceania, climbing from 30.8% in
2000 to 52.0% in 2015. These figures are related to a loss of participation
of more traditional markets such as North America and the EU.
The decrease of participation in the global production of motor vehi-
cles of those two regions is not conjuntural but structural as we observe a
constant downward trend in the production growth rate in both regions
as well as in the total production participation. Furthermore, the decrease
of growth rates and participation are not associated with the drop on the
total world vehicle production but with a world vehicle production growth
dynamics, along with other non-traditional regions presenting higher pro-
duction growth rates and increasing evolution on their total production
participation. In addition, indicators presented so far suggest that the
highest production growth rates, in South America and Asia-Oceania,
resulted in a constant growth of their respective participation in all catego-
ries—when compared to Europe and North America, while the highest
growth rate in Africa, compared to the same markets, do not reflect a
considerable growth in its participation in the world vehicle production.
However, it is clear that countries from Asia-Oceania present a more solid
dynamics than any other region, indicating that such countries have
adapted and introduced themselves more dynamically into the automotive
industry global value chain than, for example, South American and African
countries.
As mentioned before, when analyzing the automotive industry produc-
tion dynamics individually, as shown on Table 8.3, it is possible to notice
that, except for Brazil and Argentina, countries such as Ecuador, Chile,
Colombia, and Venezuela presented average growth rates above the South
American and the world economy production average between 2000 and
2015. Nevertheless, the low average production growth rate of the auto-
motive industry in Brazil and Argentina, due to their economic crises
observed over the past few years, substantially impacted the productive
dynamics of the automotive industry in the region. This can be explained
by analyzing the productive activity of the sector in the region according
to the participation of these countries in the sector production in South
America.
Even though some countries such as Venezuela, Ecuador, and Chile
presented an average growth rate of vehicle production remarkably above
176
U.M. LIMA
Table 8.3 World motor vehicle production—All types—Growth rate by region—2000/2015

Country 2000 2001 2003 2005 2007 2009 2011 2013 2014 2015 Average
rate
South America 23.5 1.9 1.5 16.7 15.2 −4.1 −3.3 8.3 −17.1 −20.6 2.2
Argentina 11.4 −30.6 6.1 22.8 26.0 −14.1 15.7 3.5 −22.0 −13.5 0.5
Brazil 23.7 8.7 2.0 14.5 14.0 −1.2 −6.6 11.1 −15.3 −22.8 2.8
Chile 257.3 100.6 −60.6 −7.3 62.2 −26.2 * * * * 32.6
Colombia 209.2 6.1 −8.1 29.1 4.3 −26.4 −32.8 8.8 −7.5 9.7 19.2
Ecuador * 206.7 −9.5 603.5 3.4 −47.8 8.9 −37.4 −60.7 −19.8 64.7
Uruguay 23.8 −26.9 −97.8 * * * * * * * −10.1
Venezuela 313.9 −37.8 8.0 311.1 −1.7 −17.3 −1.9 −31.1 −72.5 −7.4 46.3
Source: OICA
average, greater dynamism in the automotive industry production in

South America was not observed as a result of this fact, which can be
explained by reviewing the figures on Table 8.4 that shows the share of
motor vehicle production in South America. In 1999, 98.4% of the auto-
motive industry production in South America was concentrated in Brazil
and Argentina; Brazilian participation at 80.3% and the Argentinian par-
ticipation at 18.1%. In 2015, the scenario was nearly unchanged as Brazil
still has almost the same participation of 80.1%, while Argentina slightly
dropped to 16.7%. Together, these two countries hold 96.8% of the auto-
motive industry production in South America.
These indicators make clear that from an automotive industry dynamics
point of view, the possibility of a larger productive interaction within the
region, the productive activity growth, and a larger participation of South
America in the international commerce of automotive products depends
preponderantly on Argentina, and especially Brazil, i.e., the dynamics of
the economies of those two countries and their industrial and external
politics strategies are fundamental to promoting a larger productive inte-
gration and insertion of South American GVC into the international
economy.
Analyzing sales is another available mechanism that can offer a better
view on the automotive industry dynamics in the South America and
world economy. Some of the reasons found to explain the downward
trend in participation of the EU and North America in the global produc-
tion of motor vehicles, and the simultaneous growth in participation of
Table 8.4 Motor vehicle production—All types—Percentage share by

country—2000/2015
Country 1999 2001 2003 2005 2007 2009 2011 2013 2014 2015
South 2.9 3.6 3.4 4.5 4.6 6.1 5.3 5.3 4.2 3.3
America
Argentina 18.1 11.1 8.3 10.3 13.5 13.3 18.5 16.6 15.4 16.7
Brazil 80.3 85.9 89.7 83.5 80.0 83.0 78.0 80.2 82.1 80.1
Chile 0.1 0.5 0.3 0.2 0.3 0.1 * * * *
Colombia 0.5 1.2 1.0 1.6 2.0 0.7 0.6 1.5 1.9 2.4
Ecuador * 0.1 0.1 0.9 0.7 0.4 0.6 0.3 0.2 0.2
Uruguay 0.7 0.5 * * * * * * * *
Venezuela 0.3 0.6 0.6 3.5 3.5 2.5 2.4 1.4 0.5 0.6
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: OICA
178 U.M. LIMA
South American and Asia-Oceania economies are: (1) major market satu-
ration in existent European and North American markets, especially after
the 2008 crisis; (2) low growth rate of major traditional markets and rapid
growth expectations for great emerging markets, which draw vehicle man-
ufacturers to such promising markets, seeking an expansion on sales.
These two reasons can be verified and analyzed through the motor
vehicles sales indexes for the world economy. According to the data on
Table 8.5, South America and Asia-Oceania presented an average growth
rate above the world average growth rate for vehicles production. The
average growth rate in South America was 4.5% between 2006 and 2015
and it could have been even higher, if it was not for the drastic drop on
motor vehicles sales in 2014 (−10.7%) and 2015 (−19.8%). As previously
mentioned, the drop in recent years is due to an economic crisis Brazil and
Argentina are currently going through, which has significantly affects
regional sales.
As South America presented a higher average sales growth rate than the
world economy average, the region presented an increase of participation
percentage on motor vehicles sales in the world market. In 2006, the
South American Participation was 5.0%, in 2011 it reached 7.6%, in 2013
it dropped to 7.3%, and after the strong decrease on regional sales in 2014
and 2015, the South American participation on total motor vehicle sales
rose back to 5.0%, just as in 2006. As confirmed, the drop is a result of the
political and economic crises Brazil and Argentina are currently facing,
evidencing once again that the automotive industry in South America is
highly dependent on those two countries, which heavily weakens produc-
tive integration strategies in the region for creating too strong a relation
placed upon two countries alone (Table 8.6).
Such dependency upon Brazil and Argentina, on the sales market,
becomes even more evident when analyzing motor vehicle sales indexes
among South American countries only, as seen in Table 8.7. Although
countries such as Bolivia, Peru, and Paraguay presented average sales
growth rates considerably above the world and South American average
between 2006 and 2015—while Brazil and Argentina were just above
average—sales in South America did not increase sufficiently since the
region substantially depends on the growth dynamics of Brazil and
Argentina.
From a sales participation index standpoint, as shown on Table 8.8, in
2006 Brazil and Argentina represented 69.1% of the sales market in South
America and in 2015 both countries summed to 71.1%. Brazil is the main
Table 8.5 Vehicle sales motor—All types—Growth rate of total sales by region—2006/2015
Regions 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average rate
Total sales 3.5 4.7 −4.6 −4.0 14.2 4.3 5.2 3.9 3.0 2.0 3.2
EU 1.6 1.9 −7.9 −6.4 −3.4 0.0 −8.3 −1.6 6.4 9.8 −0.8
North America −1.7 −3.0 −15.9 −20.8 10.5 9.8 12.4 7.1 4.2 6.2 0.9
South and Central America 10.6 25.1 8.4 0.0 17.7 8.5 3.4 1.5 −10.7 −19.8 4.5
Asia-Oceania-Middle East 6.5 8.1 2.7 16.5 24.3 0.6 8.2 5.8 5.1 3.2 8.1
Africa 15.1 0.9 −4.6 −7.6 7.9 15.6 8.6 3.3 2.8 −8.8 3.3
Source: OICA
Asia-Oceania: Australia, China, India, Indonesia, Iran, Japan, Malaysia, Pakistan, the Philippines, South Korea, Taiwan, Thailand, and Vietnam
PRODUCTIVE INTEGRATION IN SOUTH AMERICA AND ITS INSERTION...
179
180 U.M. LIMA
Table 8.6 Vehicle sales motor—All types—Participation percentage (%) by

region—2006/2015
Regions 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
EU 26.9 26.2 25.3 24.7 20.9 20.0 17.4 16.5 17.1 18.4
North America 29.1 27.0 23.8 19.6 19.0 20.0 21.3 22.0 22.2 23.2
South and 5.0 6.0 6.8 7.1 7.3 7.6 7.5 7.3 6.3 5.0
Central America
Asia-Oceania- 32.0 33.0 35.5 43.1 46.9 45.3 46.5 47.4 48.3 48.9
Middle East
Africa 1.9 1.9 1.9 1.8 1.7 1.9 1.9 1.9 1.9 1.7
Total 95.0 94.1 93.3 96.2 95.7 94.7 94.7 95.1 95.9 97.1
participation
Source: OICA
regional market with a participation of 55.8% on the automotive industry

sales market in 2006, reaching 67.7% in 2009 and settling on 57.5% in
2015. Argentina is the second major market with a participation of 13.3%
in 2006, reaching 13.6% in 2015. Behind Argentina is Chile with a partici-
pation of 6.7% in 2015 and Colombia with 6.1%. The remaining countries
represent less than 4% of the sales market.
Once again, when analyzing the South American production and sales
indexes, it is clear that the production and sales dynamics of the automo-
tive industry in the region rely fundamentally upon the Brazilian and
Argentinian economies, leading other South American countries to play a
secondary or even insignificant role when it comes to the automotive
industry. This scenario increases the difficulties of establishing politics to
promote integration process in which several countries would benefit and
then reduce asymmetries among members of the same region.
According to Humphrey (2013), what is most remarkable in the
changes observed within the automotive industry the past few years is the
loss of market—from a production and consumption perspective—that
traditional markets went through and the rise of new markets. He claims
the way major vehicle manufacturers expanded their operations to devel-
oping countries is a key characteristic of the automotive industry after the
90s. To a certain extent, that was propelled by the sales growth in
Table 8.7 Vehicle sales motor—All types—Growth rate of total sales by country—2006/2015
Countries 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average
rate
South America 11.6 24.6 8.5 −0.6 19.1 8.2 2.8 2.0 −11.1 −19.8 4.5
Argentina 14.4 22.7 8.3 −20.4 43.4 26.vd5 −6.0 16.1 −36.3 −1.3 6.7
Bolivia 25.0 0.0 5.7 −18.9 266.7 27.3 50.0 6.7 37.9 −30.7 37.0
Brazil 12.4 27.8 14.5 11.4 11.9 3.4 4.6 −0.9 −7.1 −26.6 5.1
Chile 0.0 15.0 9.9 −28.5 67.9 17.4 1.7 9.7 −11.1 −15.8 6.6
Colombia 36.7 14.6 −10.6 −7.1 46.2 3.5 −3.4 0.6 9.5 −13.3 7.7
Ecuador −3.8 2.5 22.8 −17.7 42.5 5.8 −13.2 −6.3 5.5 −31.2 0.7
Paraguay 0.0 37.5 90.9 −42.9 58.3 57.9 0.0 2.0 1.3 −9.0 19.6
Peru 40.8 55.2 81.4 −16.9 57.0 24.2 27.1 5.5 −7.1 −7.8 26.0
Uruguay 0.0 26.7 31.6 52.0 44.7 −0.1 2.7 8.1 −7.4 −10.1 14.8
Venezuela 19.7 52.3 −37.1 −31.9 −8.3 −3.6 8.2 −24.3 −76.0 −38.0 −13.9
Source: OICA
PRODUCTIVE INTEGRATION IN SOUTH AMERICA AND ITS INSERTION...
181
182 U.M. LIMA
Table 8.8 Vehicle sales motor—All types—Participation percentage (%) by

region—2006/2015
Countries 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Argentina 13.3 13.1 13.1 10.5 12.6 14.8 13.5 15.4 11.0 13.6
Bolivia 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.4 0.6 0.5
Brazil 55.8 57.2 60.4 67.7 63.6 60.7 61.8 60.1 62.8 57.5
Chile 5.8 5.3 5.4 3.9 5.5 6.0 5.9 6.3 6.3 6.7
Colombia 5.9 5.5 4.5 4.2 5.2 4.9 4.6 4.6 5.6 6.1
Ecuador 2.6 2.1 2.4 2.0 2.4 2.3 2.0 1.8 2.2 1.8
Paraguay 0.2 0.3 0.4 0.3 0.3 0.5 0.5 0.5 0.6 0.6
Peru 1.0 1.2 2.0 1.7 2.2 2.5 3.1 3.2 3.4 3.9
Uruguay 0.4 0.4 0.5 0.8 1.0 0.9 0.9 1.0 1.0 1.1
Venezuela 6.1 7.4 4.3 2.9 2.3 2.0 2.1 1.6 0.4 0.3
Total 91.3 92.7 93.2 94.0 95.3 94.9 94.8 94.8 93.8 92.1
participation
Source: OICA
eveloping markets, as evidenced by the indexes shown in the present

d
study. In addition, the increase of competition on domestic markets led
companies to adopt new production strategies spreading development
costs of selected vehicles and parts—as seen in the first section of this
article—since there was an elevated concentration of such activities in the
USA, the EU, and Japan before the 90s. After spreading production to
new markets, it was noticed that North American and European manufac-
turers intensively directed their activities to LA while most of the Japanese
manufacturers focused on Southeastern Asia.
It is undeniable that there is a distribution progress on the automotive
industry GVC, as evidenced by the indexes. However, those indexes also
point out the fact that such activity distribution process is still mainly
reduced to certain specific markets, as Asia, Europe, and North America
when compared to South America. It is worth noticing that the activities
concentration process aforementioned in those regions coincides with a
production concentration process in a small number of companies, com-
panies originally from those very countries in which vehicle production is
concentrated. According to data from OICA, if we take into consideration
the participation of the 15 major automotive companies, the participation
of those companies in 1998 represented 82.3% of the total production,
falling to 82.3% in 2006 and maintaining this percentage until 2012. Even
considering that there was a reduction on production concentration in the
15 major companies when they moved from 88.3% in 1998 to 82.4% in

2014, these numbers provide evidence of a great market concentration in
this sector with total production concentrated on a considerably small
number of companies. If we take into consideration the companies nation-
alities, all of them are from the main productive markets of the automotive
industry, such as the American, European, and Asian markets, which par-
tially explains the automotive industry production concentration on these
regions.
This situation confirms the conclusions of Humphrey (2013), Colovic
and Mayrhofer (2009), and Schimid and Grosche (2008) that the geo-
graphical distribution of vehicle production and sales in developing coun-
tries has not been followed by an ownership distribution on the assembly
sector. Globally, the automotive industry remains concentrated and repre-
sented by a considerably small number of companies responsible for a
significant share of production and sales. Although there have been some
new actors on the assembly sector in the last 20–30 years, until the end of
the 90s,—including companies like Hyundai in the Republic of Korea and
Proton in Malaysia—after the 90s, the insertion of new companies into the
market is virtually nonexistent, except for Chinese companies.
Although the major automotive manufacturers have broadened their
reach in a growing number of markets, their traditional markets remain
important for each of the nine major companies, vehicle production
remains strongly concentrated in their own regions and home coun-
tries. For instance, Honda produced 57% of their global production
within their home country/region in 1997. As for North American and
European countries, sales were equally concentrated in their home
countries/regions. GM, Ford, Volkswagen, and Fiat sold an average
63% of their vehicles in domestic markets until the end of the 90s. As
for the two French manufacturers, PSA (owner of Peugeot and Citroen)
and Renault, the concentration is even more preponderant revealing an
absence of a globalization strategy from Peugeot, and an incapacity for
establishing a viable presence in the North American market for
Renault. The only companies selling more than 50% of their vehicles
abroad were the Japanese manufacturers—Toyota, Nissan, and Honda
(Humphrey 2013).
Such dynamics—the automotive industry dynamics in the world econ-
omy—affects activity in South America directly, especially when regarding
the productive integration process and its contribution to a more competi-
tive insertion into world commerce.
184 U.M. LIMA
From the standpoint of automotive companies based on South America

strategies, the internal market is still the major variable directing invest-
ments and production of the automotive industry with low external mar-
ket insertion, as to exportation expectations. For example, taking into
consideration the main manufacturers from South America—Brazil and
Argentina—in 2014, Brazil exported only 10.6% of its total production
and 89.4% was destined for its internal market. Of those 10.6% of exported
vehicles from Brazil, 65.6% was destined for Argentina and the remaining
units were sent to other South American countries. Argentina, on the
other hand, has a production directed to the external market. In 2014,
58.0% of the production was destined to exportation and 42.0% to the
internal market. Of those 58.0% of exported vehicles from Argentina,
Brazil was the major destination receiving 84.9% of the exportations (data
from ANFAVEA and ADEFA).
On the other hand, vehicle importation is considerably predominant
and the contraction or expansion of vehicle importation in the region is
better connected to a conjuntural scenario of economic growth and favor-
able exchange rates to importation than structural changes characterizing
a “process of competitive substitution of importation.” This also suggests
that the opening process of South American economies resulted in a larger
internationalization of the sector although, at the same time, it evidences
the fact that the models produced in the region have a restricted market,
they are exclusive, and they use low embedded technology in addition to
having one of the highest vehicle prices in the world, which prevents the
country being internationally competitive in this sector and leads to these
products directed for South American exportation only. According to
Negri (2010), the production fragmentation of intra South American
companies follow a rationale of reducing the number of models in each
plant and seeking specialization and scale gains, similarly to international
standards, with assembly branches sharing the production of models and
versions of certain models in Brazil and Argentina, so as to capture scale
economies. This strategy intensifies the relation between assembly compa-
nies in Brazil and South America.
In addition, it is important to notice that an analysis of the supply chain
shows that parts and components importation from the USA and Europe
is conspicuous throughout all countries, especially in Argentina, which
already had a supplier park. This situation is minimized in Brazil due to the
existence of a developed supplier park that is being restructured to meet
assembly plants demands, although there seems to be a commercial deficit.
The incorporation of the local industry to global production brought a

number of changes on production processes due to the decrease in the
number of direct suppliers and the reduction of local engineering, since
research, development and design, and components standardization, pre-
viously undertaken by specialized centers, led to a corresponding decline
on adaptation efforts in emerging countries (Santos Medeiros Martins
2001).
Another important fact to be considered in order to understand the
limited action of automotive companies in South America which focus
their activities only in their own region is to analyze the external com-
merce indexes of automotive products. Even though it can still be identi-
fied a concentration of sales and production of the automotive industry in
the original markets of each company, that should not overshadow the fact
that there has been some significant changes. The regional integration
process started in the 60s in North America with a free flow of vehicles and
components between the USA and Canada, while in Europe, Ford and
GM started to integrate their operations in 1970. In both integration
processes, the production systems gradually started to be defined as
regional. The vehicles and components were designed and produced for a
region as a whole, as well as individual plants becoming responsible for full
regional production, producing parts such as engines and components to
every partner in the region. In Europe, Ford and GM were not the only
companies to integrate their assembly plants with Spain, but also
Volkswagen buying Seat and integrating it to its European production
system, using common components and platforms for seats, promoted a
process of spreading in the automotive industry production (Humphrey
2013). This new dynamic of the automotive industry on GVCs is associ-
ated with company strategies of production processes fragmentation and
allocating productive activities in several countries and regions generating
GVCs that recreate the international division of labor in the world econ-
omy. One can come to such conclusion analyzing the production indexes
of the sector in different regions, including foreign trade.
According to WTO data,2 the exportation of automotive products3 rose
from US$571.3 billion in 2000 to US$1,295.3 trillion in 2012, a growth
of 126.7%, which indicates the development of international trade and the
expansion of the automotive industry GVC. The only moment automo-
tive products exportation values dropped was in 2009, due to the world
financial crisis. However, there seem to be a constant growth trend
between the years 2000 and 2012. A regional analysis allows us to confirm
186 U.M. LIMA
that Europe is not the region with the highest exportation values in the
automotive products industry. Exportations from Europe to the world
rose from US$271 billion in 2000 to US$663.9 billion in 2012, a growth
of 133.9% in 12 years. It is also relevant to notice that European exporta-
tions are basically concentrated within Europe itself, i.e., it is mostly a
intra-regional foreign trade, indicating the high level of concentration of
automotive GVC formation within the company’s own region or country.
Such a scenario does not omit the growth of European exportations to
other regions during those years, such as exportations to Asia, North
America, Africa, the Middle East, or South and Central America.
The second leader of automotive products exportation is Asia. Asian
exportations of automotive products to the world rose from US$112.7
billion in 2000 to US$338.5 billion in 2012, a growth of 200.5%—higher
than the European growth percentage. Different from Europe, Asia does
not concentrate most of exportations within Asia itself, for there is a larger
distribution to other markets, such as North America and Europe. That is
a consequence of a stronger presence of Asian companies in world mar-
kets, especially in Europe and North America. It can be also observed that
there is trend in Asia of exportation growth to all regions, such as North
America, Europe, the Middle East, South and Central America, Africa,
and the Commonwealth of Independent States (CIS).
North America occupies the third position on the world’s automotive
exportations leadership. North American exportations rose from
US$128.4 billion in 2000 to US$269.9 billion in 2013, a growth of
110.1% in 12 years. North American exportations are highly concentrated
within itself, with a low volume of exportations to other regions, such as
Asia, Europe, or South and Central America. This foreign trade character-
istic of the USA might be associated with a higher presence of American
companies in other markets distributing their production through several
other regions, influencing the foreign trade dynamics.
OMC data (Medeiros 2010) concerning LA is only available from 2000
to 2006 and there are no indexes for the region after 2006 since it does
not present relevant data for the world automotive industry figures, eco-
nomically speaking, for the countries in LA are not in the top 15 largest
exporters and importers of automotive products. Between 2000 and 2006,
LA participation in the foreign trade of products was not exactly relevant
but it was increasing from an exportation of US$571.3 million in 2000 to
US$1.015 billion in 2006, growing 77.9% in 6 years. These figures were
significantly below the growth of the global exportation of automotive
products, as well as below the growth of aforementioned producing

regions. LA exportations are centered in North America, as most of the
companies acting in LA are from North America, thus amplifying the rela-
tion between assembly plants and suppliers from those two regions. The
exportations to Europe and LA itself are significantly smaller, which makes
those regions not relevant for the automotive sector of LA.
The indexes confirm the assumptions of Estevadeordal et al. (2012),
and Baldwin and Robert-Nicoud (2010), which stated that one of the
main features of GVCs, particularly the automotive industry GVC, is the
production fragmentation that leads to not being required to acquire
competences in all aspects of production of certain goods and allows
developing countries to associate themselves to a transnational coopera-
tion network, sharing production and specializing in only one or two steps
of the productive activities involved in the manufacturing of final goods.
This type of expertise, according to the researchers, allows developing
countries to participate in a new strategy of international division of labor.
However, the researchers note that the GVC distribution processes are
being organized asymmetrically, with some regions substantially devel-
oped on their global market insertion via GVCs, such as some Asian
countries, Europe, and North America. Meanwhile, countries from other
regions, such as Africa and LA, are still extrinsic to that process, such as
Brazil, Argentina, and other South American countries.
According to Medeiros (2010), asymmetrical integration and insertion
into GVCs present risks to economically weaker countries, as seen in South
America. For example, an excessively asymmetrical regional and produc-
tive integration can be followed by a decline on the capacity of importing
from more fragile economies and by a crescent commercial deficit, broad-
ening payment balance restrictions of a certain economy, and paralyzing
the required investments to technological advancements. Overcoming
such stalemate requires that the productive integration is followed by
inducing macroeconomic stimuli to those countries with a lesser degree of
development, in such a way that it is fundamental to consider by which
means a productive and commercial integration in a certain geographical
area can be a greater incentive to productive diversification, structural
changes, and technological progress than a general insertion into the
world economy.
Therefore, states Medeiros, considering the debility of global external
markets for the region, the formation of a customs union in South America
with reduction of most intra-bloc taxes and the adoption of a common
188 U.M. LIMA
external tax promoted a fast expansion of the market chain among coun-
tries within the region (observant of the stagnation of external markets, a
high index of regional trading), especially for the automotive industry
and, most recently, a significant direct investment growth originated from
countries of the trade bloc. However, and opposite to what was estab-
lished in Asia, the great weakness of inducing structural mechanisms and
prevailing macroeconomic characteristics limited the possibilities of a
broader economic integration, which made the MERCOSUR an “incom-
plete” and “imperfect” customs union in which the needs imposed by
external crises had precedent over the long term arrangements directed
towards the bloc consolidation.
One of the mechanisms available to analyze the productive integration
among countries is the input-output model. The fragmented production
can be seen as a particular kind of input-output relation between imports
and exports that tends to increase the imported content of exports in rela-
tion to added value. This issue is especially important to the growth trajec-
tory of South American countries and their regional integration, thus
allowing us to analyze potentialities and synergies promoted by regional
and global trade for the growth of national economies, taking into
consideration that, even if there is a quid pro quo, there is no mechanical
and automatic determination between the growth of trade and the growth
of the economies (Medeiros 2010). Considering this perspective and the
indexes in Table 8.9 of automotive products input-output, one can state
that in South America there is only a single relevant integration process
between Brazil and Argentina, since Argentina consumes US$243 million
of sector products for their automotive industry production. In fact, with
that consumption, Argentina has Brazil as their main automotive products
suppliers, even being above the EU, the USA, Asia, and Russia.
As for Brazil, the automotive industry is supplied by a broad network of
suppliers established inside the country consuming US$11.558 billion.
The products arriving from Argentina total US$368 billion, which is
below the US$1.344 billion coming from the EU, US$912 million from
the USA, and US$421 million coming from Russia. That is to say, regard-
ing automotive products, Brazil demands more products from the EU,
the USA, and Russia than from Argentina, which does not mean there is
no integration between the two main manufacturers of the South American
automotive industry; it means Argentina depends much more in Brazil
than the reverse.
Table 8.9 Intercountry input-output—Database for 2005—In millions of US$

Description ARG BRA CHL COL ECU
Country/ Products Motor Motor Motor Motor Motor

Regions vehicles, vehicles, vehicles, vehicles, vehicles,
trailers trailers trailers trailers trailers
and and and and and
semi- semi- semi- semi- semi-
ARG Motor vehicles, trailers 974.8 368.3 0.0 11.2 2.0

and semi-trailers
BRA Motor vehicles, trailers 243.0 11,558.9 0.0 35.8 71.3
and semi-trailers
CHL Motor vehicles, trailers 3.7 12.0 1064.8 10.2 0.7
and semi-trailers
COL Motor vehicles, trailers 0.0 0.5 0.0 193.8 29.2
and semi-trailers
ECU Motor vehicles, trailers 0.0 0.0 0.0 0.3 66.6
and semi-trailers
URY Motor vehicles, trailers 12.9 4.4 0.0 0.1 0.0
and semi-trailers
VEN Motor vehicles, trailers 0.2 1.0 0.0 5.8 10.5
and semi-trailers
Mexico Motor vehicles, trailers 8.2 61.6 0.0 7.3 0.0
and semi-trailers
USA Motor vehicles, trailers 42.2 912.8 0.0 208.2 70.3
and semi-trailers
Canada Motor vehicles, trailers 1.2 21.9 0.0 13.0 0.0
and semi-trailers
EU27 Motor vehicles, trailers 104.1 1344.4 0.0 39.8 30.7
and semi-trailers
China Motor vehicles, trailers 2.7 26.6 0.0 10.3 13.4
and semi-trailers
Rest Motor vehicles, trailers 74.4 421.0 0.0 76.9 14.6
of Asia and semi-trailers
Rest Motor vehicles, trailers 92.3 77.0 0.0 117.2 101.2
of and semi-trailers
World
Total intermediate consumption 4133.4 41,416.1 1832.4 1598.3 590.2
Taxes less subsidies on products 127.9 0.3 3831.7 130.9 110.5
(continued)
190 U.M. LIMA
Table 8.9 (continued)
Description ARG BRA CHL COL ECU
Country/ Products Motor Motor Motor Motor Motor

Regions vehicles, vehicles, vehicles, vehicles, vehicles,
and and and and and
semi- semi- semi- semi- semi-
Freight and Insurances 48.8 230.9 0.0 33.3 27.2

Intermediate consumption at 4310.1 41,647.4 5664.1 1762.6 727.9
purchaser’s prices
Value added at basic prices 4230.9 9683.2 11.2 340.7 135.5
Source: Instituto de Pesquisa Economica Aplicada (IPEA)/CEPAL
According to Medeiros (2010), the integration between Brazil and

Argentina in the automotive industry sector must be comprehended in a
scenario in which, after a decade marked by strong intra-regional trade
expansion and conflicts of interest between Brazil and Argentina—due to
changes on exchange rates and macroeconomic regime, a special regime of
trading was created at the beginning of the millennium, where tax reduc-
tions over parts, components, and domestic content were included, along
with the establishment of mechanisms of bilateral compensation. The
automotive industry, constituted essentially of multinational subsidiary
companies from foreign regions specialized in both assembling and sup-
plying parts and components, started to build a vertical distribution of
work and new productive clusters in southeastern Brazil and northern
Argentina, where Brazil established itself as a net exporter of parts and
components produced by global companies subsidiaries, which explain
Argentina’s remarkable dependency on Brazil.
Another interesting fact is that Table 8.9 makes clear that having Brazil
and Argentina as the main productive and sales markets leads the integra-
tion process of the automotive industry in South America to exist essen-
tially between those two countries, leaving the other countries completely
out of that process.
This situation evidences the need to ponder over politics to promote a
greater integration among South American countries and their insertion
into the global market of the automotive industry, overcoming regional
limitation. After that, even recognizing there were newcomers in the
2000s, the automotive industry of South America is led by four major

companies: General Motors, Ford, Fiat, and Volkswagen. These four com-
panies compete among themselves in practically every segment of vehicles
available for consumption in the domestic market. This situation propiti-
ates an environment where the productive chain dynamics are strongly
influenced by major companies with multinational capital associated with
multinational companies, their global suppliers. Therefore, thinking a
greater integration in South America means discovering how to make
those companies invest more in the region in order to increase their pro-
ductive capacity and integrate further the countries into their activities,
besides directing their production to external sectors overseas, which
would require more competition in the sector in order to reach more
developed markets.
Conclusion
There has been in the past few decades a considerable growth of trade
among South American countries. However, the production structures of
the countries within the region indicate a low level of integration that
leads to a poor use of economies of scale and specialization, as well as dif-
ficulties in the process of developing new capacities of producing improved
goods and/or services with higher technological intensity and added
value, which affect a competitive international insertion of South American
countries into world trade.
Particularly regarding the acting dynamics of the automotive industry,
the debate on the automotive industry transformation in the world econ-
omy evidences that suppliers started to be fundamental to assembly com-
panies on their process of global expansion, especially because of the
capacity for meeting the requirements of the manufacturers. Among such
requirements, the need for investment on new productive plants placed
wherever the manufacturers establish new assembly lines has been consid-
erably frequent. The criteria used by the assembly companies to select
their suppliers involve, basically: pricing, technological quality, and capac-
ity. There are four levels of suppliers distinguished according to their
capacity to meet the assembly plants requirements: (1) major global sup-
pliers; (2) first level suppliers; (3) second level suppliers; (4) and third
level suppliers.
It is also important to recognize that developing markets are drawing
more investments and most of the vehicles manufacturers place their pro-
192 U.M. LIMA
duction plants in these regions. Nevertheless, they transfer their R&D

activities to those regions—to a lesser extent, generally some regions have
limited themselves to entering the automotive industry GVC as third level
suppliers. That can be frequently identified in LA countries. On the other
hand, in certain countries from Asia and Europe, there are major first level
global suppliers providing main systems to assembly plants and being
closer to them than second and third level suppliers. First level suppliers
are the companies that provide directly to the assembly plants, considering
they have design and innovation capacities. Second level suppliers are
companies that frequently work with projects provided by the assembly
companies or major global suppliers, requiring expertize on engineering
processes in order to meet the cost and flexibility requirements of automo-
tive companies.
Regarding these transformations, it was verified that the automotive
industry of South America had an increase of installed production capac-
ity, their productivity grew significantly with investments on process tech-
nologies and products, the costs of assembly plants reduced after the
opening to external competition for the auto parts sector bringing better
prices and quality, the produced vehicles became more technologically
advanced, and the industry expertize on the popular cars segment guaran-
teed that the ideal scale for each plant was achieved.
Generally, the data presented concerning the automotive industry show
that there actually is a growth on the productive capacity during the
2000s, with higher revenues and participation of the automotive industry
on industrial GDP.
However, the internal market remains as the main variable on directing
the investments and production of the automotive industry in South
America with a low insertion in the external market from an exportation
perspective. This also suggests that the process of opening South American
economies promoted a deeper internationalization of the sector, although
at the same time it indicates that the models produced in the region have
a restricted market, low embedded technology, and are exclusive.
When the production of the automotive industry in South America was
analyzed here, it was particularly clear that its activities are concentrated
predominantly in Brazil and Argentina, in such a way that the complete
dynamics of the sector depend fundamentally on those two countries.
Therefore, the integration between Brazil and Argentina in the automo-
tive industry sector must be comprehended in a scenario in which, after a
decade marked by strong intra-regional trade expansion and conflicts of
interest between Brazil and Argentina—due to changes on exchange rates

and macroeconomic regime, a special regime of trading was created at the
beginning of the millennium, where tax reductions over parts, compo-
nents, and domestic content were included, along with the establishment
of mechanisms of bilateral compensation. The automotive industry, con-
stituted essentially by multinational subsidiary companies from foreign
regions specialized in both assembling and supplying parts and compo-
nents, started to build a vertical distribution of work and new productive
clusters in southeastern Brazil and northern Argentina, where Brazil
established itself as a net exporter of parts and components produced by
global companies subsidiaries, which explain Argentina’s notable depen-
dency on Brazil. Consequently, the productive integration of the automo-
tive industry in South America materializes between Brazil and Argentina,
which objective is to provide to its respective internal markets and export
to their own region.
The dynamics of the automotive industry in South America evidences
that it is fundamental to conceive a larger integration in South America
for the sector with the participation of other countries besides Brazil and
Argentina. In order to do so, attracting new companies for the sector,
giving incentive to broaden the production so as to meet the internal
market needs, and widening internationalization through an external
insertion into markets overseas—if not articulated with changes of strate-
gies of companies to internalize the development of R&D and Science
and Technology (S&T)—will keep the sector vulnerable and incomplete,
considering that, despite the recent trend of increasing expenses on R&D
outside the headquarters, including on subsidiary companies in develop-
ing countries, a great number of those activities, including patent regis-
tering, is still highly concentrated on headquarters and subsidiaries
located in developed countries. In Brazil, that becomes even more prob-
lematic when we observe that there is no national assembly companies
and the auto parts sector was high denationalized.
One of the main challenges is, therefore, making the automotive indus-
try have a more competitive external insertion, increasing its participation
on exportations as a production goal, and reducing the strong depen-
dence on its internal market. Besides, making these companies expand
their investments in the region is another challenge, directing resources to
the building of R&D and S&T centers in countries from the region inter-
nalizing their decisions and producing products with more intensive
technology.
194 U.M. LIMA
Notes
1. It is important to notice that the insertion of countries into different levels
of the GVC is connected to a set of functions performed by companies
through their supply and production contracts. Being that so, Cruz-Moreira
and Fleury (2003) systematized an industrial modernization typology where
it is possible to better understand the hierarchy of activities hired companies
can be responsible for within a value chain:
1. OEA (Original equipment assembly): Maquiladoras: (a) they receive
specifications about products and productive processes; (b) receive unfin-
ished input and components; (c) perform simples assembly activities; (d)
return the product to the client for other processing; 2. OEM (Original
equipment manufacturer): Full package suppliers: (a) they receive specifi-
cations about the product; (b) develop specifications about the production
process; (c) manage buying and logistics; (d) deliver finished products with
the client’s logo; 3. ODM (Original design manufacturer): Full package
suppliers with design capacity: (a) they perform design activities and product
specification; (b) either produce or outsource their production; (c) manage
the supplier’s chain; (d) eventually decide about commercialization;
4. OBM (Original brand manufacturer): Full package suppliers with their
own brand: (a) they perform creation and branding activities; (b) perform
design and product specification activities; (c) manage the supplier’s chain;
(d) decide about commercialization processes; 5. GB (Global buyers):
Global buyers: (a) they do not produce; (b) perform creation and branding
activities; (c) perform design activities and product specification; (d) out-
source production; (e) manage the supplier’s chain; (f) decide about com-
mercialization processes. According to Cruz-Moreira and Fleury (2003), in
order to reach superior levels, companies need to develop learning processes
that allows them to promote innovation and to strengthen their compe-
tences. Other researchers believe that upgrading, in this context, can be
achieved by improving (1) processes and (2) products, developing new
competences and functions—known as “functional upgrading” (3), or even
using acquired knowledge for sector diversification.
2. WTO. International Trade Statistics. (Several Years). International Trade
Statistics is a yearly journal published by OMC with indexes providing a
world trade panorama.
3. The definition of automotive industry products comes from the classifica-
tion Standard International Trade Classification (SITC) 781, 782, 783, 784
and 7132, including: 781—Passengers automobile and other vehicles mainly
created to transport people (except vehicles designed to public transporta-
tion), including trucks and race cars; 782—Automobile vehicles to transport
merchandise and for special uses; 783—Motor vehicles (n.e.p.); 784—Parts
and accessories for automobile vehicles and tractors; 7132—Piston engines

with internal combustion, for propelling vehicles; Other transportation
equipments (SITC group 713, 785 and 786 division, except sub-group
7132) includes: 713—Piston engines with internal combustion and its parts
(n.e.p.); 785—Motorcycles and bicycles with or without engine; 786—
Tows and semi-tows; other vehicles (non auto-propelled); transportation
recipients specially designed and equipped.
Bibliography
Baldwin, R. 2013. Global Supply Chains: Why They Emerged, Why They Matter,
and Where They Are Going. In Global Value Chains in a Changing World, ed.
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wto.org/engliss/res_e/booksp_e/aid4tradeglobalvalue13_e.pdf
Baldwin, R.E., and F. Robert-Nicoud. 2010. Trade-In-Goods and Trade-In-Tasks:
An Integrating Framework, Working Paper 15882. Cambridge: Bureau of
Economics Research. Available at: http://www.nber.org/papers/w15882
Colovic, A., and U. Mayrhofer. 2009. Optimising the Global Value Chain: Na
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archives-ouvertes.fr/docs/00/69/02/07/PDF/Vaasa2009Article.pdf
CRUZ-MOREIRA, J., and A, Fleury. 2003. Industrial Upgrading nas Cadeias
Produtivas Globais: Reflexões a partir das Indústrias Têxtil e do Vestuário de
Honduras e no Brasil. São Paulo, USP. Tese de Doutorado.
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Really Global? Policies to Accelerate Countries Access to International Production
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web
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A3o%20Produtiva%20Caminhos%20para%20o%20Mercosul.pdf
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CHAPTER 9
The Regional Political Economy

of Knowledge and Environment
Pedro Cango, Jesús Ramos-Martín, and Fander Falconí
The chapter is divided into four sections. The first examines the develop-
ment structure of the so-called knowledge gaps in South American coun-
tries. The second analyzes the related international norms and regulations,
from a global agency point of view. The third introduces the economic
gaps in intensive research activities, regional invention, and innovation,
with a particular focus on energy consumption and efficiency gaps. Finally,
the conclusions are presented.
The Development Structure of the Knowledge Gaps

The leading interpretations regarding the insertion structures in the inter-
national division of labor of a country are generally based on, or are deriv-
atives of, the theory of comparative advantage of David Ricardo (1817)
and relative factor endowments (capital, land, and labor) proposed by
Heckscher-Ohlin (Heckscher 1919; Ohlin 1933). These models of
international trade have been widely criticized for simplifying the complex
P. Cango (*) • F. Falconí

Departamento de Desarrollo, FLACSO Ecuador, Quito, Ecuador
J. Ramos-Martín
Universidad Regional Amazónica IKIAM, Tena, Ecuador

DOI 10.1007/978-3-319-62551-5_9
198 P. CANGO ET AL.
reality, given that they do not include the transaction and transportation
costs, or geopolitical factors, taking on the idea of perfect markets (Falconí
2013).
Beyond these limitations, the neotechnological approaches (Posner
1961; Hufbauer 1966) justify the comparative advantages that are created
based on the capacity of the countries to innovate.1 For Krugman and
Obstfeld (2001), for example, countries engage in international trade due
to convenience and necessity. Thus, it would be ideal to export goods
produced with high levels of productivity, and import goods with less
efficient production processes. According to the authors, what prevails is
an international division of labor, where rich countries must be the suppli-
ers of intensive goods in research and development (industrial and tech-
nology), while poor countries must keep supplying commodities, food,
and minerals.
Such form or structure of international insertion represents an obstacle
to reduce the knowledge gaps (KG), due to its limited endogenous pro-
cess in the assimilation and dissemination of knowledge that may boost
innovation. This topic was initially observed by Sunkel for whom “the
primary export sector becomes the critical component of the capacity of
accumulation and innovation” (Sunkel 1987: 45). Before, and in line
with the theoretical center periphery approach of Prebish (1959), Cardoso
and Faletto (1969) maintained that technological dependence is gener-
ated by the production processes concentrated in industrialized countries.
Consequently, the insertion pattern and specialization of the region in
abundance of natural resources and unqualified labor are perpetuated,
which ultimately does not stimulate productive diversification with greater
technological content, even during the boom in commodity prices
(Gudynas 2009).
Indeed, this segmentation creates more benefits in the countries of the
North than in the countries of the South due to the fact that this type of
industrialization brings about productive connections, facilitates special-
ization, and generates more opportunities to develop new products and
processes. Moreover, in the long term, the terms of trade deteriorate
(Prebish 1959, 1950; Singer 1950). In other words, the ratio between the
unit prices of the export of commodities and the import of industrialized
goods reduces. In this way, the aforesaid limitations have made it possible
to challenge the theory of comparative advantage proposed at the begin-
ning of the nineteenth century.
THE REGIONAL POLITICAL ECONOMY OF KNOWLEDGE... 199
In this sense, in the middle of the last century, the ECLAC proposed
the concept of ISI (Prebish 1950, 1959), in other words, to substitute
imports by locally produced goods. However, the proposal did not man-
age to reduce the dependency of the LA countries, but it only industrial-
ized those countries that had already completed the first phase, or that
already had industries for the consumption of non-durable goods (Furtado
1970). Moreover, the policies of the neoliberal school based on commer-
cial liberalization, started in LA during the mid-70s, and, as a result, the
different multilateral, sub-regional, and bilateral agreements have progres-
sively led to an increase in economic primarization based on the export of
primary products.
Under the premise of rethinking the “international insertion pattern of
the region” (ECLAC 2009: 14), a pattern is searched for that would
enable a boost in knowledge creation, and at the same time make way for
innovation and the creation of new products and processes. This is a
greater regional relative autonomy where the LA thinking should prevail
as an alternative to a specific type of globalization that generates greater
opportunities for the rich countries.
In that regard, the accelerated growth of China, although it is not the
root cause, highlights the structural deindustrialization problem of the
region, making it necessary to prioritize “the management and quality of
innovation and, above all, its effects on environmental sustainability and
social integration” (Phillips 2007; ECLAC 2016a: 5).
Historical evidence shows that knowledge is boosted through endoge-
nous development (Romer 1986; Lucas 1988). The endogenous notion
suggests that growth is stimulated by improved technologies that origi-
nate from their internal potential and the international decisions of invest-
ment in R&D of the agents of each economy. The production of knowledge
responds to the resources and funds that facilitate R&D, while the supply
of ideas directly depends on the number of researchers (Romer 1990), and
the latter on R&D expenditure.
However, rich countries invest more in R&D than poor countries. This
situation facilitates the specialization of economies according to their
intensive use of knowledge. In poor countries, there is a higher share of
less intensive activities, as compared to technology, while in rich countries,
the opposite happens. Due to this dynamic, the knowledge spillover pro-
cess is accelerated in rich countries (ECLAC 2010). Therefore, there are
two problems: the deindustrialization and reprimarization.
200 P. CANGO ET AL.
As it can be seen in Fig. 9.1, LAC (even just South America) belong to

the capitalist periphery in the deindustrialization process. Clearly, a lower
share of industry in GDP has regressive effects on specialization, which has
brought about a strong “reprimarization”, which is an increased share of
primary goods in the commercial structure, as shown in Fig. 9.2. Thus,
there is a structural reduction in the capacity of poor (South American)
countries to integrate successfully in the global economy (Lall 2000). The
fact is that the income generated by mining activities in LAC is not trans-
ferred to sectors that are linked to knowledge. As recognized by ECLAC
(2013), the foreign direct investment also does not make a relevant contri-
bution to the creation of new activities with high technological content.
In fact, these asymmetrical relations or unbalanced development struc-
tures are inherent to the LA political cycle, something that is observed
more firmly since the boom in commodity prices, especially since 2002.
Without a doubt, this behavior affects the capacity to generate increasing
returns, given the weak capacity to absorb, incorporate, and generate
greater technological learning. Ocampo (2005), for example, had already
emphasized that industrialization increases productivity as a response to
improvements in the division of labor and technological advancements. A
contradictory point is that LA countries export raw materials at a lower
cost and import the same primary goods with high technological content
at very high costs.
24.0 198
Industrializaon, value added (% of GDP)
178
20.0
158
138
16.0
118
12.0 98
78
8.0
58
38
4.0
18
0.0 -2
1993
1995
1998
2000
2002
2005
2007
2009
2010
2012
2014
1992
1994
1996
1997
1999
2001
2003
2004
2006
2008
2011
2013
South America Lan America and Caribbean Commodity price index (2005=100, right axis)
Fig. 9.1 Industrialization (value added % of GDP) in LAC and South America,
1992–2014 (Data do not include Paraguay between 1994–2004 or Venezuela in
2013 and 2014; Source: World Bank and International Monetary Fund (2016))
256
224
192
160
128
96
64
32
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Commodities Natural resource-based manufactures
High-technology manufactures Low-technology manufactures
Medium-technology manufactures Commodity price index (2005=100, right axis)
Fig. 9.2 The export structure of South America by technological intensity index
1992 = 100 (Data do not include Suriname in 1993, Guyana until 1996, and
Venezuela in 2014; Source: UN Comtrade-Database and International Monetary
Fund (2016))
International Norms and Global

Development Agency
As we have already analyzed, the dependence of the countries of the South
is generated by the international division of labor, which creates advan-
tages for the industrialized countries and obstacles for the countries that
export commodities. In this context, there is an unfavorable, unequal, and
unfair international order, which configures the same trade structure of
the nineteenth century. In this sense, the agreements on the TRIPS of the
WTO, the FTA, the BIT, and the WTO Regulations, stand out, among
others.
In the case of the TRIPS, they establish the inclusion of patents of all
inventions, limiting the possibility of utilizing sectoral policies that the
rich countries had in their historic moments (Roffe and Santa Cruz 2006).
Figuratively, Chang (2002) emphasizes that the countries of the North
“kick the stairs that helped them rise”. For example, imitation, together
with policies for industrial development and education, facilitated the
development processes of countries such as Japan and South Korea.
Consequently, in poor countries, the TRIPS generate a loss of legislative
202 P. CANGO ET AL.
flexibility and active policies in health, nutrition, education, and industrial

development (Roffe and Santa Cruz 2006).
On the other hand, this regulation has been an important step towards
the patentability of life (Rodríguez 2005). Article 27 (subparagraph 3b) of
the TRIPS enables the creation of patents of microorganisms and biologi-
cal procedures. This shows an important advancement in terms of privati-
zation and commoditization of living beings. In fact, in terms of intellectual
property, this multilateral agreement did not satisfy all of the expectations
of the rich countries. As such, the negotiations of the bilateral treaties with
significant emphasis in terms of intellectual property, among others, with
LA countries22 continued. In this context, the free trade agreements and
the bilateral investment treaties (TRIPS plus) include provisional ones that
intensify the protection related to pharmaceutical patents, data protection,
and genetic resources. On the other hand, the agreements grant access to
biodiversity and traditional knowledge and they even pursue to illegally
create patents for plants and animals. These provisions violate the legal
principles of the TRIPS,3 the European agreement on patents, and the
Decision 486 (Common Industrial Property Regime) of the CAN that do
not consider living beings as an invention.
However, many of the patent applications and patents are the result of
illegal access and use of biodiversity and traditional knowledge. The case
of the Ayahuasca patent, a medicinal plant used by the Amazon communi-
ties of Ecuador for several decades, is not a unique situation. According to
Schuler (2004), the Ayahuasca was patented in 1986. In November 1999,
due to pressure from the indigenous communities of the Amazon, this was
revoked. However, the revoking was then overruled in 2001.
In this regard, Gómez et al. (2008) warn that the USA claims to regis-
ter biotechnological inventions without any requirement to declare the
origin of the biological, genetic, or traditional knowledge resources. At
the same time, they create commitments that impede the access to sanitary
or commercialization permits before the patent expires. The free trade
agreements of the USA with other countries aim for the different appli-
cable legislations in poor countries to be adapted to their legal system,
especially in terms of intellectual property (Gómez et al. 2008).
According to the UNCTAD (2007), the member countries of the
WTO, in addition to the obligations imposed by the TRIPS, should also
comply with the provisions of the Paris Convention of 1883 regarding the
Protection of Industrial Property, with the Berne Convention of 1886 for
the protection of Literary and Artistic Works, and with the rules of
Agreement on Intellectual Property in Integrated Circuits, currently

administered by the WIPO.
Of course, there have always been proposals from the countries of the
South to protect their resources, life forms, and traditional knowledge.
However, the rich and industrialized countries have established alliances
amongst themselves to prevent changes that do not suit their interests.
On the other hand, the climate agreements do not recognize property
rights on the atmosphere. There remains absence of a court that would
sentence the damages and losses caused by the rich countries through cli-
mate change. Therefore, the industrialized countries, responsible for the
greatest part of environmental pollution do not comply with their obliga-
tions to reduce greenhouse gas emissions and to mitigate the effects.
At the Paris Summit, no actions were established to reduce the effect of
the greenhouse gases. Moreover, the intellectual property rights restrict
the development and transfer of technologies to poor countries.
Consequently, there is a paradox of free access to the environment ver-
sus the privatization of knowledge. The paradox is that the rich countries
charge for their technology while countries of the south provide environ-
mental goods free of cost, such as the absorption of CO2 by natural sinks
(forests and oceans) and this deepens the knowledge gaps. The ecosystems
supply vital services to humanity: maintaining the atmosphere and climate
regulation; water cleaning, control of hydrological cycles, reduction in
floods and droughts; protection of coastal ecosystems through coral reefs
and sand dunes; conservation of fertile land; reduction of parasites in cul-
tivations; pollination of plants; human nutrition with added value, such as
water.
The greatest free contribution is the knowledge that is included in
nature. The plants that serve as food and as medicine have been plundered
and investigated in situ without permission and have been purchased by
rich countries at ridiculous prices. This is called biopiracy (Shiva 1997;
Tedlock 2006; Finetti 2011). Afterwards, they have returned in the form
of patented industrialized products (food and medicine) at high prices.
This is one of the main causes of inequality on the planet, and of the
increase in the number and extent of knowledge gaps. Behind this
protected knowledge of intellectual property rights, rich countries aim to
generate earnings in the framework of a monopolistic market, and thus,
this knowledge is no longer a public (non-rival and non-excludable)4
good. Sachs (2015) mentions that companies invest in R&D to make a
profit, and not to solve the problems of the poor or the environment.
204 P. CANGO ET AL.
According to Carrillo (2006), 80% of biological diversity on the planet

is located in developing countries. However, in more recent times, a sub-
stantial part of patented international medication in rich countries is a
product of biopiracy against poor countries, of the plundering of their
biodiversity (Shiva 1997).
Structural Knowledge Gaps

Activities related to knowledge start with R&D, followed by invention,
innovation, adoption, and distribution of practices and technologies
(Gault 2006). As mentioned by the OECD (2004), the intensity of R&D
in different countries can be seen through indicators such as R&D expen-
diture (as % of GDP) and the number of researchers focused on producing
new knowledge. Strictly speaking, theory and ideas are not considered to
be innovation, but they are fundamental for its development (Bell 1973).
Meanwhile, the knowledge gaps between the rich countries of the North
and LAC countries are mostly shown by the number of published articles
and the number of patent applications (Gault 2006). The OECD (2015)
emphasizes that patents are products of R&D. However, the intellectual
property rights, commercial brands, copyrights, and trade secrets are
modern mechanisms to protect this knowledge (Gault 2006).
According to ECLAC (2010), the difference in productivity (GDP per
employed person) is due to the speed at which rich countries innovate and
distribute technology, compared to the capacity of poor economies to
absorb, imitate, adapt, and innovate. The reality of this situation is that
poor countries are inefficient in their production processes.
According to data from the World Bank (2016), LAC countries regis-
tered stagnation in productivity up to the year 2002. After that period, in
reaction to the commodities boom, productivity slightly increased.
However, these improvements turned out to be insufficient for the reduc-
tion of the region’s inequalities compared to rich countries. Between 1991
and 2015, the gap with the USA increased from 2.9 to 3.6 times. Similarly,
regarding Japan, it increased from 2.3 to 2.4; while for South Korea went
from 1.1 to 2.3, and compared to the EU from 2.2 to 2.5 times. Conversely,
countries such as China, due to their accelerated increase in R&D and as
a consequence of knowledge production, reduced their knowledge gap
with LAC from 0.1 to 0.7 times during this period.
However, the improvements in labor productivity are also a result of
the greater control that workers have of indirect energy (incorporated into
the machines) or direct energy (fuel or electricity needed for their opera-
tion). The necessary energy for the generation and maintenance of knowl-
edge is added to this.
This result was already observed by Cottrell (1955), when he men-
tioned that productivity increases with an increase in the available energy
consumption per capita. The higher productivity of workers in the USA
compared to Europe was explained by their higher consumption of energy
per capita (Boretsky 1975). For the USA, it was also shown that labor
productivity of manufacture workers is related to the consumption of
energy per hour of work (Cleveland et al. 1984). These authors also
showed that when the oil price (in real terms) was lower than real salaries
(in relative terms), oil substituted work, and labor productivity increased,
and vice versa. This same result was found for countries as diverse as
Ecuador (Falconí 2001), Spain (Ramos-Martin 2001), China and India
(Velasco-Fernández et al. 2015), and countries of the EU 15 (Sorman and
Giampietro 2013).
The higher the productivity, the greater the economic growth of those
countries (World Bank 2016). As a consequence, data from the same
source (World Bank 2016), reveals that the average per capita income of
countries in the region in 1960 represented 36.2% of the income of the
USA, but for 2015 it fell to 27%. Similarly, the proportion of income com-
pared to Japan went from 43.5% to 21%, while compared to the USA it
decreased from 36.2% to 27%. On the contrary, South Korea’s income in
1960 represented 30.3% of the income of a LAC person. Today, the income
of a LAC person represents 37.2% of the income of a Korean person.
According to ECLAC (2016b), the persistence of gaps in economic
growth deepens the segmentation and falling behind from the developed
world, creating difficulties to finance other dimensions of development,
such as knowledge. Between 2000 and 2012, according to the indicators
of the World Bank (2016), the average growth rate in R&D in China was
6.6%, 5.3% in South Korea, 1.2% in the EU, 0.9% in Japan, and 0.6% in
the USA. LAC had a annual growth rate of 2.8%, which enabled a decrease
in distance with most countries, however there is no convergence with
countries such as South Korea and China, whose gap between 2000 and
2012 went from 3.9 to 5.3 and 1.6 to 2.5 times, respectively. In 2012, on
average, LAC invested 0.76% of their GDP in R&D, an amount that is
below the global average (2.2%) and the rich countries (2.5%).
As shown in Fig. 9.3, in spite of the prolonged boom in commodity
prices (2003–2011), the evolution of R&D expenditure of most South
206 P. CANGO ET AL.
1.2 198
Research and development expenditure (% of GDP)
176
1.0
Commodity price index (2005=100)

154
0.8 132
110
0.6
88
0.4 66
44
0.2
22
0.0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Argentina Bolivia
Brazil Chile
Colombia Ecuador
Paraguay Uruguay
Commodity price index (2005=100, right axis)
Fig. 9.3 Evolution of R&D expenditure (as % of GDP) in South American coun-
tries and the commodity price index, 2000–2012 (Source: World Bank and
International Monetary Fund 2016)
American countries shows little importance in innovation, science, and

technology. Countries such as Argentina, Brazil, and Ecuador increased
their levels of investment. However, in economies such as Chile, Colombia,
Paraguay, and Uruguay, the proportion of this expense remained
unchanged, while Bolivia reduced the size of investment.
This divergence can also be seen through R&D expenditure per capita
(2010 US$). For example, the expenditure of a LAC person in 2000 and
2012 represented 12.5% and 7.7% of the value assigned to a Korean per-
son, respectively. At the same time, this investment was 29 and almost 20
times (respectively) less than the expenditure of an American or Japanese
person. According to Huň ady and Orviská (2014), countries that spend
more on R&D have a greater number of researchers in charge of creating
new knowledge (see Table 9.1).
In this regard, the proportion of public expenditure in basic education
represents another obstacle in the region’s development. In 2011, LAC
assigned 14%, the EU 20.8%, Japan 23.5%, and the USA 20.9%5 (World
Bank 2016).
Moreover, the generation of capacities represents another important
factor for scientific and economic development. Therefore, the higher
Table 9.1 Expenditure in R&D and researchers dedicated to R&D

Countries or R&D expenditure per capita % R&D Researchers in
regions (constant 2010 US$) by year expenditure R&Da
2000 2001 2008 2012 2012 2012
Japan 1205.3 1253.2 1504.9 1459.6 3.3 5083.7

USA 1180.7 1158.3 1365.8 1388.5 2.8 4018.6
South 329.3 380.7 651.2 934.5 4.0 6361.6
Korea
EU 527.6 552.9 639.3 682.8 2.0 3336.2
East Asia & 120.9 127.1 174.2 208.6 2.6 1575.4
Pacific
Brazil 87.2 86.7 119.3 133.0 1.2 b
698.1
China 15.8 21.8 55.0 101.7 1.9 1035.9
LAC 41.2 38.7 61.0 72.1 0.8 b
524.4
World 168.6 169.9 192.0 212.7 2.2 b
1268.4
Source: World Bank (2016)

a
Per millon people
b
2010
education system plays a fundamental role in the world. As shown by the

Shanghai ranking (ARWU 2016), in 2015, of the 500 highest rated uni-
versities, only 10 were located in LA, and 5 in Africa. This reality differs
among countries, as 6 are located in Brazil, 4 in South Africa, 2 in Chile,
and only one each in Argentina, Egypt, and Mexico.
Additionally, in LAC, the proportion of the labor force that finishes
university was 17.3% in 2012. While in the EU, Singapore, and the USA,
this number was 29.6%, 29.4%, and 32.5% respectively (World Bank 2016).
These differences have asymmetric effects on the knowledge base. The
number of scientific articles and the amount of patent applications show
considerable lags regarding invention and innovation. According to the
same source (World Bank 2016), the number of articles in scientific and
technical publications of 78.1% of the countries in the world is located
below the global average. In other words, 304 publications per one mil-
lion inhabitants: in North America this number is 1338, in the EU 1192,
in LAC 138, and only 21 in Sub-Saharan Africa.
The outcome of this situation is that the Northern countries are those
with the highest focus on intellectual property. According to the World
Bank (2016), in 2013, 10% of the countries with the highest and lowest
208 P. CANGO ET AL.
income produced 45% and 0.12% of scientific articles, respectively.6 As a

consequence, when considering the number of publications per country,
during the last 27 years, there are no substantial improvements in the Gini
coefficient. On the contrary, during this year, 65% corresponded to the
EU (27.7%), the USA (18.9%), and China (18.4%). LAC only represented
3.9%.
Nonetheless, the Gini coefficient measured in per capita terms,
decreased from 0.828 to 0.652 between 1986 and 2013.7 This drop is due
to the important increase produced by China, which went from 2 to 296
publications per one million persons.8 During this period, the distance of
the Eastern Asia and Pacific countries compared to LAC increased by
6.5%. While the gap between high-income countries and Sub-Saharan
African countries increased by 48%.
The gaps in invention and innovation are also shown by a low number
of patents in poor countries. Zachariadis (2003), Ulku (2004) and
Bayarçelik and Taşel (2012) show that research and development expen-
diture has a positive effect on the number of patent applications.
As shown by WIPO (2015), the number of patent applications tripled
between 1985 and 2014. A higher number of applications is concentrated
in Asian countries, going from 37.1% in 1985 to 60% in 2014. The condi-
tions in North America remain favorable, with an average growth of 5.2%.
The inequality compared to areas such as Oceania, LAC, and Africa remain
worrying due to their marginal proportion, even though its growth rate
was positive during the last 29 years. Conversely, there is a negative growth
rate of 0.2% during this period in Europe (see Table 9.2).
In spite of the positive growth in most countries, over three quarters of
the requests (76.4%) were processed in only four economies in 2014.
34.6% in China, 21.6% in the USA; 12.2% in Japan, and 7.8% in South
Korea. Germany requested more patents than all of LAC. As a conse-
quence, the gaps do not stop growing over time. Between 1990 and 2014,
the gap regarding the USA rose from 8.7 to 9 times. While the gap com-
pared to South Korea grew from 1.3 to 3.3 times. However, the difference
with emerging countries such as China is more pronounced, as it rose
from 0.5 to 14.5 times.
During the commodities boom (2003–2011), the LAC countries show
three kinds of behavior. On the one hand, the number of patent applica-
tions as well as the number of articles in scientific and technical journals
increased in countries such as Brazil, Costa Rica, Uruguay, and Trinidad
and Tobago. In other countries such as Argentina, Chile, Colombia, and
Table 9.2 Patent applications per region

Regions Number of applications Proportion(%) of Average yearly growth
(thousands) applications rate of applications
1985 2014 1985 2014 1985–2014
Africa 14.2 14.9 1.5 0.6 1.2

Asia 342.1 1,607.5 37.1 60.0 5.6
Europe 404.7 346.2 43.8 12.9 −0.2
LAC 15.2 64.1 1.6 2.4 5.8
North 142.8 614.3 15.5 22.9 5.2
America
Oceania 4.0 33.9 0.4 1.3 16.1
World 923.0 2,680.9 100 100 3.8
Source: WIPO (2015)
Mexico, the number of scientific articles increased, while in countries such

as Ecuador, El Salvador, Guatemala, Haiti, Jamaica, Paraguay, Peru, and
Venezuela, both indicators remained unchanged.
According to the World Bank, R&D expenditure in LA is not focused
on applied R&D. As a result, fewer patents are produced compared to the
production of the OECD and of the Asian tigers. This situation occurs, in
spite of the fact that R&D can have a greater effect on poor countries than
on industrialized countries (Lederman and Maloney 2003).
The knowledge gaps point out the differences in energy consumption.
When estimating the Gini coefficient for 94 countries for which there is
information for the year 1990 and 2013, the level of concentration of energy
consumption per capita increased from 0.53 to 0.56. In other words, the
rich countries consume increasingly more energy than the poor countries.
According to the World Bank, in 1997 and 2011 energy consumption in
poor countries represented 9.4% and 7.7% of the consumption of rich coun-
tries, respectively. As such, only the countries with specific levels of R&D
expenditure and energy consumption have been able to reach development
levels and labor productivity levels that allow them to “subsidize” activities
related to education, research, and innovation in terms of energy.
However, in terms of energy efficiency (energy consumption related to
real GDP) there is not only a gap between high income and low income
countries, but there is also an increase in this gap over time. According to
the World Bank, it went from 4.1 to 5.1 times, from 1971 to 2011. One
of the main reasons for this phenomenon can be found in the relocation
210 P. CANGO ET AL.
of companies that make intensive use of resources, towards developing

countries (Velasco-Fernández et al. 2015). At the same time, a lot of
energy efficiency technologies are not adopted, even when they are useful
for consumers and companies (Jaffe and Stavins 1994).
Conclusions
The analysis presented in this chapter shows that there are growing knowl-
edge gaps between rich countries of the North and poor countries of the
South. There are various convergent causes, of very different origins, that
explain these knowledge gaps. On the one hand, those causes arise from
the distinctive innovation system of the countries of the North. On the
other hand, the causes arise from the structural failures of the countries of
the South themselves, in particular of the LAC countries. Among the
structural failures, the following stand out: (1) the weak international
insertion of the countries of South, as suppliers of raw materials and food;
(2) a process of deindustrialization, resulting in weak productive connec-
tions and scarce linkage with the innovation system; and (3) an asymmet-
ric international order that establishes norms and regulations that favor
rich countries, and at the same time, does not recognize the supply of
knowledge of the natural wealth coming from the countries of the South.
Additionally, there is a lack of suitable public policies to promote the sys-
tem of science, technology, and innovation.
Knowledge and innovation gaps between rich countries and South
America, as well as LAC, show growth over time and have not decreased
in spite of the boom in prices of commodities and food. Nevertheless,
three possible scenarios prevail, that could mark the trajectory of gaps in
the future. First, to maintain the current trajectory that would imply the
deepening of the gaps. Second, to reduce the gaps by investing in educa-
tion and R&D, or provide a big boost. This implies injecting more
resources (public and private, the last are tax incentives) that aim to fulfill
basic needs (public health, energy, food).
However, the improvement of knowledge inevitably brings along an
increase in the consumption of energy and materials. It is not by coinci-
dence that the economies that are stronger in knowledge, such as the USA,
Japan, Germany, and recently Korea or China, are those which have higher
consumption levels, as well as more developed industrial sectors. This
unsustainable behavior drives a third scenario, which would not imply an
emulation of what these rich countries have done. One should not forget
that the generation, maintenance, and use of knowledge are intense in

natural resources and demand a particularly high level of development,
which tends to come from an increase in the consumption of natural
resources. Economic growth will always imply a greater use of resources,
in spite of all the initiatives for efficient use that are being implemented, or
all of the programs that promote recycling (Schaffartzik et al. 2014).
If the knowledge gaps between the rich and the poor countries keep
increasing, the latter will not be able to break away from dependency. If the
knowledge gaps are reduced, by producing a surplus of extractive exports, it
will be possible to buy knowledge and to surpass it. However, the ideal thing
would be to move away from a model of accumulation that is unsustainable
in the long term. Unlimited growth is guaranteed by the decrease in the cost
of goods, which stimulates demand and brings along more growth.
Lastly, there is the option of programed obsolescence. The moment
that a new product is introduced on the market, its successor is already
being developed. The technological gap grows and becomes unbridge-
able. These gaps should not only be reduced, but ancestral knowledge
should also be recovered, depreciated by the idea of modernity in a global-
ized world that is almost undifferentiated among cultures.
Notes
1. The neo-technological approaches distinguish two models: theory of tech-
nological gap (Posner 1961; Hufbauer 1966), the topic of this research, and
the theory of the product lifecycle.
2. According to Correa (2004), the bilateral investment treaties with intellec-
tual property contents and intellectual property agreements were common
in the 80s.
3. According to Art. 27 of the TRIPS, member countries can exclude plants
and animals from patentability.
4. “If knowledge were a non-rival good, it would be distributed quickly, imita-
tion would be at almost zero cost, as a consequence less resources would be
invested in its production” (Velazco-Fernández et al. 2015: 84).
5. There is a similar difference in the investment in secondary education.
6. 10% of the countries with the most and least wealth had an income higher
and lower than 37,500 and 500 (US$), respectively.
7. Without China, the Gini coefficient decrease from 0.788 to 0.711 between
1986 and 2013.
8. In 2013, the proportion of China’s population represented 19% of the
world population.
212 P. CANGO ET AL.
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CHAPTER 10
Cities in the South American Development:

Bogota, Lima, Quito, and Santiago
in Regional Frame
Luis Fuentes and Gustavo Durán
Introduction
The city is where the results and contradictions of regional development
are depicted and observed; such as growth, wellbeing, inequality, and
informality within a determined global position. The protagonism acquired
by urban settlements has once again driven the debate about the impor-
tance of urban policies and the management of metropolitan areas in many
places in the world. As indicated by Harding (2005), the study of city gov-
ernments, especially of the connections between the local, regional,
national, and supranational levels of the public sector, becomes strategic,
This work was possible thanks to financial support of the Technological and
Scientific Research National Commission from Chile through the projects N°
1141157 and N° 15110020.
L. Fuentes (*)
Pontifica Universidad Católica, Santiago, Chile
G. Durán
Departamento de Asuntos Publicos, FLACSO Ecuador, Quito, Ecuador

DOI 10.1007/978-3-319-62551-5_10
218 L. FUENTES AND G. DURÁN
given that its governance is in the center of the relationship and the balance
between the urban competitiveness and social cohesion, principle objec-
tives of public action. Today, in LA, priorities have been linked to urban
policies that correspond to a “classic” development agenda (infrastructure,
services, education, health, etc.) as well as those that arise in a new context
of urban evolution (security, mobility, citizen participation, etc.).
South America is not an exception to this. It is one of the regions with
the highest level of urbanization in the world (80%), with almost one third
of its population residing in cities of more than one million inhabitants
(ECLAC 2014). These factors intensify the visibility and the importance
of the metropolitan government. Above all, if we consider that, in addi-
tion to the classic South American development problems (informality,
inequality, lack of infrastructure, wellbeing, among others), there are other
complexities, which are the product of the insertion of its countries in the
global stage (migration, organized crime, illegal trafficking, and others).
In relation to this, several experiments have been carried out since the 90s,
in terms of urban policies with important and positive effects on the public
sphere. Some of these are the cases of public transport policies in Lerner’s
Curitiba, citizen culture and public transport in Mockus’, and later
Peñalosa’s Bogota, and lastly, the interventions in the poor neighbor-
hoods of Fajardo’s Medellin.
Taking the context of the region-city ratio in South America and the
different metropolitan administration models that reflect this ratio into
consideration, and using this as a reference point, the objective is to analyze
the forms of administration and management of the metropolitan areas of
Bogota, Lima, Quito, and Santiago, while facing urban challenges. Through
this research, we aim to find similarities and differences in institutionalism
that operates in these geographic areas and their responsibilities in terms of
competitiveness and economic development, transportation and infrastruc-
ture, spatial planning, social development, and the environment.
Why these cities? The justification that makes the comparison between
these cities attractive is that they are the capitals located within South
America known as the Andean region. Historically, the South American
countries with earlier and more advanced urbanization processes were
those on the Atlantic coast, exposed to an intense exchange with Europe.
In the present day there is a globalizing shift that marks the region
converting the Pacific coast into a strategic zone in terms of global trade,
reflected in the relevance of the main cities of the region. Today, three
regional urban agglomerations of more than ten million inhabitants can be
CITIES IN THE SOUTH AMERICAN DEVELOPMENT: BOGOTA, LIMA, QUITO... 219
distinguished, located in the Atlantic zone. However, according to the

UNU (2014), by 2030, Lima and Bogota will already be incorporated into
the select group of large metropolitan agglomerations in South America.
The study of metropolitan institutionalism recognizes a multiplicity of
inputs for discussion going from the financial environment and manage-
ment instruments to the impact of community stakeholders in decision-
making processes, among others, as well as the study of institutionalism
and its development dimension related to the agency structure and con-
text. In our case, the discussion will take place from the point of view of
institutionalism and responsibilities, as a way to determine the characteris-
tics and the administration models assigned to different cities in this analy-
sis, as a response to a complex and conflictive globalization process as well
as the internationalization of the South American cities.
The chapter is in four parts, besides this current section for introduc-
tory purposes. In the second section, theoretical models for the manage-
ment of urban areas are described, as well as a brief historical overview of
those that have predominated. In the third section, a short description and
definition will be given of the metropolitan areas that are analyzed, put-
ting emphasis on determining the units of strategic management that inte-
grate these geographic areas. In the fourth section, institutions and their
power over the metropolitan areas of Bogota, Lima, Quito, and Santiago
are analyzed. Finally, a comparison is made using the main results of the
study. These concerns take place in a broader context, related to the
regional challenges considering the different development structures that
define and characterize the LA region.
The Challenge of the Metropolitan Government

From a historical and pragmatic perspective, authors such as Lefevre
(2000) and Bourne (1999) have presented the metropolitan development
structure to express that the discussion has revolved around the necessity
and the benefits of two opposite metropolitan political organization mod-
els. On the one hand, the consolidated or “metropolitan” model in which
governments, services, and relatively strong regulatory entities exist, and
on the other hand, the “decentralized” (or local) model in which m
unicipal
governments maintain their autonomy and authority, and where there are
no metropolitan governments or regional authorities with popular man-
date (Bourne 1999). According to Bourne (1999), the constitutions of
metropolitan governments in North America go back to the 50s, and a
large part of these were vertically imposed by provincial governments,

while in Europe, between 1960 and 1980, the solution to the issue of
governability of cities, was imposed by the USA.
In LA, the debate is more recent than in North America and Europe.
However, structural factors emerge that mark the complexity of the South
American cities as well as the emergence of new social stakeholders, formal
and informal forces, youth unemployment, organized crime, migration,
and refugees, within productive fragmentation and a fragmented infra-
structure. The relevance acquired by the market and the regional and
global connections that tend to alter the balance in power relations
between the central government (the State) and local governments
(Municipalities) and civil society, in the administration of the territory,
must be added to these factors.
Several tendencies mark the main challenges for the region’s develop-
ment structures. Urban growth, especially of informal settlements, where
approximately 20% of the population lived in 2014 (UN 2016) continues
to be a significant problem given the social consequences that it brings
about. Another emerging issue that affects the productivity of cities and
the quality of life is mobility, given the growth in demand, which accord-
ing to the CAF will increase by 150 million additional daily travelers
between 2010 and 2020 only. The risk linked to environmental sustain-
ability also transforms into another relevant aspect of urban management.
According to Borja and Castells (1997), in LA, the political democrati-
zation and decentralization processes of the state revalued the role of cities
and local governments. However, the limitations of these processes, the
social effects of adjustment policies added to the inequalities and inherited
marginality, the deficits in infrastructure, and the weakness of the socio-
cultural framework, slowed down the emergence of cities as protagonists
but not as a problem of regional development.
In light of this situation, studies such as the one carried out by Rodríguez
and Oviedo (2001), of ECLAC (2001), following the guidelines of the
UN,1 identify four government structures forming a South American
“hybrid” management model of metropolitan areas.
According to the authors, these management models are not static and
there can be transitions from one typology to the other, due to the differ-
ent development dynamics that occur in reality. In this sense, the interna-
tional impact enables the detection of three types of change that can affect
metropolitan governments. First, on a jurisdiction level, due to the
extensive growth of the cities in the territory. Second, in the management
model, from an inter-municipal model to a supra-municipal model and

vice versa. Third, in the government model, since the government bodies
emerge at an historic point in time, product of a political and social pro-
cess, they can also disappear in another one; this empiric ascertainment is
a good reflection of the consolidation of a heterogeneous regional model
that ranges from neoliberal metropolitan management (open to trade and
entrepreneurship) to neo-developmentalists (redistributive policies).
Rodríguez and Oviedo (2001) identify more alternatives, but like other
researchers, they go further into the analysis of two typologies of metro-
politan administration models and their derivatives, the supra municipal
and the inter-municipal, in terms of opposite forms of institutional organi-
zation. In this regard, they propose a descriptive analysis scheme shown in
Table 10.1. In this table, the differences between the models can be
observed, regarding the links with other areas of political power, their legit-
imacy, funding, and jurisdiction, placing the metropolitan development
structure in a geographic context. Examples of the supra municipal model
on an international level would be London or Toronto. On the contrary,
examples of the fragmented are French urban communities such as Lyon.
The Definition of the Metropolitan Territory

of Bogota, Quito, Lima, and Santiago
One of the main difficulties in analyzing the cities in this study relates to
their physical delimitation, an issue that is increasingly more complex
according to the specialized bibliography (Mongin 2006; Dematteis
1996). In spite of this, it is necessary to establish certain limits that define
what it is that we are referring to, when we speak of the metropolitan area
of Bogota, Lima, Quito, or Santiago. For this reason, and considering that
each of the countries to which these cities belong have distinct criteria to
define when we speak of a city or a metropolitan area, we have chosen to
consider delimitation from a legal point of view, facilitating analysis from
different perspectives.
In the case of Colombia, the metropolitan areas have legal recognition
from the highest legal body in the country. The PCC of 1991 recognizes
metropolitan areas as a need generated by urban growth, when it states:
“… when there is an economic, social or physical relationship between two

or more municipalities, giving the conjunction the characteristics of a
Table 10.1 Government models of metropolitan areas (Source: Rodríguez and

Oviedo 2001)
Models
Supramunicipal Intermunicipal
Under the Autonomous
Characteristics authority of the linked with the Autonomous
Autonomous
central central Fragmented
government government
Immediate
It is part of the
power between
regional or Association or Association or
the central,
provincial cooperation of cooperation of
Links with other provincial and
government all some of the
areas of power regional
municipalities of municipalities of
government or
Local dependent an area an area
the
municipalities
municipalities
Appointment or Indirect election

election of Direct election of the
regional of the representatives.
Political authority metropolitan The mayors and
Legitimacy mayor and councilors of the
Regional
assembly, by municipalities
assembly of
popular vote are the ones who
indirect
elect
elections
Under the
authority of the
Central
Financial Financial municipalities or
government
Resources autonomy the central
resources
government
level
Different and
variable. It
Different and depends on the
Jurisdiction precise agreements and
jurisdiction coordination of
the
municipalities
etropolitan area. They can organize themselves as an administrative entity

m
in charge of programming and coordinating the harmonic and integrated
development of the territory placed under its authority; rationalize the sup-
ply of public services, under the responsibility of those who form part of it,
and if it is the case, offer several of these services together; and carry out
improvement works of metropolitan interest ” (Art. 319 of the PCC).
Besides this general regulation, the PCC defines a special regime for Santa
Fe de Bogota, the capital of the Republic, and of the Department of
Cundinamarca, organized as a District Capital (D.C) (Art. 332 of the
PCC). So, in the case of this research, the metropolitan area of Bogota is
territorially represented by 20 localities that jointly form the administra-
tive unit of Bogota, D.C. This territorial unit has a surface area of
177,598 hectares, representing 0.15% of the national territory, of which
approximately 25% (around 45,000 hectares) correspond to the urban
area with the rest categorized as rural area, according to the Higher
Mayor of Bogota D.C. According to the National Administrative
Department of Statistics, Bogota D.C. contributes around 22% to national
GDP. On the other hand, according to the 2015 census, the Colombian
capital has a population of 6,840,116, which represents 16% of the total
population of the country, being Colombia’s political, cultural, and eco-
nomic center.
Peru’s case is different from that of Colombia, given that the PCP of
1993 does not establish the possibility for the constitution of metropolitan
areas, However, Art. 198 establishes a special measure for the capital:
“The Capital of the Republic does not integrate any regions. It has a special
regime in decentralization laws and in the Organic Law of Municipalities.
The Metropolitan Municipality of Lima exercises its competencies within
the area of the Lima Province.”
In the other cases, the organic laws of the municipalities establish coordi-
nation mechanisms, integrated by the district mayors of the respective
jurisdictions, who coordinate the plans, programs, projects, and budgets
of the municipalities of the province.
In that sense, the metropolitan area of Lima comprises the large conur-
bation of Lima including the agglomeration of the Callao Province. This
means that administratively, it consists of 49 districts, 12% belonging to
Callao and the remainder to the Lima Province. The study area corresponds
to a surface area of 281,100 hectares, which represents 2.7% of the surface

area of the country, and the urban area is comprised of approximately
66,000 hectares. Regarding the population, there is a concentration of
8,482,619 inhabitants, which is equivalent to 33% of the national popula-
tion (INEI 2005).
In the case of the metropolitan district of Quito, the Special Law of the
Metropolitan District of the year 1993 led to the creation of the metro-
politan district, but with various gaps, which they attempted to correct in
the elaboration of the constitution of 2008. As such, Quito comprises 31
urban parishes and 34 rural parishes. In total, these add up to a surface
area of 406,696 hectares, which corresponds to 1.8% of the national terri-
tory; with a population of 2,239,191 in the year 2010 (INEC 2010),
equivalent to 15.5% of Ecuador’s total population.
Chile represents an exception to the previous cases, due to the fact that
the PCCH does not make any reference to metropolitan areas as territo-
rial spaces within the national regulations. The only reference to metro-
politan areas by the highest legal body is in Art. 123 regarding local
administration, which only establishes formulas for inter-municipal
coordination.
The law to which Art. 123 of the PCCH refers, is the Constitutional
Organic Law regarding Regional Government and Administration (Law
19.175), where metropolitan areas are posed as “the territorial extension
formed by two or more population centers that are united with each other
by constructed areas and that share the use of different infrastructure ele-
ments and urban services” (Art. 109). In this way, the spaces are defined
for Regional Governments in terms of public services and a Regional
Council for Municipal Action is created for the planning and coordination
of local action and common issues.
The most relevant legal or judicial references to metropolitan areas, for
the purposes of this research, as it allows us to delimit, is the Metropolitan
Area of Santiago, which is found in the General Urbanism and Construction
Law (Decree with Force of Law 458). In this legal body, it is established
that in terms of intercommunal planning, metropolitan areas correspond
to the units that exceed 500,000 inhabitants. In this sense, and according
to the intercommunal planning unit of the city of Santiago, the MRPS,
with the modification made in 2006, the metropolitan area of the city cor-
responds to the sum of the 52 municipalities that form the Metropolitan
Region of Santiago, taken as a reference here.
Institutions and Their Responsibilities in Bogota,

Quito, Lima, and Santiago
Relevant Institutions in the Metropolitan Area
The main territorial entities constitutionally recognized in Colombia,
Peru, Ecuador, and Chile differ in number and scale. In addition, from an
administrative perspective, there are differences in the recognition of the
geographic areas of the capital as special zones. In the cases of Colombia
and Peru, the capitals of the republic are recognized as “Bogota, D.C.”
and “Metropolitan Municipality of Lima”, respectively; while in Chile,
Santiago is not recognized as special territory, but rather it follows the cur-
rent administrative regime of the rest of the territory.2 In the case of
Ecuador, a special law created in 1993 led to the creation of the metro-
politan district of Quito (Table 10.2).
In Chile, Art. 110 of the PCC, establishes that, for the internal govern-
ment and administration of the State, the territory of the Republic is
divided into regions (under the responsibility of a designated Intendant)
and these are divided into provinces (under the responsibility of the desig-
Table 10.2 Political administrative division and number of units in Chile,

Colombia, and Peru (Source: Self-elaborated, based on the Political Constitutions
of Chile, Colombia, Ecuador, and Peru. The number of units (in parentheses), was
obtained from the respective National Statistics Institutions or Departments)
CHILE COLOMBIA PERU ECUADOR

Type of
Unitarian Unitarian Unitarian Unitarian
Government
1. Nation 1. Nation 1. Nation 1. Nation
2. Regions (7 y
2 metropolitan
2. Departments
2. Regions (15) 2. Regions (0) 3. Provinces
(32)
Political 4. Counties
Administrative
Divisions 3. Provinces 3. Departments 5. Parishes
3. Districts (10)
(53) (24) (1035)
4. Communities 4. Municipalities 4. Provinces

(346) (1.101) (195)
5. Indigenous 5. Districts
Territories (1.834)
nated governor). For the purposes of local administration, the provinces

are divided into communities (under the responsibility of a mayor and a
communal council, elected by popular vote). Each one of these geographic
levels possesses an organizational representation with a structure and sev-
eral specific functions and responsibilities in the territorial area, of which
the regional and communal levels are the most relevant. Regarding the
central government, the President of the Republic is the Head of State and
of the Government. The central government is comprised of Ministries
and Ministerial Regional Secretaries, the Regional Intendants, the
Provincial Governments, and the national public services created for
administrative functions.
On a regional level, the Regional Council and the Intendant are the
ones who are responsible for the higher administration of the region of the
country, in accordance with the Constitutional Organic Law for Regional
and Governments and Administration (Law N° 19.175). To exercise their
functions, they count on legal staff specialized in public law; they have
their own assets and responsibilities as conferred upon them by the Law.
On a local level, the municipalities are the entities where the local
administration of the communities resides, according to the Organic Law
of Municipalities. The municipalities are autonomous corporations of
public law with legal status, and their own assets, able to exercise the
rights, to undertake obligations, and to be represented.
In Colombia, according to Art. 286 of the PCC, the following are ter-
ritorial entities: departments, districts, municipalities, and indigenous ter-
ritories. Each one of these has autonomy over the management of its
interests, and within the limits of the Constitution and the law; having
authorities elected by popular vote, in order to fulfil their particular objec-
tives, and those demanded by the central government. For this study, spe-
cial attention should be paid to the entities named “districts”; those that
correspond to territorial areas that have a characteristic that enables them
to stand out or that differentiates them from the others, such as political,
historical, touristic, cultural, industrial, environmental, harbor-related,
university-related, or border-related importance. At present, there are 10
districts in Colombia, and for this research, the most relevant is Santa Fe
de Bogota, D.C.
The District Capital, Santa Fe de Bogota, has a special regime indicated
by the Constitution of the Republic. It is administered by a Higher Mayor
and a District Council elected by popular vote. Its political, fiscal, and
administrative regime is determined by the Constitution, the existing pro-
visions for the municipalities, and by the Decree Law 1.421 of 1993
(Special Regime for Santa Fe de Bogota, D.C.). The administrative struc-
ture of the District Capital incorporates the central sector, the decentral-
ized sector, and the localities. The mayor of the locality is designated by
the Higher Mayor, as defined by Decree Law 1421 that establishes the
political, administrative, and fiscal regime under which the localities of the
cities operate.
Regarding the central government, the President of the Republic is the
Head of State, the Head of the government, and the highest administra-
tive authority. The national government is formed of the President of the
Republic, the Cabinet Ministers, and the Directors of the administrative
departments.
In Peru, according to Art. 189 of the Constitution, the territory of the
Republic consists of regions, departments, provinces, and districts, whose
boundaries are established and organized by the government on a national,
regional (regions and departments), and local (provinces and districts)
level. It is important to explain that two special territories exist in this
context: the Lima Province and the Callao Constitutional Province, which
are governed by a special statute. In the case of this research, they are the
most relevant since together, they form the metropolitan area of Lima.
The Metropolitan Municipality of Lima, the political-administrative
unit that has jurisdiction over the Lima Province, has a special regime,
granting it powers and competencies of a Regional Government (Art. 198
of the PCC, and 33 of the Law for the Decentralization of Bases). So
according to this, the Mayor of Metropolitan Lima exercises responsibili-
ties of the Regional President, as the executive body, and the Metropolitan
Assembly of Lima exercises competencies and functions of the Regional
Coordination Council as an entity for consulting and coordination. A spe-
cial legal regime is recognized for the Metropolitan Municipality of Lima,
whereby it takes on corresponding functions of regional governments in
the form of an exception, without creating its own region, producing an
integration of municipal functions (on a metropolitan level and on a local
government level) as well as a regional function, in the same entity, based
on different regulations (Municipality of Lima 2014).
On the other hand, the Callao Constitutional Province has a political-
administrative constituency of a special regime: being a province, it has
regional autonomy, with a Regional Government (the Callao Regional
Government). The Regional Government has political, economic, and
administrative autonomy regarding the issues of its jurisdiction and they
coordinate with district municipalities without interfering in their func-

tions and responsibilities. The basic organic structure is comprised of the
Regional Council as a policy-making and fiscal body, the President as an
executive body, and the Regional Coordination Council comprised of dis-
trict mayors and by representatives of civil society, as a consultative body
and the coordination with the municipalities, with the functions and
responsibilities defined by the law. Exceptionally, as established in Art. 43
of the Law of Bases for Decentralization, the Regional Government will
share territorial jurisdiction with the Provincial Municipality and will exer-
cise the jurisdiction and functions permitted by the law.
In turn, the Lima Province and the Callao Constitutional Province are
subdivided into districts, each one with its own district municipality. The
Organic Law of Municipalities governs these institutions where it is estab-
lished that these are legal entities of internal public law, with economic and
administrative autonomy regarding the issues that are under its jurisdiction.
Meanwhile, in the central government, the President of the Republic
fulfills the functions of Head of State and Head of Government and directs
governmental politics. The executive power consists of the President of
the Republic, the Council of Ministers, and the autonomous constitu-
tional entities.
In Quito’s case, the current constitution of Ecuador stipulates in Art.
242, with respect to the organization of territory, as well as in Art. 10. of
the COOTAD, that there are regions, provinces, counties, and rural par-
ishes, and they can also form special regimes, for environmental conserva-
tion, ethno-cultural, or population reasons. The last case, population, is
the reason for the existence of metropolitan districts as a special regimen
when the population has more than one million inhabitants.
With regard to the administration, according to the ADGs Art. 238: The
decentralized autonomous governments will enjoy political, administrative,
and financial autonomy. All the ADGs will have legal privileges with respect
to its jurisdiction, with the exception of parishes that are only regulatory.
In the case of autonomous regions, it should be clarified that in
Ecuador, they still have not be able to consolidate this organization level
in spite of being inscribed in the constitution of the republic, due to a
substantial clash of interest (Table 10.3).
Table 10.3 Main characteristics of the metropolitan administration models of
Bogota, Lima, Santiago, and Quito (Source: Self-elaborated based on the analysis
of different laws and interviews)
Main
Type of
Responsibilities
Metropolitan
of the Funding
Administration
Metropolitan
Model
Institutionalism
Broad
responsibilities
in the areas of Own resources
economics, obtained by
BOGOTÁ Supramunicipal territorial means of taxes
planning, and possibility
infrastructure, to go into debt.
transport and
environment.
Exclusive and
mostly shared
responsibilities
Own resources
in the areas of
and transfers
economic
from the central
development,
government.
territorial
Intermediate Transfers by
planning,
model, means of
infrastructure
LIMA institutionally compensation
and
and spatially funds and
environment.
fragmented possibilities to
Several
go into debt,
authorities for
with control
the coordination
from the central
of decisions
government.
with limited
decision-making
power.
Own income
Exclusive and and transfers
shared in the from a central
Intermunicipal
areas of level. Mostly of
linked to the
SANTIAGO territorial the
central
planning, municipalities
government
education and depend on the
health Common
Municipal Fund
Own resources
Jurisdiction over
obtained from
the planning of
taxes, fees, and
Metropolitan land,
the possibility to
QUITO Municipal management of
go into debt
Model basic services,
with guarantees
transit and
from the central
transport
government
Principal Responsibilities on a Metropolitan Level

The four cases analyzed show different institutional arrangements for ter-
ritorial administration. While they do not fit perfectly with the models
described in literature, they are similar to different proposed alternatives.
Bogota’s administration falls under a supra municipal model with an
autonomous metropolitan municipality, and local municipal governments
that are wholly dependent on the Higher Mayor of the city. To exercise
their broad responsibilities, the municipality has a fiscal regime where
taxes, levies, fees, and surcharges can be established, determined, and
charged, in the areas of industry and trade, urban property (urban prop-
erty tax), surcharges on gasoline, property appraisals for public improve-
ment works, construction, and tolls.
Regarding their responsibilities, there are broad responsibilities in five
areas of metropolitan development: economic development or competi-
tiveness, transportation and infrastructure, territorial planning, social
development, and the environment, which mainly originate from Decree
Law 1421 of 1993, which describes the special regime of Bogota, D.C.
For example, in the areas of competitiveness and economic develop-
ment, the mayor’s office has broad responsibilities. Among the most
important are the design and implementation of the economic and social
development plan, and the plan for public works, implemented using their
own budget. This is why the degree of autonomy in decision-making
regarding investment is quite high. Another relevant responsibility in the
area of competitiveness and economic development is tax management of
the municipality and the possibility to create, remove, and merge public
establishments and industrial and commercial companies, and to authorize
the constitution of companies of mixed economies, as well as participation
of the District in other entities in the form of associations. Furthermore,
the mayor’s office has responsibilities corresponding to the establishments
of regulations and the audit of the real estate industry. They also have the
possibility to issue debt and to authorize debt quota for its decentralized
entities, which grants the possibility to obtain funding to engage in large
urban projects and to not depend on the transfer of funds from the central
government.
It also has broad responsibilities in matters related to transportation
and infrastructure and in terms of territorial planning, through the General
Plans for the PPT. Another important responsibility in this area, which in
some way shows the control over the territory and its local authorities,
relates to the capacity to divide the District’s territory into localities, to

assign authorities and jurisdiction, and to ensure its functioning and its
resources.
Contrary to the previous case, the administration of the metropolitan
territory of the Peruvian capital is more complex. This is because there is
a fragmentation of responsibilities, institutionally and spatially. In this
respect, it is important to remember that Lima’s metropolitan area is frag-
mented from an administrative perspective, by Lima’s government that
governs over Lima Province, and the Regional Government of Callao,
with jurisdiction over the Callao Constitutional Province. Besides this
geographic fragmentation, there is an overlap of institutions, most appar-
ent El Callao, where two institutions (Regional and Provincial Municipality)
have jurisdiction over the same geographic space. Next to these institu-
tions, there are district municipalities that correspond to local govern-
ments, with jurisdiction over the districts that divide the Lima Province
from the Callao Constitutional Province.
The jurisdiction of the Municipality of Lima, which governs the Lima
Province, is defined by legal entities, namely: The Organic Law of Regional
Governments and the Organic Law of Municipalities, where, besides reg-
ular jurisdiction (Lima’s Municipality is equivalent to a Regional
Government and a Provincial Municipality), these legal bodies grant addi-
tional responsibilities to the Lima’s Metropolitan Municipality. The same
happens with the Callao Constitutional Province, which, as mentioned has
two institutions, a Regional one and a Municipal one. Besides this, the
majority of legal bodies grants exclusive, shared, and delegated responsi-
bilities3 with other institutions, which complicates the management of this
territory even further.
Next to this institutionalism, there are metropolitan coordination
authorities, such as the Metropolitan Assembly; the consultative and coor-
dinating body of Lima’s Metropolitan Municipality responsible for the
coordination of the efficient execution of tasks, the development of plans,
as well as compliance with the objectives of the Metropolitan Municipality,
the functions of the Regional Coordination Council as a consultative and
coordinating body, and those stipulated by the Law. Furthermore, there
are advisory bodies such as the Metropolitan Planning Board, the
Metropolitan Coordination Board, and special Advisory Commissions.
These entities do not have project funding mechanisms which is why, in
practice, decisions are left in the hands of the institutions that possess the
resources to carry out these projects.
From the perspective of the tax regime, the income of the Regional
Governments comes from moveable assets and real estate property, assig-
nations and transfers from the central government, economic rights that
are generated due to privatization or granted concessions, resources
assigned by the RCF, and resources that are a product of financial opera-
tions and loans and regional taxes. Additionally, Lima’s Metropolitan
Municipality possesses other tax sources, due to the Municipal Organic
Law, such as: urban property tax, “Alcabala” tax,4 vehicle property tax,
taxes on non-sports public spectacles, and gambling taxes. In addition to
these local taxes, the municipalities receive resources from the MCP.
Santiago de Chile’s case is different from all the previous cases.
According to the models reviewed in literature, in spite of having a regional
government, the responsibilities of this public entity are weak to the extent
that it is the representation of the President and its ministries in the region,
due to which its autonomy remains contingent upon the objectives of
politics. Moreover, this institutionalism can be characterized as a decen-
tralized or inter-municipal model, where the municipalities exercise
authority in matters related to urban development by means of responsi-
bilities and areas related to territorial planning and several other public
services.
From the point of view of funding of these institutions, in the first case,
the Regional Government of Santiago is funded by transfers from central
government, as it has neither its own income nor the possibility to go into
debt. Art. 69 of the Regional Administration and Government Law speci-
fies the wealth of these institutions.
In the case of the Municipalities, Art. 13 specifies the forms of funding
for these local institutions. Some of the most important ones are moveable
assets and real estate property; the contribution granted by the regional
government; income generated by the participation in the common
municipal fund; vehicle registration certificates, trade patents, among
others.
Regarding the responsibilities of regional governments, in terms of the
control of processes of territorial transformation, they are restricted, with
the exception of matters related to urban regulation on a regional and
intercommunal level. Specifically regarding the responsibilities in the area
of economic development and competitiveness, they do not have an exclu-
sively relevant responsibility; only a shared level.
From the point of view of territorial planning and development, the
municipalities have the instruments for the elaboration and application of
the urban regulations related to the use of land, construction characteris-

tics, road systems, and green areas; as well as the application of regulations
related to urbanization on a national level.
The social level, is where the municipalities, perhaps, have the most
relevant responsibilities (however shared), since they are in charge of man-
aging education, however, with important restrictions depending on the
resources of the central government and rigid regulations. In a shared
manner, they also possess jurisdiction over the primary systems: health-
care, social assistance and jurisdiction, tourism and sports, and recreation.
Finally, regarding the environment, the municipalities have responsibilities
related to the cleaning and adornment of the community, which is one of
the few areas in which the municipalities have exercised the possibility of
association, granted by the law in Art. 137.
In Quito’s case, the special law from the year 1993 led to the creation
of the Metropolitan District, with various gaps, above all in terms of juris-
diction, which they attempted to correct in the elaboration of the consti-
tution of 2008, through the functional de-concentration (Art. 254),
which is part of the special regime and indicates that the Metropolitan
District can create zonal administrations with the purpose of improving
the management capacity, unlike Lima’s decentralized model, where the
administrations are elected by popular vote, which in the end can be a
disadvantage for the unitary management of the city.
When speaking of the responsibilities of the metropolitan district, we
should remember that it concerns a special regime and, according to the
constitution in Art. 266, they have the jurisdiction that corresponds to
cantonal governments and all that is applicable to provincial and regional
governments.
Regarding funding, the COOTAD handles this in its Arts. 270, 271,
and 272, where it is established that the metropolitan district of Quito is
funded by means of transfers or assignations from the central government,
as determined by law, which depend on the size of the population,
unsatisfied basic needs, and administrative goals. They also have their own
resources obtained by means of fees, taxes, fines, and they have the possi-
bility to go into debt, with guarantees from the central government.
Under this panoramic scenario of institutionalism of the four metropoli-
tan areas analyzed, in practice, there is a series of hidden aspects that affect
the territorial governability understood as “the capacity of the government
of a territory to guide and conduct processes, with the objective of
responding to social needs and demands, in a legitimate and effective way”
(Pírez 2005). Several of these aspects relate to the role of the stakeholders.

Among these, key relationships are established on a public level, among
different entities of the central, metropolitan, and local government.
Another relevant aspect relates to the economic units and their role within
the economics of the city and their capacity to exercise power, and the
public, an emerging and fragmented stakeholder, increasingly decisive in
the development of territories. The relationships between these stakehold-
ers are measured by a series of rules provided by the described institutional-
ism, where its role in the exact balance of the power relations among the
stakeholders is key. Thus, emphasis on the government and on the balance
of power among the stakeholders under similar institutionalities can consti-
tute precarious balances in metropolitan governance (Fuentes et al. 2016).
Thus, the aspects that determine the existence of the governability of a
territory are defined by legitimacy, stability, efficiency, and coordination
(Perrozi 2016). In the case of the cities in the study, these elements create
different scenarios. For example, in the case of Santiago, the legitimacy of
the metropolitan authority is void as it no longer exists and, furthermore,
the large urban projects are led by national authorities or diluted into a
number of stakeholders. While in the case of Bogota, the legitimacy is
established by the direct election of the Mayor, and by the role that the
authority has in the leadership of the city’s large projects.
Other possible examples are given by the coordination between the dif-
ferent stakeholders. For example, in Lima, the complexity of institutional-
ism, territorially fragmented, and fragmented between the different levels
of the government, makes the coordination between these stakeholders
complex, which can have an influence on the processes of the transforma-
tion of the territory (responsibilities, resources, etc.), while in other cities,
such as Quito, where the coordination is institutionalized, this relation-
ship is more fluid and effective.
Conclusions
In general terms, the four analyzed cities, reflect the different variants of
metropolitan administration models described here. Bogota’s case is simi-
lar to the model characterized as consolidated, metropolitan or supra
municipal, and Santiago is similar to the decentralized or inter-municipal
model. Lima would have an intermediate model between the two extremes
with an intermediate coordination entity; however, spatially and institu-
tionally fragmented, and the metropolitan district of Quito is similar to
the theoretical supra-municipal model, but in Ecuador this is referred to

as a metropolitan municipal regime.
In the first case, a type of metropolitan government is observed, with
great responsibilities in practically all matters of urban interest that grant it
capacities to have greater control of change processes and transformation of
territory, and they have instruments and responsibilities, to generate policies
that steer these transformations towards the objectives, on towards a specific
idea of the city. It is possible to classify this institutionalism as “promoter”
(Orellana et al. 2012), as besides trying to deliver high-quality public ser-
vices to the general public and its users, preferably with a supplier-customer
approach, they have the possibility to undertake and develop projects with
public meaning (Transmilenio, metro, among others), prospectively associ-
ated to private projects under corporate entities, with the purpose of influ-
encing urban and territorial development, so that the private initiative is in
harmony with the vision of the municipality. In this sense, the possibility to
anticipate demand differentiates them in a relevant way than that which
would be a subsidiary institutionality (typically neoliberal).
The administration model of Lima’s metropolitan area is quite frag-
mented and complex to analyze. As anticipated, they are at an intermedi-
ate level regarding the metropolitan administration models reviewed in
the literature, however its complexity and overlap of tasks and responsibili-
ties makes it impossible to link to any particular model. The findings of
this review confirm the conclusions made by Rodríguez and Oviedo
(2001) in the sense that the law does not establish criteria for its manage-
ment, nor for the connections between the different institutions that
administer the hydrological resources, the use of land, biological resources,
or contamination, in spite of the problems that make the comprehensive
and urgent treatment of the environmental management of Metropolitan
Lima imperative; the law also does not establish a form for the structure of
the governance of the city, adapted to the demographic dimension of its
provinces, the complexity of the metropolis, and the nature of those prob-
lems that should be under the responsibility of an entity with a specific
mandate. This dilutes with the concurrence of multiple institutions and a
fragmented jurisdiction. Finally, the law also does not resolve, in an effec-
tive way, the relationship problems between the multiple institutions with
jurisdiction over the city, with which one could speculate, through hypoth-
esis, that with respect to metropolitan power, the decisions and interests
predominate for the municipalities with greater resources, and in the case
of concentrations of social groups of high income.
In Santiago’s case, it is possible to establish that, in spite of the fact that

the metropolitan administration models could be qualified as inter-
municipal or decentralized, the dependency of these local institutions with
respect to the central government is very important. In the metropolitan
area of Santiago, a high number of public and private institutions con-
verge, which take action in the city, with very different interests. Among
this multiplicity of interests, it is impossible to come to a consensus regard-
ing a city Project, and it is even more difficult to direct actions with rela-
tion to the metropolitan area under common objectives that seek to
improve the competitiveness of the city and to generate a higher degree of
cohesion. In terms of decisions regarding investment and control of terri-
tory in the communities with fewer resources, these are subject to the
interests of the private sector and of the central government (through the
different entities that take action). It is worth mentioning that the legisla-
tion and the exercising of the responsibilities of public institutions with
jurisdiction over the metropolitan area of Santiago, is carried out under a
subsidiary scheme where private initiatives play a key role in the processes
of territorial transformation, in investments in terms of infrastructure,
equipment, or housing. However, as we know, private initiatives only
emerge when there is necessary and secure demand for investment proj-
ects, and therefore, generating and carrying out a city project in this sense,
does not fall under this functioning scheme either.
Finally, for the Metropolitan District of Quito, we can say that it is related
to an autonomous metropolitan model in the strict execution of its jurisdic-
tion established by the constitution of the Republic of Ecuador, without it
affecting the allocations granted by the central government for the forma-
tion of its budget, for which several criteria are considered, such as popula-
tion size, and one of the most interesting ones, the execution of the budget
that has been developed according to the annual planning of the district.
Due to its autonomous character, there is no major government interfer-
ence, except in the case of mega-projects that require additional direct
financial collaboration, and as guarantee for international loans.
Thus, theoretically, taking into consideration the different metropoli-
tan administration schemes that were reviewed, the institutionalism of
Bogota and Quito are those which, theoretically, are in better condition to
carry out urban management in accordance with the new described objec-
tives, where urban competitiveness, social cohesion, and environmental
sustainability are horizons that are to be reached. Both cities have a “pro-
moter” public institutions approach to territorial development, and fit
better with the new management objectives in this global area, than a
“subsidiary” institution, to the extent that it can respond better to that
expected from a city in a world where urban jurisdiction prevails.
This is not the case for the metropolitan management models of Lima
and Santiago. First, there is a convergence of different stakeholders, with
distinct interests, making it impossible to carry out a city project, and the
leadership is diluted among the different institutions that take action in the
city in an uncoordinated way. On the other hand, the disagreement between
the geographic space and the institutions that take action in the territory,
make integrated urban management of urban development impossible.
However, the four cities face the “difficulty of the scale”, since the terri-
torial transformation processes do not adapt themselves to the scale in which
the different forms of metropolitan administration are established. In many
cases, institutionalism remains “over” and “under” the scale of agglomera-
tion, which would generate conflicts between the different stakeholders that
intervene in the transformation processes, and it does not adapt to the urban
environment, as a dynamic process, and in constant physical and functional
transformation of the territory. This become complex, especially when con-
sidering the characteristics of LA cities, where urbanization (formal and
informal) advances at high speed, in many cases, faster than the public poli-
cies. This has intensified to the extent that these countries are strengthening
their insertion processes in international markets, generating economic
dynamics that intensify social inequality and spatial segregation, among
other issues that affect the region’s development models of the region.
While the four countries represent different development models with
different emphases, their (global) threats and (internal) weaknesses are
relatively similar. In spite of the fact that all of the cities present institu-
tional differences, it seems that the homogenization forces of globaliza-
tion and the market are stronger than the regulatory public actions, in any
form. Therefore, metropolitan institutionalism represents a factor of low
incidence, to generate conditions for the social-territorial balance in the
economic, physical, and social development and transformation of the cit-
ies in this study (Fuentes and Orellana 2013).
Notes
1. Metropolitan Governance of the UN (1995).
2. While the constitution recognizes Easter Island and the Juan Fernandez
Archipelago as special territories, for the purposes of this study, such a situ-
ation is not relevant.
3. Aquellas que, conforme a Ley, son delegadas a una entidad pública distinta
de la titular de la responsabilidad con la finalidad que sean ejecutadas con
mayor eficiencia. La responsabilidad frente a los ciudadanos no se delega
(Ley N° 26922 Marco de Descentralización).
4. The Alcabala tax charges for the transfer of real estate property against pay-
ment or for free, whichever may be its form or method, including sales with
reservation of title. The taxable amount wll be the value of the real estate
property, determined for Urban Property Tax purposes. The applicable rate
is 3%, charged to the buyer. The following are exonerated from this Tax: the
tranfer to goods related to the concession of public infrastructure impove-
ment works and public services according to the terms of the concession; as
well as equity transfers as a result of mergers, divisions or any other type or
reorganization of state-owned companies, in the case of private investment
state-owned companies.
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Urban.pdf
CHAPTER 11
Global and Regional Political Economy

of Migration
Alejandro I. Canales
Introduction
Even though international migration forms part of the priority axes of the
social agenda and modern politics, its analysis and debate are defined and
restricted by a set of ideological and political preconceptions as well as by
theoretical methodological perspectives that skew and distort its under-
standing. One of these weaknesses corresponds to methodological nation-
alism, which is the underlying factor behind a large part of the social and
political thinking of our era. Consequently, the Nation State would restrict
its territorial borders, forming an entity of analysis, observation, and theo-
rization valid in itself, transferring this identification to all of the categories
of analysis of social reality. As such, the processes that go beyond the
national environment, in this case migrations, are conceptualized as inter-
national processes and relations, namely, between nations, and not as com-
ponents of a global process (Canales 2002).
The fact is that within globalization, the national social space has been
passed through and reconfigured by a complex system of networks and
A.I. Canales (*)

Department of Regional Studies (INESER), University of Guadalajara,
Guadalajara, México

DOI 10.1007/978-3-319-62551-5_11
244 A.I. CANALES
local-global relations, developing into the de-territorialization of social life

(Appadurai 1990). International migration directly reflects this situation
configured by its own structures of inequality. In the traditional vision
marked by methodological nationalism, international migration represents
flows that are external and foreign to the Nation State.
However, in the current globalization framework, migration does not
only represent an external factor to society but also an internal process,
intrinsic to its own structure as a global society, at least a dual sense.
Migration forms a structural and structuring factor of the inequality of
development in modern societies, and where society has expanded its lim-
its beyond territorial borders of its formation as a Nation State. In other
words, in the same way that the receiving society globalizes, migration
stops being an external phenomenon to it, to form part of the system of
local-global relations generated and driven by the same factors that config-
ure it as a global society (Canales 2015a).
Thus, the study of migration in global societies should be focused on
the development structures that connect the global with the regional and
the local, or similarly, on the fact that the development structures of LA
and South American migration, for example, cannot be apprehended from
visions and categories of the so-called methodological nationalism but
from the regional and local forms taken on by the reproduction of LA
Society. For that purpose, we propose a theoretical reinterpretation of
modern migration understanding it as development structures of the
reproduction of our LA societies.
This text proposes to analyze migration from the approach of the repro-
duction of society. This concept refers to the capacity of self-organization
(autopoiesis) of society, incorporating the dynamics, rationalities, contra-
dictions, and functionalities stemming from the most diverse processes,
agents, and structures of which it consists, and that allow for, and enable,
its reproduction in time and space.
The analytical model is centered on investigating the forms in which
international migration (and South American migration, in particular)
contributes to, and participates in, the reproduction of society of our time.
Thus, three analytical axes support the model, each referring to a particu-
lar environment from where we analyze the contribution of migration in
the reproduction of modern society, namely:
• Migration in the reproduction of the population (Demography),

• Migration in the reproduction of capital (Economics), and
• Migration in the reproduction of social inequality (Class Structure).
GLOBAL AND REGIONAL POLITICAL ECONOMY OF MIGRATION 245
Demographic Dynamics in Destination Countries

In the case of the destination countries (mainly the USA and European
countries), migration allows for the demographic gap to be filled simulta-
neously generated by two demographic phenomena, namely: the decline
in fertility rate within the framework of the Second Demographic
Transition, and the aging process of the population as a result of the end
of the First Demographic Transition.
The Second Demographic Transition is a model proposed by van de
Kaa (1987), to explain the impact of the processes of individualization of
social and family life on the demographic dynamics in European societies
at the end of the twentieth century. Specifically, two types of demographic
consequences are indicated that would have this phenomenon of individu-
alization in postmodern societies. On the one hand, a change in the com-
position and dynamics of homes and families, and, on the other hand, a
decrease in birth and fertility rates. In the first case, the traditional nuclear
family model has become phased out, imposing a variety and diversity of
union and family standards, in particular, the increasing number of people
who live alone, as well as single-parent families, recomposed families, and
another great variety of households (Herrera Ponce 2007).
In the second case, the data are telling. By 2015, the global fertility rate
in Europe was at an average of 1.56 children per woman, varying between
1.3 children per woman in Spain and Greece, 1.8 in the UK, and 2.0 in
France. Similarly, in the USA, the fertility rate was only 1.86 children per
woman in 2015 (Canales 2015b). In both cases, in Europe and in the
USA, it concerns levels far below the level of demographic replacement.
These low fertility rates indicate a radical transformation in behavior and
attitude towards children and the decline that manifests in a greater delay
in the age of having a first child, in an increase in mothers with just one
child, and an increase in couples and women who do not want to have
children (Bongaarts 2001).
On the other hand, the ageing process is the change in the composition
and structure of the age distribution of the population, where the cases of
Germany, Spain, and the USA mark the new shape of the structure of the
age distribution of the population, which greatly differs from the classic
pyramid shape. The fact is that these tendencies lead to an absolute and
relative reduction of young people in the population giving rise to an
unfavorable situation regarding demographic dependency, and this
impacts negatively on the capacity of economic reproduction of the popu-
lation (Cooke 2003). In European countries, such as Germany, France,
246 A.I. CANALES
the UK, Italy, and Spain, as well as in the USA, the senior adult population
has gone from representing less than 12% of the population in the 70s, to
almost 20% currently. As a result, the Ageing Index has almost doubled in
these countries, going from a ratio of at least 60 senior adults for every
100 children in the 80s, to a ratio of more than 120 senior adults for every
100 children currently.
This change in the structure of the age distribution of the population
generates a significant demographic deficit of young people, which creates
room for international migration that would fill these gaps caused by the
aging of the population in developed countries. In the case of the USA,
for example, between 2000 and 2013 the native population aged 15 to 49
reduced by 10.8 million people. On the contrary, the Hispanic population
of the same age range increased by 9.9 million people, while other minori-
ties did so by 5.8 million people. A similar situation occurred in Spain as
in the USA. While births in Spain reduced by almost 2.0 million people,
international immigrants of this age range increased by 3.7 million people
(Canales 2015b).
These data show how in the USA, Spain, and other developed countries
in Europe, migration from peripheral countries has contributed to filling
the demographic gap created by the dynamics of these populations.
However, this process has a consequence; that in the medium and long
term, a virtual demographic replacement of the population in these coun-
tries would take place, where the native population must share its current
privileges with the emerging ethnic and migratory minorities.
In the case of the USA, for example, in 1970, the demographic promi-
nence of non-Latin white people was undeniable, representing 84% of the
total population. By the year 2010, however, this prominence reduced,
representing less than 65% of the total population. Similarly, it is predicted
that by the year 2050, the number of non-Latin white people will reduce
to only 46.3% of the total population; no longer being the absolute major-
ity. On the contrary, the high volumes of LA migration, together with
their higher birth rate, pose an opposite situation. While in 1970, they
represented less than 5% of the total, by 2010, they reached 16% and the
prediction is that by 2050 they will represent at least 30% of the total
population (Canales 2015b).1
If these distinct growth dynamics continue, Latinos will no longer be
an ethnic minority, becoming the second relative majority, relativizing the
traditional demographic prominence of the non-Latin white population.
It concerns a process of demographic replacement, which is already appar-

ent in several states of the American Union. The typical case is that of
California, where non-Latin white people represent only 36% of the popu-
lation, already being surpassed by the population of LA origin that repre-
sents 37.4% of the total population.2
Demographic Dynamics in the Countries of Origin

In the countries of origin, we are in the last phase of Demographic
Transition, prior to the aging of the population (Guzmán 2002). In this
phase, there is a reduction in the absolute and relative volume of the
child population, as well as an increase in absolute and relative terms of
the population of active age. Similarly, the senior adult population
remains at low demographic amounts, even if it grows in absolute
terms. This situation is reflected in the shape that is adopted by the age
distribution structure. While by 1980, the child population (under
14 years of age) represented 40% of the population, by 2015, its partici-
pation has reduced to only 26%, and it is predicted to keep declining in
such a way that it will reach less than 18% by 2050. On the contrary, the
population of active age (15–64 years) shows an opposite tendency,
passing 56% in 1980 to 66% currently. The senior adult population in
turn, while their population increased from 4% to 8% in this same
period, it concerns a much smaller component that does not yet man-
age to have an impact on the age distribution structure of the LA
population.
This combination of demographic tendencies has led the Demographic
Dependency Index to show a continuous and systematic decrease since the
70s, due to which the weight of the inactive population will be less in the
subsequent decades, in relation to other historic situations. The dependency
level will only start to recover as of the 30s of the present century, although
it will remain far below its historical levels. Due to these characteristics,
this peculiar situation has been called the Demographic Bonus. This empha-
sizes the favorable situation in dependency relations and the economic
weight implied by this substantive relative reduction in the population of
inactive ages (Redonde and Garay 2012) (Graph 11.1).
This absolute and relative increase in the population of active and fer-
tile ages, has given rise to a demographic increase, which in many cases,
neither society nor the economy of our countries is capable to absorb. In
248
A.I. CANALES
Graph 11.1 LA (Latin America). Population pyramid and demographic bonus

this context, international migration creates a form of export of this demo-

graphic bonus to First World countries, which on their part, experience an
opposite demographic regime, characterized by a structural situation of a
population deficit of young and actives ages. In this sense, international
migration in general, and in particular from South America and LA, cre-
ates a system of complementary demographics where the deficit situation
of the central countries is compensated by the demographic surplus that
still exists in our counties.
In the case of LA, for example, it is estimated that between 2000 and
2010 only, the migration of the population of active age (15–64 years)
towards the USA and Spain represented an export of around 12% of the
demographic bonus generated in the region during these years. This situ-
ation is even worse in the case of countries with high migration levels. In
the case of Mexico, for example, the export of the demographic bonus
reached 24% in this period. Similarly, in Honduras, Ecuador, Guatemala,
and the Dominican Republic, migration represented a loss in population
of around 18% of its respective demographic bonus. The extreme cases are
those of Cuba and El Salvador, where it is estimated that 43% of their
demographic bonus has migrated to the USA and, to a lesser extent, to
Spain (Graph 11.2).
Graph 11.2 LA (Latin America), 2000–2010. Export of demographic bonus by

country migration rate of working age population (%)
250 A.I. CANALES
Towards a Global Regime of Demographic

Reproduction
Migration is a form of the transfer of the demographic bonus from
peripheral countries to developed countries, allowing for an adjustment
in the demographic imbalance that is generated in the countries of ori-
gin and destination. In this way, the demographic surplus in the first
countries flows to compensate the demographic deficit in the developed
countries.
In the case of the sending countries, migration contributes to the
reduction of the pressure that the demographic surplus puts on the eco-
nomic structure and labor markets. Similarly, in the destination countries,
migration contributes to the reduction of the imbalance in their local
demographic reproduction regime generated by aging and the reduction
in the birth rate of the native population.
However, this global system of demographic reproduction is not
exempt from tension and contradiction. On the one hand, the conse-
quence in the destination countries is that the massive extent of immigra-
tion can lead to a virtual demographic replacement of the native population
by immigrants and their descendants, transforming with it, the ethnic and
migratory composition of the population (UN 2001). In this respect, the
current situation in the state of California allows us to illustrate this theory
of demographic replacement (Fig. 11.1).
Specifically, as can be seen in the current age pyramid of the resident
population in California, out of the young people under the age of 50,
Latinos outnumber non-Hispanic white people by more than 45%, while
the situation is the opposite for people over 50, where the number of
white people almost doubled compared to Latinos. The relevant part of
this information is that while white people still form the majority in the
elderly levels, it concerns the population that is leaving the demographic
pyramid. On the contrary, Latinos predominate in the younger strata, and
consequently indicate the composition of the population that will prevail
in the following decades3 (Graph 11.3).
Meanwhile, in the origin countries, we should not forget that just as
with any bonus, the demographic bonus also has an expiration date, which
will have a serious social and economic impact when it arrives. In the
specific case of LA, the estimates of the CELADE4 indicate that the popu-
lation growth of the active age had already reached its maximum in the
Fig. 11.1 International migration and global regime of demographic

reproduction
90s, when it grew to around 3.1 million people per year, starting a quick
and sustained descent since then, to the extent that by 2040, a reverse
cycle of an absolute decrease in the population of active age will
commence.
In this context, maintaining the current rates and volume of emigration
in the medium term will negatively impact the dynamics of the population,
putting not only its growth at risk, but also its capacity for intergenera-
tional replacement.
Migration, Labor, and Reproduction of Capital

Migrations generate a double process of economic transfers. On the one
hand, they are a transfer of labor force from the communities of origin to
developed economies. On the other hand, the remittances and other
252 A.I. CANALES
Graph 11.3 California, 2015. Population pyramid of non-Latino white and

Latino origin population
goods and services sent by migrants represent a transfer in the opposite

direction that contributes to the social reproduction of the immigrants,
their families, and their communities of origin. This double system of eco-
nomic transfers links the reproduction of the migrant labor force in the
places of origin, to the reproduction of capital in the destination societies,
contributing in this way to the reproduction of capitalism as a global eco-
nomic and productive system.
Migration, Labor, and Capital

All economies function as a circulation system with two flows in opposite
directions. On the one hand, the circulation of material (goods and ser-
vices), and, on the other hand, the flow of money (income, revenue, etc.).
This model is precisely called the circular revenue flow and is used to
analyze the revenue flow, and by those means, the conditions for growth
in economic activity, as well as the distribution between the different eco-
nomic agents (Samuelson and Nordhaus 2010).
From a structuralist perspective, we can use the same operating model
of the economic system to link the areas of consumptions on the one
hand, with the production areas on the other hand, classifying both of
them in the process of the reproduction and accumulation of capital. In
this sense, we can understand the functioning of the economy as the com-
plementarity of two different moments:
a) The Productive Moment: corresponds to the production, both of the

production resources and intermediate consumption resources
(machines, input, raw materials, technology, etc.), as well as the pro-
duction of goods and services for the end consumer. In this process,
the capital consumes the labor force, meaning, it extracts the part
from it that has value for capital: labor, which is nothing but the
capacity of the employee to use other production modes, inputs,
etc. in the production of goods and services, which may allow
enhancement of the initially invested capital.
b) The Reproductive Moment: corresponds to the individual (and
household) consumption process of previously produced goods and
services. Through this process, individuals do not only satisfy their
needs (neoclassic perspective), but also reproduce themselves, and
in this way, reproduce their own labor force on a day-to-day basis
(structuralist perspective). While for individuals, this individual con-
sumption model represents an act that does not yield anything else
besides the satisfaction of their needs, for capital, on the other hand,
it represents a productive moment, as it corresponds to the produc-
tion and reproduction of the labor force.
This general operational model of the capitalist economy will be revis-

ited for the analysis and understanding of the role of migration in the
reproduction of capital in the current context of economic globalization.
In this respect, we argue that international migration represents a mecha-
nism that allows for a link between the productive moments (of the valo-
rization and reproduction of capital) in destination countries, and
reproductive moments of the labor force in the origin countries. The fol-
lowing chart shows the theory that we want to develop (Fig. 11.2).
254 A.I. CANALES
Fig. 11.2 Labor migration and reproduction of capital
This link between productive and reproductive moments can be ana-

lyzed based on the role of migration in the configuration of labor markets
in the global economy. Due to its configuration, it concerns global labor
force markets, where the spatial link between the reproductive moment of
the labor force and the productive moment of capital, preferably (and
sometimes exclusively) occurs through migration and the social, cultural,
economic, and political mechanisms and processes, that it activates in its
development and its continuous path. This peculiar territorial configura-
tion enables the reproduction of the labor force, on the one hand, and the
reproduction of capital, on the other hand, to each develop in different
areas and locations, with distance between them, without any major con-
nection generated by the migration of the labor force itself.
In this context, with globalization, capital has been able to relocate the
reproductive moments of the labor force beyond national borders and
consequently, has enabled the social reproduction of the labor force to be
disconnected from the entire social and political system that connected the
employee with the capital in Fordist and industrial capitalism through the
State, politics, and the most diverse institutions that structured the capital-
ist societies of the developed world throughout the twentieth century.
However, this disconnect, between both moments of accumulation of
capital, is only apparent and conceals the true role of labor migration as a
linking mechanism between both moments that support the accumulation
of capital in the global economy.
In relation to the productive moment, the increasing importance of

labor immigration in developed countries should be noted, in the context
of a chronic population deficit in active ages as a consequence of the struc-
tural imbalance that occurs between the supply of jobs generated by eco-
nomic growth and the demand for labor that can be provided by the
demographic dynamics of the central countries.
In this regard, the data for the USA are significant. Between 1995 and
2016, the economic growth of this country generated a net increase of 27
million jobs, a number that represented an increase in jobs of more than
22%. However, the low birth rate and the aging of the native non-Hispanic
population ensured that the local demography could only contribute a net
growth of just 8.1 million workers, including occupied and unoccupied
workers, even with the large increase in feminine activity. This imbalance
in the demand for jobs and the supply of labor force is manifested in a
permanent and structural deficit of labor that had to be bridged by the
contribution of labor immigration coming mainly from LA and South
American countries (Graph 11.4).
In fact, labor immigration between those years allowed for 69% of this
deficit to be covered, with an almost equal distribution of LA immigrants,
and immigrants from other parts of the world. Similarly, the Latino
descendants in the USA (second and third generation immigrants) con-
tributed 31% to the coverage of the labor deficit.
The contribution of labor migration to the reproduction of capital can
also be measured through the contribution to economic activity and the
growth in GDP. Between 2000 and 2015, GDP in the USA increased by
30%. The workers of white non-Latino origin, even when they represented
more than 62% of the occupied population in 2015, contributed only 41%
to the growth in GDP. The remaining 59% was contributed by the differ-
ent ethnic and migratory minorities. The case of LA immigrants stands
out, who, in spite of only representing 8% of the occupied population in
2015, contributed 16% to the growth in GDP, a proportion that increased
to 30% when taking into account the contribution of their descendants
born in the USA.
These data indicate that, without the contribution of the migrant work-
ers, the growth capacity and the generation of economic surplus would be
highly depleted, putting the accumulation of capital at risk, as well as the
reproduction of the economic system, and in particular, the hegemonic
and dominant position of the economies of the developed world.
256 A.I. CANALES
Graph 11.4 USA, 1995–2016. Accumulated deficit of labor force and coverage
by ethnic minorities
Regarding the reproductive moment, migrations operate in two differ-

ent and complementary ways. On the one hand, they provide the mone-
tary and economic resources that are necessary to maintain household
consumption, and in this way, maintain the social reproduction of the
labor force. On the other hand, migration consolidates the network sys-
tem and social capital that, together with enabling the migration process
itself, give material and symbolic support to the social reproduction of the
migrants, their families and communities.
In the case of remittances, it is estimated that LA reached almost
US$600 billion between 2005 and 2014, equal to 60% of direct foreign
investment during the same period (FOMIN 2015). At a macroeconomic
level, its impact and relative weight are very variable, and depend signifi-
cantly on the productive capacity of each country. In Mexico, for exam-
ple, remittances represent less than 3% of GDP, in spite of being the main
receiver of remittances, with an annual amount of over US$23 billion.
The situation is very different in the case of Haiti, where remittances
represent almost 25% of GDP. There are similar situations in El Salvador,

Guatemala, Honduras, and Nicaragua, where remittances represent
between 15% and 20% of GDP, depending on the year in which it is
measured.
At a microeconomic level, remittances essentially represent a salaries
fund. As such, its function is essentially to finance the consumption and
social reproduction of migrants and their families (Canales 2008). This
allows us to understand the behavior of sending remittances, regarding
their multiplicity and reoccurrence, and regarding the amounts sent.
Mexico’s case allows us to illustrate this essential characteristic of remit-
tances. In 2014, the US$23.5 billion received in remittances, corre-
sponded to more than 80 million transfers, consisting of an average of
US$300 each (BBVA 2015). This low volume shows us that each remit-
tance sent is actually a flow essentially oriented to sustain the daily house-
hold expenses, fulfilling the same economic and social role as any salary or
work pay: the reproduction of the labor force, on a daily level, as well as in
intergenerational terms.
Similarly, in most cases, remittances represent ordinary and recurring
household income that forms the family budget together with other
sources. In that regard, Mexico’s case can help us again, to illustrate this
point. On the one hand, the income per capita of the households receiv-
ing remittances is similar to that of the non-receiving households, con-
trolled for the type of location and rural or urban environment. However,
while in households that do not receive remittances, salaries tend to
represent 70% of monetary income, in households that receive remit-
tances, salaries drop to 30% of family income. Instead, they receive
remittances than represent an average of 40% of household income
(Canales 2011). These data illustrate the fundamental role of remit-
tances as a source of funding of social and daily reproduction of migrant
households.
Besides remittances, migration generates a second mechanism that sub-
stantiates social reproduction of the labor force for global capitalism.
Through migration, a system of social and family networks is activated,
which are based on principles of solidarity and reciprocity and enable the
reproduction of migration in the form of a so-called cumulative causation
process (Massey 1990). Traditionally this process has been analyzed and
understood as a form of reproduction of migration as a social process, and
thus of migrants, their families, and communities. In our case, we would
258 A.I. CANALES
like to turn this mechanism around to focus on the reproduction of the

migrant labor force.
With the social reproduction of the community and families, there is
not only a reproduction of people, but also of the social position in a par-
ticular context of economic and labor relations. While from a demographic
and sociological perspective, we see social networks and their transnation-
ality as a strategic social reproduction of the population of the families
and/or the community, from the perspective of the reproduction of capi-
tal, we see these same mechanisms as a social and demographic basis for
the reproduction of the migrating labor force in the current context of
economic globalization.
In other words, social and family networks of migrants do not only
represent a sociocultural mechanism of its direct reproduction, but
through them, they also contribute to the reproduction of migration as
continuous and recurring flows of the labor force for capital.
While at a microsocial level, we understand and theorize social net-
works as mechanisms for the auto-reproduction of the migrant and their
family, on a macrosocial level, this same process can be understood and
theorized as the social reproduction of the labor force, and thus of the
relative position of labor migration with regard to the accumulation of
capital in the global economy.
In summary, as workers, the migrants participate to a double extent to
the capital accumulation process. On the one hand, they become part of
productive activities for capital, contributing to the creation of value
(GDP), and in this way, the accumulation of capital. On the other hand,
they form a particular class, whose reproduction is based on the salary that
they receive directly from the capital, as well as on their social and capital
networks, which besides strengthening migration as a social process, con-
tribute to resolve the reproduction of migrants as a labor force for capital.
Migration, Class Structure, and Social Inequality

In these times of globalization, the social reproduction processes that pre-
viously defined local (national) spaces now form part of the global (trans-
national) spaces where the set-up of the class structure and social subjects
has de-territorialized. In this process, international migration creates a
global field where local reproduction environments of social classes inter-
sect and relate to each other, creating a system of social stratification that
transcends and runs through national borders. The following chart allows
us to illustrate this global interconnection of local social reproduction

spaces (Fig. 11.3).
As we can see, migration connects the social reproduction process of
the native population in the destination places with the social reproduc-
tion of the population in the communities of origin.
• On the one hand, the work of immigrants contributes to sustaining

a way of life and a consumption pattern of the population of the
middle and upper class in receiving societies. Through this, migra-
tion turns into support for the social reproduction of these popula-
tions and of its relative position in the class structure.
• On the other hand, remittances and social and family networks,
besides being a perpetuation migration mechanism, are also a social
reproduction mode of migrants and their families and, therefore, of
their subordinated position within a social and class structure at a
global level.
In the end, it concerns the connection between the mechanisms and

social reproduction processes of different social classes, and therefore, of
Fig. 11.3 Labor migration and class structure in global societies

260 A.I. CANALES
the reproduction of a system of global, social and transnationalized

inequality. Subjects and populations that apparently do not have any link
or direct contact (the families of the migrants in the places of origin, on
the one hand, and the population of the middle and upper class of the
destination places, on the other hand), are linked by labor migration that
represents a hinging mechanism, connecting the reproduction of both
populations, socially very different and, territorially speaking, distant
from each other. This double process creates new forms that are adopted
by the class structure in global capitalism, which, unlike in previous
phases, is also based on a growing ethno-stratification and racialization of
social inequality.
In the previous section, we described how economic capital (remit-
tances) and social capital (social networks) form two of the pillars through
which the social reproduction of migrants and their families takes place.
Similarly, we indicated that while on a micro-social level, social networks
as well as transnational communities form a mechanism that reproduces
the social process of migration, on a macro level, this same process repro-
duces the social position of migrants in the social structure. Thus, for
example, through social networks, migrants access jobs and occupations,
housing, social life spaces, through social networks (Sassen 1995) but it
concerns social fields where the same social situation is reproduced, char-
acterized by its condition of socioeconomic vulnerability and political sub-
ordination with scarce negotiation power towards the State and other
subjects and social classes.
Taking the above into consideration, in this section, we wish to go into
depth regarding the role and function of migration and migrants in the
social reproduction of the native population in destination societies.
Migration and Social Reproduction

in Destination Societies
In terms of the organization of jobs, globalization has meant a growing

polarization of the occupational structure as well as a greater segmentation
of labor markets (Sassen 2007; Castells 1996). This has led to an increase
in occupations and labor activities located at the extreme ends of the
occupational stratification. In this respect, the data for the USA and Spain
allow us to illustrate this theory.
In the first case, between 2000 and 2012, economic growth was not
equal for all occupation strata. While directly productive occupations
(manufacturing and such) lost 6.4 million jobs, on higher management

levels (executives, professionals, etc.) and on lower occupational levels
(social reproduction tasks), 8.6 million and 5.6 million new job positions
were generated, respectively.
In the case of Spain, there is a similar tendency. On the one hand, there
is a decrease in employment in directly productive occupations, which in
the same period meant a loss of 770 thousand jobs, to which 480 million
were added from the construction sector. On the other hand, occupations
at higher management levels and professional services positions increased
by 1.3 million. Similarly, employment at lower occupational levels (domes-
tic services, caretaking, cleaning and maintenance, among others) also
increased by almost one million new job positions.
That said, the relevant part of this polarization is that the growth of the
occupational extremes appears to be linked. The expansion of the occupa-
tions at the top of the occupational structure, together with their high
level of purchasing power, generates a greater demand for work in services
and for qualified personnel (interior designers, various professional ser-
vices, communication and transportation networks, amongst others) as
well as for personnel with low qualifications (personal and social services,
and caretaking). Both cases concern jobs that focus towards maintaining
the life and consumption patterns of these new professionals and execu-
tives, generated by information economics.
This polarization of occupations is the basis for the consolidation of the
new forms taken on by a socio-occupational stratification, where the eth-
nic and migratory condition acquires an increasingly dominant role. In
this respect, various studies document the growing role of immigrants in
diverse economic activities oriented towards the social and daily reproduc-
tion of the native population, particularly of the medium and high social
strata (Vershuur 2007; Herrera 2005). We refer to jobs such as domestic
service, at the peak of the industry of caretaking and assistance of vulner-
able groups (the elderly, children, the sick, among others), maintenance
and cleaning jobs, as well as many other personal services (food prepara-
tion, restaurants, gardening, among others).
It concerns different occupations referred to proximity services, or ser-
vices for the reproduction of daily life. The most paradigmatic case is that
of domestic service, but it is not the only one. With this, we can indicate
the creation of a system of transnational maternity, which can also be
extended to the so-called transnationalization of the caretaking industry
(Ehrenteich and Russel Hochschild 2004). It concerns a set of activities
262 A.I. CANALES
and occupations oriented towards taking care of sick people, children and
the elderly, food preparation, cleaning and maintenance, among others,
increasingly filled by migrant workers.
The commercialization of domestic services is not new in capitalist soci-
eties. The new part in the current situation is that, in developed countries,
the massive demand for these type of workers occurs in the context of
social and demographic changes that we have already indicated. The
demographic aging, the massive integration of women into the labor mar-
ket, the changes in the formation and structure of homes, the reduction in
fertility rates, among others, drive the increasing demand for workers who
dedicate themselves to these tasks. Similarly, native women who previously
dedicated themselves to these activities are decreasing in number, as they
increasingly opt for less compromising jobs and enjoy a higher valuation
and social prestige, and therefore better salaries and work conditions
(Parella Rubio 2003).
This situation manifests in a structural imbalance between demand and
supply in this labor market, creating space for immigrant women arriving
from peripheral countries to incorporate themselves into these types of
markets in the central countries, carrying out tougher domestic tasks, such
as cleaning, maintenance and taking care of people, among others (Escrivá
2000).
This growing demand for immigrants to work in the so-called repro-
ductive and personal services, leads to an emerging form of a social divi-
sion of work, that adopts a transnational form, and is based on a form of
“transfer of inequalities in class and ethnicity” (Parella Rubio 2003: 15).
In fact, the emancipation of native women from developed countries who
have freed themselves from chains that tied them to domestic chores and
reproduction environments, has actually transferred these conditions of
subordination and vulnerability to immigrant women who require this
income for their own social reproduction, and who are forced to disregard
their own liabilities and reproductive responsibilities of their families who
have stayed behind in their countries of origin.
In this context, it is not surprising that a process of ethno-stratification
arises (Catarino and Oso 2000), or a racialization of reproductive services
(Hondagneu-Sotelo 2007), i.e., of a socio-labor differentiation based
more on ethnic-migratory factors, than on the labor credentials of each
person. In this respect, the data for the USA allow us to illustrate these
processes of the racialization of occupations.
On the one hand, we can see that the occupational structure is clearly
differentiated according to the ethic-migratory condition. While in occu-
pations at higher levels of the occupational hierarchy (directors, profes-
sionals, executives) the participation of white non-Latin workers
predominates (69%), in the occupations at the lower strata of the occupa-
tional structure (domestic service, caretaking, cleaning and maintenance,
food preparation, among others), the participation in this demographic
group drops to only 48%.
On the contrary, demographic minorities show an opposite labor inte-
gration. The case of the workers of Latino origin (first and second genera-
tion immigrants) stands out, who while representing 16% of the labor
force, only obtain 8% of the high position jobs of the occupational struc-
ture. However, they represent 33% of construction workers, and 25% of
workers in personal services and social reproduction activities of the native
population.
These data indicate that the occupational polarization in the case of the
USA, adopts the form of an ethnic differentiation, establishing differenti-
ated occupational segments for each demographic group according to its
ethnic and migratory condition.
It would seem that the occupational integration of each worker is deter-
mined more by their ethnic origin than by their merits and productive and
labor credentials.
This racialization of occupations also has its counterpart in the form
taken on by the social inequality and income distribution in the USA. While
white people represent 72% of the population in the highest social stratus,
Latinos only represent 7%. On the contrary, in the strata with lower
income the opposite occurs. In this case, the population of white origin
represents only 42% of the poor population and 47% of the population in
a vulnerable situation. However, Latinos and other ethnic minorities
(mainly Afro-Americans), represent 51% of the population in a situation of
poverty and 47% of the population in a situation of economic vulnerability
(Graph 11.5).
These data show how social inequality in the USA acquires a racialized
form, where the ethnical and migratory condition tends to be an essential
factor for determining the social and economic position of individuals in
class structure and in income distribution. It concerns a situation that
shows the level of ethnic and migratory discrimination that characterizes
the actual social structure of this country.
264 A.I. CANALES
Graph 11.5 USA, 2016. Occupational and social class structure, by ethnic
minorities
Conclusions
In this text, we have presented an analytical model based on three axes
from where we can understand and theorize the role of migration in the
reproduction of modern society. We refer to migration as a structuring
factor of (i) the reproduction of populations, (ii) the reproduction of capi-
tal, and (iii) the reproduction of class structure and social inequality.
From a demographic perspective, migration creates a system of comple-
mentarity that connects the patterns of demographic reproduction in the
origin and destination places. In the countries of origin, migration repre-
sents an escape valve, while facing a demographic bonus that the local
economy is not able to fulfil. In the destination countries, migration
enables the demographic gaps to be filled, that are left by the ageing of the
population and the reduction in births resulting from the advancement of
the second demographic transition.
From an economic perspective, we understand the role of migration
from three complementary points of view: (i) on the one hand, migration
is essentially labor, and therefore, a mechanism for the supply of labor
force for capital; (ii) similarly, it is not simply the migration of one single
worker, but of a group of workers that are socially vulnerable and inserted
into precarious, flexible, and unstable jobs; (iii) finally, the remittances that
are sent by the migrants, are salary transfers that enable the reproduction
of their families. In this way, migration contributes to closing the circle of
the reproduction of capital, sustaining the connection between the local
reproductive moment (the labor force in local environments) with the
global productive moments (work and labor insertion in the destination
economy).
Finally, the role of migration in the reproduction of class structure and
social inequality is seen as a connection between the two moments. On the
one hand, by means of insertion in occupations of the social reproduction
environment in destination places, migrants contribute to maintaining the
reproduction of the population of the middle and higher class in these
societies. On the other hand, remittances and social networks activated
with migration represent a reproduction strategy of these migrants, their
families and their communities.
The integrated vision of these three moments (demography, econom-
ics, social classes), allows us to reach a higher level of understanding of
international migration, understanding it as a component and author of
the reproduction of modern global society.
However, this same model for the understanding of migration allows us
to identify the risks and tensions that accompany it and imprint it with a
substantial level of uncertainty. Specifically, we can indicate at least three
dynamics that can come into existence in its limits and risk areas that need
to considered and theorized.
On the one hand, migration from peripheral countries, in particular
from LA countries, is based on the conditions of the generation of a popu-
lation surplus resulting from the incapacity of the local economic dynam-
ics to absorb the population growth in active ages that generates the
demographic bonus. However, as we have seen, the Demographic Bonus,
as with any bonus, has an expiration and collection date, which in the case
of the South American countries is about to expire within a few decades.
In this context, the risk for our societies is that by maintaining the current
rates and volumes of migration, the reproduction of our own populations
will be seriously compromised.
On the other hand, the demographic situation in the destination coun-
tries also creates substantial tension with regard to the implications and
consequences of migration. Considering the high degree of advancement
in the level of aging and the low birth rates, it is highly probable that
migration would end up being the basis of an ethnic replacement process,
where the current condition of demographic improvement of the native
266 A.I. CANALES
population, makes way for a situation of demographic balance that has

never been seen before, and whose social, political, and cultural conse-
quences are unimaginable. This situation of demographic replacement
already occurs in several North American states such as Texas and
California. In the latter, we can see that there is already a situation of co-
existence of two large minorities, Latinos on the one hand and non-
Hispanic white people on the other hand. It concerns an unprecedented
situation, expected to extend to the entire USA during the next decades.
A similar situation is predicted for the cases of the main European coun-
tries of destination of migration.
Finally, the changes in the economic and productive structure of the
central countries, enhanced by the new information economy and global-
ization, lead to a polarization of occupations, which is the basis for new
forms adopted by the class structure and social inequality in advanced
societies. In fact, the data show how social stratification stops being a
strictly economic phenomenon, to transform into a system of ethnical and
demographic inequality. Currently, there is a virtual process of racializa-
tion of class structure in developed countries, where immigrants and their
descendants tend to occupy the lower strata of the social structure, while
the local native population tends to be concentrated in the upper strata.
This creates a situation of ethnic and migratory discrimination that goes
against the most basic principles of fairness, equality, and respect for
human rights that should support the entire modern democratic State.
Notes
1. Coleman documents similar tendencies (2006) in the case of seven European
countries (Austria, England, Denmark, Germany, the Netherlands, Norway,
and Sweden), where by 2050, the population of migrant origin will repre-
sent between 24% and 36% of the population.
2. The other 27% divides among Afro-Americans, Asians, Aboriginals, and
other minorities. Data from the Current Population Survey, March
Supplement of 2015.
3. It worth mentioning that the most recent data of demographic projections
of the US Census Bureau indicate that this current situation of demographic
replacement and replacement and age distribution that is currently occur-
ring in California, will extend to the entire country during the next decades
(Canales 2015b).
4. CEPALstat, http://estadisticas.cepal.org/cepalstat/WEB_CEPALSTAT/
Portada.asp
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CHAPTER 12
Organized Crime, Security, and Regionalism:

The Governance of TOC in LA
Daniel Pontón and Tomás Guayasamín
Introduction
The emergence of TOC as a new global threat has generally been the
scope of international security studies, a result of the connotations that
this phenomenon has for world peace. Illegal trafficking of drugs, weap-
ons, persons, and money laundering form part of a strongly interrelated
clandestine world. This setting has enabled the creation of a regional func-
tional agenda that has prompted the progressive integration of sub-
regional and regional mechanisms aimed at fostering cooperation and
exchange of police information focused on the prevention and repression
of crime, especially on a strategic level. This basis has supported interna-
tional governance against TOC (Andreas and Nadelmann 2005), whose
purpose, amongst other things, is to contribute to the protection of liberal
peace and the development of nations (Duffield 2007).
D. Pontón (*)
Instituto de Altos Estudios Nacionales del Ecuador, Quito, Ecuador
T. Guayasamín

DOI 10.1007/978-3-319-62551-5_12
272 D. PONTÓN AND T. GUAYASAMÍN
As highlighted by Payne (2005: 62–72), it is important to note that

governance is a term used in political studies to define change processes in
“the rules of the game” of a global government. On a security level, this
concept has proliferated in various academic works that had the objective
of developing analytical frameworks for the multiplicity of topics and play-
ers related to production security on different levels: global, regional, and
national (Adler and Greve 2009; Kirchner and Domínguez 2011; Breslin
and Croft 2012). This has been encouraged in a particular way and on a
regional level, due to the high interdependence of the States regarding the
(often conflictive) management and handling of topics of shared regional
interest, such as TOC. In the case of LA, this change in “the rules of the
game” has created a concept of regionalism for the control of TOC under
influence from the USA, whose origin goes back to the historic presence
of the trafficking of drugs, weapons, and people between these two regions
(Tokatlian 1991).
From this point of view, it has been possible to interpret the regional
governance system against TOC as a dual taxation scheme, sustained by a
permanent game of cat and mouse. In other words, on the one hand, the
idea is maintained that the world of the good will end up subsuming the
world of the bad, and on the other hand, the theory that the bad will be
able to win from the good is latent because at the end of the day it is the
livelihood of time and space of the protection and international coopera-
tion scheme.
Along the same lines, it is worth mentioning that an element of the
governance term is that it allows for the incorporation of non-governmental
players in the decision-making game, as well as a system of informal rules
that impacts the public policy formation process (Fontaine 2010). In the
case of TOC, these informal systems form part of a clandestine world that
involves intelligence services, criminal groups, and certain forms of politi-
cal violence (Cox 2002). In spite of this, little is known about the interac-
tion and functioning of these players and their influence in politics and the
TOC issue.
Therefore, this document will contribute to the understanding of this
relationship between the formal and informal world, analyzing the role of
police agencies of international cooperation in the regulation of TOC on
a regional level. It will be argued that the role of these agencies takes place
in a “gray area” that is characterized by a complex and dynamic intersec-
tion of informal practices where the determination of what is legal and
what is illegal becomes vague. While this complex regulation system is
ORGANIZED CRIME, SECURITY, AND REGIONALISM: THE GOVERNANCE... 273
partly adaptive to transformations of this criminal world, it also has an

active and dominant role in the morphology and regional semantic inter-
pretation of TOC.
In the first place, this paper will analyze the cooperative experiences of
the police authorities that have taken place in the region. A brief descrip-
tion is given of the institutionalism created to combat transnational orga-
nized crime, specifically focusing on proposals from the LA area. For this
purpose, the scope of the sub-regional and regional agencies in charge of
police control and their role within the security agencies of these states will
be analyzed. Afterwards, the governance of TOC will be analyzed as a
complex category where the role of police agencies will be analyzed and
their active influence through informal mechanisms in the regulation,
reproduction, and interpretation of TOC in the region. Finally, a case
study will be presented regarding the proliferation of the drug trafficking
industry in the Southern Cone, as a result of an undisclosed and explana-
tory process of the management of TOC. Regarding the case of informal
practices, inferences will be made for the case study through the “evi-
dence” obtained from journalist sources, qualified interviews, and reports,
due to the fact that the activities of these agencies take place in a clandes-
tine environment (Giménez 2012).
Police Governance Against TOC in LA

The global expansion of TOC has meant that police aspects have been
given a fundamental importance in international studies. This interest has
been accompanied in parallel with the identification of threats and axes of
common governmental action; specifically aimed at stimulating coordina-
tion, regulation, and control of countless transnational activities, such as
trafficking of weapons and technology, art and antiques, amongst others
(Andreas and Nadelmann 2005: 5). According to Gerspacher and Dupont
(2007), the cooperation of agencies in the police framework has the pur-
pose of mitigating the actions of criminal groups that use the opportuni-
ties of globalization, state weaknesses, and the global demand for illegal
goods and services. For this reason, studies of international governance
regarding TOC are based on a complex bureaucratic system of police
cooperation that aims to adaptively respond to the dynamics of the trans-
national criminal world (Andreas 2013) and to shape the “good global
government” (Andreas and Nadelmann 2005; Duffield 2007).
Inevitably, it results in a specialization of these topics in the offices that

formed the basis for the creation of intelligence agencies in the region.
Those that stand out are the INTERPOL; the CISC in Canada; and, due
to the region’s historic relation with drug trafficking, the FBI and DEA in
the USA, which have also been the main source of global financing for the
fight against TOC (Emmerich 2016). The US Southern Command can
also be included in the system, in spite of having a direct link with its mili-
tary peers in each country and being the direct expression of the militari-
zation of the TOC problem, its work is categorized by their own army of
global police (this phenomenon has been named the “police of the mili-
tary world”).
The institutional flourishing of the region also became more important
following the 11 September 2001 attacks, when the war against TOC
reached a central status within the security agenda of the USA, and with
it, a subsequent frontal fight against international terrorism (Andreas and
Nadelmann 2005). Since then, international cooperation in terms of
police incremented and was focused on bilateral and multilateral financial,
technical, and doctrinaire assistance, to strengthen state capacity regarding
control and supervision of the region (Neild 2005). In other words, gover-
nance against TOC has been based on the historic, hegemonic, and realist
interpretation of the USA, aiming to find balance and sustainability in the
region, while facing an anarchistic criminal world (Bagley et al. 1991;
Tokatlian 2001).
During the last decade, there has been a change in LA in the correlation
of powers that generated a discontinuation or an attenuation of the influ-
ence of exterior power from the USA in the region. This generated the
activation of various projects to strengthen the integration, in terms of
security, on a regional and sub-regional level. Despite this, according to
Benitez 2014, the influence of agencies from the USA is still considerable
on the level of exchange of information and technical support. As a result,
the concept of “complex interdependence” has been introduced, man-
aged by Keohane (1988) and Keohane and Nye (1988) to understand the
system of control in LA. Based on this definition, the strategic interests
between the states, their intentions, and capacity to influence and to pre-
vail in a certain way in the international context have formed the criteria
of governance against TOC in the region.
From this perspective, and while intelligence activity in LA follows a
slow and laborious path towards industrialization, we will interpret several
experiences of regional police cooperation that certainly represent key
elements for the study of formal structures of the fight against crime.
Thus, for this study, we identify the AMERIPOL; the SISME; and, on a
bilateral level depending on the participating countries, the areas of coop-
eration named: COMBIFRON, Security Committees, or Defense and
External Relations Commissions, as the most relevant experiences in terms
of cooperation and exchange of information of the police in LA.
On a hemispheric level, AMERIPOL was created as a mechanism to
overcome asymmetries through the education and promotion of technical
scientific assistance, the exchange of information, criminal investigation,
and legal assistance (AMERIPOL 2012: 2). Its organic structure consists
of 29 police forces from 26 countries and 21 permanent observing agen-
cies. They have a Center of Hemispheric Prospective and Security that
monitors crimes on a regional scope and a System of Exchange of Police
Information, which enabled the execution of the operation “Without
Borders” against organized crime in June 2016 as a joint enterprise in 13
countries of the region (AMERIPOL 2016).
Meanwhile, the cooperation in terms of police and public security in
the framework of MERCOSUR and Associated States was institutional-
ized through different meetings of Ministers of Internal Affairs. In 2004,
this forum established SISME, inspired by its European counterpart of the
Schengen Agreements (Ugarte 2005). Since then, the tool has been per-
fected for the exchange of information through “national nodes” that
operate via telematics and that can be used to detect police incidents,
consultations of vehicles, weapons, or individuals with charges or warrant
for arrest or prison (Ugarte 2009). Currently, SISME interconnects
national databases of 10 countries, which has made it possible, for exam-
ple, to carry out operation “SPARTACUS” in 2012, an initiative against
human trafficking that led to the rescue of 365 victims and the arrest of
197 individuals (INTERPOL 2013).
On a bilateral level, binational mechanisms for the exchange of infor-
mation facilitate mutual trust through a joint analysis of the issue in com-
mon border areas. This has enabled the existence of instructions,
operational procedures, security passbooks, and communication systems
in case of possible border security incidents, in order to establish actions
for quick solutions at borders. In general, the composition of members
mostly consists of the highest authorities of the Communication,
Intelligence and Military, and Police Counterintelligence Units.
An important point, in any case, is that this bureaucratic instrument for
the fight against TOC suffers from a weakness for international studies: its
analysis lies in the state sphere as a basic and homogenous police entity,
based on power relations. Furthermore, it supports research in a structure
of an international system that is close to positivist epistemology, material-
ism, and methodological rationalism (Buzan 2014). As a consequence,
TOC has been interpreted as a type of “low intensity war” in which power
ends up adapting itself to face the conflicts generated by TOC or other-
wise, and that this practice enables the recreation of these conflicts for
specific political or geopolitical purposes.
Based on these coordinates, while there is no majority consensus yet,
advanced academic debates maintain that studies regarding police gover-
nance against TOC should differ from classic security and defense studies
that are only centered around the state. On the contrary, the analysis
should focus on the philosophy of “social defense” (Baratta 2004: 37), in
other words, as a natural response of international society to unwanted
behavior and activities, where the regulations and institutions are of uni-
versal application to guarantee essential conditions for the existence of the
entire society (Buzan 2014). With this in view, and following Deflem
(2000: 748), police agencies should maintain relative autonomy regarding
the police centers of their states, so that the international police system can
operate beyond certain interests and political needs of one single state, and
eventually even influence the appreciation of the states regarding the issue.
In this regard, and while it has been said that police action is function-
ally carried out through regulations and procedures established with prior
political concurrence included some cases of undercover intelligence oper-
ations; the fact remains that there is a degree of informality and discretion
as a part of the habitus of this world. In effect, the use of this underground
system by the players forms part of a complex “gray area” that ends up also
being an active element in the management, dynamics, and configuration
of a clandestine world with limited access to civil society.
The TOC as a Complex Category and “Gray

Governance”
During recent years, a series of visions has emerged that aims to distance
itself from the classic perspectives of TOC in international studies based
on the taxonomy between the good and the bad. Based on the under-
standing of TOC as a complex category, an interrelationship with various
axes is clearly manifested, namely: political, economic, and cultural
that contribute to the—often vague—explanation of their regulatory
framework (Andreas 2013; Grasa 2016; Seranno and Toro 2005). In

this sense, as we described, certain paradoxes exist for the understanding
of this phenomenon.
The first paradox is based on the dimensioning of this criminal world.
In other words, the measurement or valuation of TOC almost always rep-
resents a vague field due to the clandestine and informal nature of its
activities, distancing it from the classic system of formal measurement of
the legal world (Fernández Steinko 2008). Therefore, unlike with the
legal or formal economy, a cumbersome field is generated that makes it
difficult to set this economy as a subject of study, without a doubt, it leaves
it exposed on a highly speculative level, not exempt from political and
corporate interests in its geopolitical appreciations. A second paradox can
be found in the expansion and internationalization of prohibitory laws on
a global level (illegal trafficking of weapons, drugs, people, etc.) that have
most certainly strengthened the dynamics of the viability and reproduc-
tion of TOC (Andreas 2013; Andreas and Nadelmann 2005).
Apart from a certain confusion, and based on the traditional contribu-
tions Edwin Sutherland wrote in the book The White-Collar Criminal
(1940), a third paradox can be seen in the interrelation between illegal
earnings that feed TOC and the value system of anarchist capitalism and
of the perpetual profit of the business world (Gambetta 1993; Andreas
2005). Finally, a fourth paradox is found in the direct relationship between
TOC and the advantage of opportunities and risks of globalization, such
as the commercial world, technological breakthroughs, financial liberaliza-
tion, migration or marginality, among others; as aspects that have strength-
ened TOC in its real, as well as potential, capacities (Levi 2005; Bagley
2003; Simons and Tucker 2007; Willians 2005; Forgione 2010; Sansó
Rubert 2011; Krause and Suzuki 2005). Regarding the last point, it is,
therefore, not surprising that there is a contradiction of a “double stan-
dard” within the political groups that promote the openness of the market
in order to maintain the benefits of globalization, on the one hand, with
those who demand a greater state presence to control or to inhibit TOC
by means of better supervision, on the other hand (Berdal and Serrano
2005). Therefore, managing the “dark side of globalization” is to set the
standard of understanding a schizoid system that reproduces and repudi-
ates itself.
It then becomes feasible to confirm that this complex category also has
implications for the understanding of control systems that tend to adapt to
the dynamics of this criminal world, but that form part of its reproduction
at the same time. As suggested by Cox (2002), it is a relationship that

juxtaposes principles that are conflicting as well as symbiotic, which leads
to an agnostic interpretation regarding its nature and political/normative
purposes but explanatory in its functioning.
Under this scheme, the hinging element of materialization of this com-
plex interdependence is configured by the police cooperation agencies. As
we have seen, unlike the central state view, these agencies act as a com-
munity with an intra- and interstate character, whose institutionality has
relative independence from police control, which in the end is represented
in the hard nucleus of the management of TOC, because it adapts, repro-
duces, and provides meaning to the interpretation of this criminal world.
In effect, this concept has always been a police interpretation regarding a
specific type of criminal modus operandi. While the analysis of this phe-
nomenon has historically brought topics of international trade, migration,
and xenophobia together, it becomes much more complex in the context
of economic globalization. The origin of this concept was coined by police
agencies in the USA to describe and treat the appearance of Italian-
Americans in the USAs in the 20s (Fernández Steinko 2008). Based on
this police vision, the idea of TOC has regressed to this model of organiza-
tion as an ideal type. Nonetheless, these organizations are not always sta-
ble in time and space, making it more difficult to analyze them as a study
object. In practice, TOC is a concept with serious legal application prob-
lems given that many crimes that are committed by these organizations are
already contemplated in the legal codes through other legal entities. As a
result, many countries refuse to incorporate them as a legal category.
As a consequence, a concept that surged and was internationally devel-
oped under police semantics, has led to the growth of international police
bureaucracy of global reach (Andreas and Nadelmann 2005). This type of
“global colonization of the police world” has been interpreted as the “thin
blue line”, in which police control issues play a fundamental role in the
governmental management of capitalist societies to handle topics concern-
ing daily life such as common crime, drug trafficking, and other types of
economic offenses (Young 2006; Gardland 2006).
However, the active element of this police underworld is far from a
formal system. In reality, it concerns a complex system of “gray areas”
where the limits between what is legal and what is illegal become vague
(Schultze-Kraft 2016). This system governs the informal, the under-
ground, and the clandestine (functional for some and dysfunctional for
others) (Saín 2014). It constitutes the materialization of this contradicting
system; meaning that on the one hand, it contributes to the regulation and
control of TOC in an adaptive way, and on the other hand, it favors the
morphology, escalation, and reproduction of TOC in LA and its political
interpretation. In other words, from a constructivist perspective, it is an
informal system molded and molds this complex criminal world.
This “gray governance” can be found on the one hand, in the effective
materialization of a system of “criminal governance” that aims to mediate
between the tactical and strategic interests of the states, and the interests
of criminal groups (Arias 2006 quoted by Schultze-Kraft 2016). An exam-
ple of this relates to the network of alliances and disputes among illegal
actors that operate in the TOC economies, when at the end of the 80s,
Colombia found itself in a fratricidal struggle between the Medellin and
Cali cartels. The police and the Colombian military, together with various
intelligence agencies from the USA, joined forces to stop the violence
whose genesis goes back to competition in the cocaine market in the main
capital cities of the world. As such, while the Orejuela brothers, the drug
lords of the Cali cartel, had around 3000 people working for them around
the world, in the form of “sleeper cells”, in charge of opening legal busi-
nesses and living the most normal possible lives, Escobar, the head of the
Medellin cartel, negotiated with high level state officials, such as members
of parliament and judges (Salazar 2012). Both cartels had spy and counter-
spy offensives, which over time led to betrayals on both sides. In this
regard, according to an interview published in a report of the BBC news-
paper regarding William Rodríguez, one of the heirs of the Cali cartel, it
was publicly stated that the cartel managed by his father was helping the
authorities for a long time, financially as well as with information, and that
“they were an important bastion of the fall of Escobar.” (BBC 2014)
Likewise, there are other enigmatic cases, such as those specified in the
research of the journalist Anabel Hernández in her book Los Señores del
Narco [The Narcos] (2010). Through her book, she reveals how the
Mexican cartels managed to count on the support of high-level federal
agents, such as the Judicial Police, the Prosecutor’s Office, and the
AFI. The Zetas, for example, took advantage of the relationship that they
had with several officers of the Mexican military and the Prosecutor’s
Office to detect the position of their enemy, Osiel Cardneas, ex-leader of
the Golfo cartel. A persecution and war provoked by the possession of
land was also the liberation between the criminal organization “La
Federación” [The Federation] with the cartels of the Golfo and the Zetas;
in this case, the ex-leader of La Federación, “El Chapo Guzmán”, while he
received protection he administered suitcases filled with dollars from offi-

cers. As a result, somebody from the Golfo cartel made an allegation at the
Prosecutor’s Office, who confirmed that certain elements of the AFI were
members of the Zetas and, instead of putting them at the disposal of the
public ministry, they were handed over to a criminal organization
(Hernández 2010: 403–414).
Other enigmatic cases in the region that show the reach and forms of
operating in an informal manner by these agencies are those that took
place in El Salvador, when a structure of drug traffickers that included
judges, policemen, and fiscal officers was dismantled (Diario1 2014).
Other examples are the flagrant cases of the DEA when they asked the
authority of control in specific countries to allow certain shipments
through, in order to be able to study the drug trafficking routes, and to
follow up on certain organizations (Saín 2014:130). We can continue pro-
viding more examples of actions that show the complex relationship of
activities that combine formal and informal procedures, which definitely
decipher a form of management of legal economies.
In parallel, another area of this “gray governance” is the system of
alliances and disputes that exists between police agencies. Unlike the
way in which this world is looked at as a community of harmonic coop-
eration centered on customs, traditions, and police ethics, the contrast-
ing reality is that this system also emerges with a complex environment
of interagency, intrastate, and interstate disputes. In this sense, some of
the frequent criticism of the most famous organizations of the North
American intelligence community—the CIA and the FBI—can be useful
for this investigation. As is well known, J. Edgar Hoover, Director of
the FBI for more than 48 years (1924–1972), despised the mandate of
the CIA, and accused them of not sharing information. Another event
took place in 2012, when the surprising withdrawal of David Petraeus as
head of the CIA, due to careless messages from his lover, was associated
with an FBI filtration. The competition between both agencies became
even more intense during high commotion events such as the assassina-
tions of John F. Kenney and Martin Luther King, or, more recently, the
events of 11 September 2001, where there were cross-accusations of
bad performance and unskillfulness. A similar situation is confirmed to
exist in a general way between the National Police and its peers at the
Military, or between the Investigation Police of Chile and the
Carabineros, amongst other cases. Nevertheless, it is in this system of
competitive disputes where the regulatory capacity and the hegemonic
influence of regional police cooperation, such as the DEA, emerge.
From this perspective, as it is an informal world, anarchy plays a

fundamental role in this system where improvising and contingence cer-
tainly form part of this world. However, the need to regulate this confus-
ing world has resulted in strategic advantages for agencies in the USA with
respect to the capacity of the global and regional regulation of
TOC. However, this supremacy is far from being only a formal scheme or
material based on the technical and financial cooperation as sometimes
considered from a realist perspective.
In general, this regulatory supremacy is established through an infor-
mal system of doctrinarian influence that was developed based on the
historic heritage of international cooperation in police training that has
transcended political conjunctures of the region. While the livelihood of
this supremacy is sustained by financial and formal technical support,
this affinity, confidence, and doctrinarian or ideological empathy with all
police agencies in the USA allows for the follow-up and guidance of a
large network of informants from the police, judges, fiscal agents, unions,
and other strategic and tactical actors related to the control of drug traf-
ficking. This has given them comparative advantages in the management
of these intelligence communities. Paraphrasing Emmerich (2016) “the
central archive of the DEA in El Paso, Texas (El Paso Intelligence
Center) is the most powerful source of information on the global drug
trafficking and money laundering level, where all the information com-
ing from the 86 offices scattered throughout the world converges.” This
situation is reflected by the control of the management of information,
which, for many sub-regional and local agencies, is managed in a frag-
mented way.
A sample of the informal influence of this police and military under-
world can be observed during the last decade in LA. In spite of the emer-
gence of Bolivarian governments (Venezuela, Bolivia, and Ecuador) that
have marked a political distance from technical and financial cooperation
with the USA, this did not result in a large impact in terms of security, but
rather, in various cases it increased police productivity regarding the cap-
ture and decommissioning of drugs (UNODC 2012; OEA 2016). The
Ecuadorian Minister of Internal Affairs, José Serrano, received an award,
in 2016, from the DEA for his efforts in the fight against drug trafficking
(El Comercio 2016). There have also been recurring practices of coopera-
tion between the agencies in the USA and the Cuban agencies for the
interdiction of drugs in high seas of the Caribbean, in spite of the rupture
of relations between these two countries for over 50 years.
Another example is that of the Ecuadorian-Colombian COMBIFRON,

where the capture of various Colombian drug traffickers took place in
Ecuador as a result of fluid police cooperation, in the midst of a rupture of
relations between the two countries due to the attack on Angostura in
2008. Similarly, in 2015, in spite of political hostility between Colombia
and Venezuela, their police agencies carried on with the exchange of infor-
mation to neutralize a criminal alias “Megateo”, one of the most wanted
criminals of the country, who was involved in drug trafficking and trans-
national organized crime.
As such, regulatory informal interagency capacity operating within the
criminal world is considered to also have an effect on these institutions in
influencing the political interpretation of the criminal phenomenon.
Thus, we think that, in spite of the creation of various unilateral and mul-
tilateral organizations for the measurement, monitoring, and analysis of
the criminal world, such as the UNODC and the State Department,
which have applied methodologies of systematic estimation, annually
applied to measure the impact of drug trafficking, this exercise will always
be a highly speculative topic and of interpretative police advantage with
its own solution strategies. Therefore, the regulation capacity also con-
sists of a hegemonic influence within the epistemic LA communities on
this phenomenon.
Ultimately, this police underworld based on a system of alliances/dis-
putes and the informal regulatory capacity is conceived as a new form of
understanding the complex interdependence of the governance system of
TOC. The magnitude or influence of this informal governance system
directly relates to the proportionality and escalation of TOC on a regional
level.
In Conclusion: The Case of the Southern Cone

Mauricio Macri’s triumph on becoming President of the Republic of
Argentina in 2015 has meant a significant political change in this region
during recent years. His government has put an end to the Kirchnerist
leadership that had politically managed Argentina since 2003, under an
intended progressive line of a leftist developmental state. This political
triumph of Macrism has been interpreted by many as the symptom of
change in the correlation between the forces in the region that became
concrete in the year 2016, the impeachment of Dilma Rousseff by the
Brazilian senate, the loss of the referendum for the indefinite re-election of
President Morales in Bolivia, the Venezuelan crisis, and it will probably be

an important tendency in the presidential elections in Ecuador in 2017.
Within this context, the fight against drug trafficking has been one of
the priorities for the new Argentinian government. In effect, from the
start of its management, the plan “Argentina without Drug Trafficking”
was established, which aimed to form a frontal fight against this scourge
inside this country. This situation has emerged as a need to strengthen
control as it faces the emergence of the threat of the drug trafficking
industry in Argentina during recent years (El País 2016). For this reason,
among the proposals of this new government, the goal is to strengthen
contact with the DEA and the FBI to strengthen the fight against TOC
aimed at improving the internal protection and the border security of this
country. This situation was consolidated with the historic visit of the
President of the USA, Barack Obama, in mid-2016, during which topics
regarding security and drug trafficking played a central role on the agenda.
Historically, Argentina’s position, together with other countries of the
Southern Cone, has been marginal in the problem of drug trafficking.
Unlike the Andean Region (the main producer of cocaine on a global
level), the topics related to the drug problem were treated from the per-
spective of public health, facing a growing increase in the consumption of
narcotic substances and psychotropic drugs. In the 90s, this phenomenon
started to be associated with the growing urban youth crime, as was char-
acteristic in LA countries during the last 30 years and thereby an issue of
management and interpretation by the local police. Nevertheless, the geo-
political role of this country in facing the drug trafficking situation was
perceived internationally as a place of destination and marginally in
passing.
Halfway into the first decade of the twenty-first century, the role of
Argentina, like the other countries of the Southern Cone, began to change.
As of this moment, variations are observed in the levels of drug seizures of
these countries, that register a change in status, from a destination country
to a transit country. According to the OEA (2016), drug seizures in
Argentina increased from 3.06 tons of cocaine in 2004 to more than 12
tons in 2009. This situation is also associated with changes in the global
demand, which enhanced the role of the Southern Cone as an exit route
for drugs coming from Colombia, Bolivia, and Peru towards Africa and
later Europe (UNODC 2013).
Meanwhile, during recent years, in Argentina the refinement of cocaine
has been an important characteristic of the drug trafficking industry of this
country. This is a product of various laboratories for the refining of this

alkaloid in various Argentinian cities such as Buenos Aires, Rosario, and
Córdova. There are no estimated figures regarding the value and quanti-
ties that this practice represents, but it is assumed that a major component
of the drug produced in this country is for internal use, whose raw materi-
als (base paste) come from countries, such as Bolivia and Paraguay, via
land or sea through the Paraná River. An important topic to highlight in
this case is the practice of urban production of cocaine, which had not
been seen since the end of the 80s in Colombia, when the production of
drugs had been moved to the countryside. Likewise, there is evidence for
the participation of Argentina in the provision of ephedrine, mainly used
for processing synthetic drugs. This situation is associated with the resur-
gence of certain levels of urban violence and important assassination cases
of entrepreneurs, assumed linked with this illegal business. For example,
according to the Semana newspaper (2016), Rosario registered 257 homi-
cides in 2013, which is 40% more than in 2012, with a death rate of 22 for
every 100,000 inhabitants.
The reasons for this escalation of the problem, in the framework of
conflictive politics, were attributed to the permissiveness of the govern-
ment prior to Cristina Kirchner (El País 2016) and the unilateral decision
to cut off ties with the DEA in 2011 (Emmerich 2016). Nonetheless,
given the scheme of contact and influence of the DEA with the distinct
police agencies of specific countries, these changes appear to be increas-
ingly associated with transformations in the dynamics of the criminal
economy of drug trafficking. In this sense, a geopolitical analysis of TOC
as a complex category is based on the existence of a high systematic rela-
tion on a territorial level in the analysis of the effects of this problem. For
example, the denominated “global effect”, or the displacement effect of
drug trafficking proposed by Bagley (2012), is nothing more than a sys-
tematic demonstration that tells us that what a country ends up doing is
not without direct and indirect consequences on other countries.
Therefore, the accusations of the operations of Colombia and Mexican
mafias, amongst others (Semana 2016), are no more than a result of the
undesired or marginal effects of the partial successes of the regional police
against TOC, which the police agencies aim to regulate under a scheme of
“criminal governance”.
Other important aspects that play a role in the proliferation of the esca-
lation of an issue such as TOC should not be ruled out. For example, the
geographic factor (size of the remote territory that makes control more
complex) without a doubt, complies with a substantial part of this dynamic.

Similarly, it is also important to consider the economic and commercial
boom of certain areas in Argentina, a result of the commercial soya boom
that boosted the emergence of economic informality. This, associated with
high levels of exclusion and social poverty, is constituted at actual breeding
grounds for the proliferation of these criminal activities in the population.
In addition, there are problems with the control and the proliferation of
institutional corruption as triggers of this issue. However, these factors do
not appear to be the center of analysis of a complex topic reaching system-
atic perspectives.
For this reason, Argentina’s case represents the classic example of
this type of “gray police governance”. In other words, on the one hand,
it is presented as adaptive to the regional dynamics of transformations
of this criminal world, but at the same time, it also indicates the active
role of these agencies within the configuration and morphology of this
regional dynamic. Moreover, police governance plays an important role
in the semantic interpretation of this issue on a political level. It is not
without reason to think that the declaration made by the UNODC,
placing Argentina as the third drug exporting country on a global level
in 2013, came from an interpretation of statistics of police productivity
based on drug seizures (cocaine) due to its place of origin (UNODC
2013).
Despite the biases of this information, which was later reported by the
Argentinian government and subsequently recognized by the UNODC in
the same year (Chequeando 2013), the fact is that this declaration has
helped to position the new era of this country in its fight against drug traf-
ficking and TOC. It remains to be seen what the consequences are of its
transformation and escalation.
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CHAPTER 13
The South American Regionalisms: A Shift

or the Return of Economic Integration?
Cintia Quiliconi and Raúl Salgado Espinoza
Introduction
Regionalism in South America in the twenty-first century has been
observed in various forms and it has been academically developed into a
great variety of approaches. This investigation proposes that the fact that
there are many types of regionalism in the region demonstrates that we
can mainly speak of a regionalism à la carte in a world of various regional-
isms and uncertainty of the “benefits” of globalization.
In the context of a regionalism à la carte, international actors of region-
alism behave selectively and, according to their preferences, they choose
the type of regionalism required for their action in an behavior of “forum
shopping” (Hofmann and Mérand 2012). In the same way as political
international actors look for their appropriate field for action, researchers
tend to choose one appropriate approach according to their topic of inter-
est and the objectives of their investigation.
First, LA states see in the proliferation of regionalism an expanding
menu of opportunities for the representation and positioning of their
interest (Quiliconi and Salgado 2017). Second, there is no homogeneity
C. Quiliconi (*) • R.S. Espinoza


DOI 10.1007/978-3-319-62551-5_13
292 C. QUILICONI AND R.S. ESPINOZA
in the interest of each country across the South American region.

Moreover, there is a variety of, and contrasting ideological factors influ-
encing, the behavior of the South American states. Some of them have
maintained the interest in a neoliberal model of development and the pre-
vious close relationship with the main actor in North America—the USA.
Hence, the influence of the USA has played mainly a backseat role during
the period of the boom of the commodities (2002–2012), allowing some
key actors in South America, such as Brazil and Venezuela, to play a prom-
inent part for the period of the boom leading the creation of new regional
organizations such as the UNASUR and the ALBA. This has had, as a
result, a variety of regionalisms, whereby the regional agenda increased its
issue areas from traditional trade issues to new collective concerns such as
security, infrastructure, energy, and democratic governance, amongst oth-
ers. This phenomenon has been called regionalism à la carte and has
already been developed in previous works (Hofmann and Mérand 2012;
Quiliconi and Salgado 2017).
Despite the increasing number of regional organizations in South
America, and in LA as a whole, the strategic bilateral trade agreements
between the USA and the EU with LA countries have constantly increased,
maintaining in those countries the prominent role of the USA and the EU.
The action or inaction of these two main actors of international politics has
influence on regionalism and globalization in South American states. This is
the situation we see nowadays in South America, with the difference being
that some new regional institutions are debilitated while the prominent role
of extra-regional actors is being restored by new right-wing governments at
the same time as a globalization backlash is taking place. In this sense, this
investigation seeks to answer the following questions: Which factors best
explain the presence of a regionalism à la carte in South America? What
economic and political challenges are confronting South America in the age
of post-boom commodities? How does the new international political spec-
trum affect opportunities for South American regionalism?
This study has been based on secondary studies about Latin and South
American integration and regionalism, published in the twenty-first cen-
tury, on the observation of recent behavior of the USA and the EU, and
on official documents regarding the various foundational treaties of LA
regional organizations as well as on documents of trade agreements
between the USA and the EU with South American states. These data
have been analyzed employing a qualitative content analysis technique.
This analytical process has enabled us to reinforce our thesis that the
THE SOUTH AMERICAN REGIONALISMS: A SHIFT OR THE RETURN... 293
phenomenon of regionalisms in South America can, at best, be referred to

as regionalism à la carte whereby the new governments have the possibil-
ity to return to the old instruments of regionalism or revive the recent
ones depending on the agenda they are trying to advance. In the context
of regionalism and globalization, key international actors such as the USA
and the UK appear to torpedo the principles of globalization despite these
being promoted by them in the 90s and the beginning of the 2000s gen-
erating a new and changing international setting for the region.
In order to develop this argument, the chapter contains three sections.
The first section focuses on those factors that best explain the existence of
a regionalism à la carte in South America. The second section explores the
economic challenges for regionalism in South America in the age of post-
boom commodities, and the third section presents some reflections of the
impact the new globalization backlash in the present international political
spectrum might entail for the South American region. Finally, a short con-
clusion closes the chapter.
Factors that Explain a Regionalism à la carte

in South America
The fundamental ideas that underpin a regionalism à la carte are: an evi-

dent increase of the number of regional international organizations; they
differ in their aims; each of them includes different areas or agendas of
cooperation; there is no organization that includes all of their objectives in
a single project; international regional actors (mainly states) choose and
employ the regional organization that includes areas of cooperation of
their particular interest (Hofmann and Mérand 2012; Quiliconi and
Salgado 2017). Hence, this institutional isomorphism (Dabène 2009) can
also be seen as fields of action for the international regional actor whereby
the national interest plays a fundamental role.
This study has helped to identify the presence of most of these factors
in the process of regionalism in South America in the twenty-first century.
First, the regional trade liberalization of the 90s and the beginning of the
2000s resulted in an unprecedented expansion of intraregional coopera-
tion and trade interactions that were the prelude for a third wave of
regionalism in the whole of LA.
This third wave of regionalism was motivated by two main new trends
in the region: the overlapping interests of leftist governments with high
political and ideological motivation acted as an important encouragement
for the creation of alternative institutions to the open regionalism ones,

being the ALBA in 2004, the UNASUR in 2008 and the CELAC in 2010.
The creation of these regional initiatives was also empowered by a period
of boom of commodities and by a back-seat role taken by the USA in the
region. This was a period that has been described as “post-liberal regional-
ism” (Sanahuja 2012). Other authors call it “post-hegemonic regional-
ism” (Legler 2013; Riggirozzi and Tussie 2012; Briceño 2017).
On the other hand, the Pacific Alliance was created in 2012 as a result
of trade rapprochements of countries led by right-wing governments,
when the low prices of commodities started affecting the local economies,
left-oriented governments were struggling to remain in power, and China
and the Asia-Pacific were definitely consolidated as important trade part-
ners for South America, despite the end of commodities bonanza. Hence,
it could be envisaged as the beginning of a period of post-boom commodi-
ties in the region in which trade integration returns to the regional agenda.
This can be seen as one of the reasons why some authors (Nolte and
Wehner 2013, Leví Coral and Reggiardo 2016) do not consider the AP as
part of post-liberal regionalism. Notwithstanding this, it could be said that
its creation has also political motives given that one of the aims of this
initiative was to constitute a platform to negotiate in the Asia-Pacific. Most
of these new agreements are characterized by a predominant political and
strategic agenda rather than traditional trade integration objectives.
Scholars such as Quiliconi (2013) suggested that the hemisphere was
divided between two opposite models of integration (Atlantic versus
Pacific), or in some cases even three (revisionist, anti-systemic, and open
integration) (Briceño Ruíz 2013).
In addition to the intergovernmental regional organizations created in
the twenty-first century, there are further regional and subregional orga-
nizations such as the SICA, the LAIA, the CAN, and the MERCOSUR,
which, despite the creation of these new instruments of regionalism, have
transformed their fields of cooperation to adapt themselves to the new
circumstances and are still of fundamental importance for their members.
The MERCOSUR is a good example of the shift in its agenda: the cre-
ation of the Structural Convergence Fund, The Social Institute of
MERCOSUR, and the Institute of Public Policy in Human Rights are
examples that show this new trend of embracing new cooperation topics
besides trade. Hence, they can also be included as part of the process of
regionalism and integration in twenty-first century South America, and as
part of the menu of regionalism à la carte.
A comparison of some of the main aims of the four regional interna-

tional organizations created most recently (the ALBA, the UNASUR, the
CELAC, and the AP) enabled us to identify this kind of regionalism in
South America. The difference in the number of members (see Table 13.1)
Table 13.1 Regional organizations created in the twenty-first century and their
diversity of aims
Regional Organizations & full Some differences in their explicit objectives
members
ALBA: 11 member states To unify members’ capabilities and strengths in order
from the Caribbean and to produce structural transformations and the
South America, including necessary system-network for an integral development
Bolivia, Ecuador, and To defend the independence, self-determination, and
Venezuela identity of their members
UNASUR: all 12 South To create a space for integration and a cultural, social,
American states economic, and political union among the peoples,
prioritizing political dialogue, as well as social and
educational policies.
To promote the political dialogue, the South American
integration, and its world projection
To support social and human development, eradicate
poverty, and overcome inequalities in the region
To consolidate a South American identity
To protect biodiversity, water resources, and ecosystems
To promote cultural diversity
To cooperate in the area of human security and exchange
information and experiences in the field of defense
CELAC: 33 member states To promote and project a harmonized voice of LAC in
from LAC, including all 12 the political discussion about the big topics and the
South American states relevant events, regionally and globally
To become the regional interlocutor in international
conferences and meetings
To become a mechanism of dialog and agreement for
the strengthening of the social, economic, and political
links among its members
AP: Chile, Colombia, Mexico, To promote the free movement of goods, services,
and Peru capital, and people
To boost the growth, development, and
competitiveness of their economies
To become a platform of economic integration and
world projection with emphasis on the Asian Pacific
Source: Own elaboration on the basis of the foundational treaties and declarations of the ALBA, the
UNASUR, the CELAC, and the AP
already shows a fundamental basis for the explicit objectives (those being
in the Treaties, Agreements, or Foundational Declarations). At the same
time, it allows us to infer further implicit objectives. However, here only
the main differences in their explicit objectives will be explored, in order
to understand the presence of a regionalism à la carte in South America.
These explicit objectives differ particularly between the AP and the
three other regional organizations. As shown in the following table,
whereas the aims of the AP focus on the economic mechanism of integra-
tion and economic development, the other three regional organizations
place emphasis on the political dialog, as well as, social and human
development.
Although the ALBA, the UNASUR and the CELAC place emphasis on
political dialog as a mechanism for international projection, all three
endeavors play a diverse role in extra-regional politics. For example, the
ALBA has as an aim to influence the change of international structures and
establishes anti-capitalist aims, the UNASUR aims to construct a South
American identity, and the CELAC aims to become a regional interlocutor
for its members with extra-regional international actors.
Moreover, this table shows that none of these regional organizations
contains all possible aims of the four organizations referred. Hence, the
South American regionalism of the present decade cannot be considered
as a single project, despite the fact that the Treaty of the UNASUR sug-
gests using the experiences of the CAN and the MERCOSUR, implying a
convergence of these two, but the organization has systematically avoided
the task of combining both trade agreements. It also includes a variety of
further areas for cooperation based on positive integration. Namely a new
regional integration based on political issues, promotion of regional inter-
dependencies, and cooperation in various sectoral areas such as infrastruc-
ture, finance, security, education, and democratic stability, among others
(Sanahuja 2010) but avoiding the topic of consolidating trade integration
between the CAN and the MERCOSUR. In contrast to the economically
driven regionalism of the AP, the three other new initiatives are embedded
in a “re-politicization” (Dabène 2012) of LA in which the overlapping
existence of economically and politically driven regional initiatives reflects
the alternative ideologies that have prevailed in the region and that ended
up creating a complex geopolitical map of variable geometry in which vari-
ous alternative projects coexist (Sanahuja 2014).
This variety of regional organizations with different aims has also
opened up a new menu of alternatives and complementary fora to pursue
their particular national objectives. The discriminating employment of

each regional organization can vary according to the political tendencies
of the governments and the main objectives that have been established in
each institution. On the one hand, this phenomenon shows the institu-
tional flexibility for action, existing for the different state members of the
various regional organizations and for further regional actors.
On the other hand, regional actors also have a variety of ways in which
to activate themselves strategically and choose the international organiza-
tion from the menu for positioning their national interest. Hence, the
unitary South American national state or further international actors can-
not bring the great majority of policies and interests to a single regional
institution. For example, when Ecuador had its political impasse with
Colombia in 2008, as a product of the Colombian bombing in Ecuadorian
Angostura, Ecuador took the case to the UNASUR and not to the CAN
in the hope to find some support and solutions. Similarly, the regional
health agenda advanced in the UNASUR while cooperation in education
or migration took place under the MERCOSUR umbrella sometimes
involving associate members, as happened with the MERCOSUR
Residence Agreement that started as an Argentinean policy and diffused to
MERCOSUR members first and other South American countries later on.
Hence, South American regionalism presents à la carte options where
each country has the possibility of selecting according to its national inter-
ests. In that sense, membership does not imply a necessary use of the
institution. Some countries may opt out of some policy domains strategi-
cally choosing what agenda to address in each institution or to evade par-
ticipating in those organizations that do not offer a real return.
This was the case in the last summit of the CELAC in Punta Cana,
Dominican Republic, in January 2017 when the Argentinean, Brazilian,
and Mexican presidents did not attend the summit, demonstrating a disin-
terest in the organization. However, these states have the possibility to go
back to employ the organizations whose objectives are concordant with
the interest of the governing powers. In the cases of Brazil and Argentina,
there are possibilities of restoration and strengthening of the fields of
action within the MERCOSUR and also a deep discussion about the
importance of the MERCOSUR joining the AP.
Finally, this third wave of regionalism has been referred to by different
authors, as post-liberal regionalism (Sanahuja 2012); as an emergent neo-
regionalism (Allard 2013), as post-hegemonic regionalism (Riggirozzi
and Tussie 2012; Legler 2013; Briceño 2017), as New South American
Regionalism (Vivares 2014a, b), as multilateral regionalism (Saltalamacchia

Ziccardi 2014, 2015), as modular regionalism (Gardini 2015), as declara-
tory regionalism (Jenne and Schenoni 2015), and, the finally proposed,
axial regional integration approach employed by Nolte and Comini (2016)
to explain the policies and strategies of Argentinian governments in the
context of the construction of the UNASUR. None of these proposals can
be completely considered as a theory of regionalism, but they are ways and
approaches to explain and understand the phenomenon of proliferation of
intergovernmental regional organizations in the LA region given different
responses to new political and economic situations in the region.
This has had, as a consequence, another phenomenon and has an aca-
demic character. It is related to the theorization of South American region-
alism. As mentioned above, academics have developed a great variety of
approaches and ways of explaining LA regionalism. Hence, the debate on
regionalism and integration is colonized with a varied menu of approaches
in an à la carte form. The student and scholar of regionalism has to decide
from this menu which perspective to employ according to their interest,
topic, and the type of regional institution to be studied. First, this shows
the richness of the area of study that is well-established and developed IR
debate in the region. Second, it demonstrates the academic efforts being
made to offer instruments for analysis. However, none of these approaches
includes all the types of regional institutions of the region. This is also
another reason for calling the South American regionalism as à la carte
(Quiliconi and Salgado 2017).
Return to the Beginning: Economic Challenges

for Regionalism in South America in the Post-Boom
of Commodities Cycle
The current regional situation appears uncertain due to two main trends
at the regional and hemispheric level. On one hand, at the domestic politi-
cal level the end of the political cycle of left-wing governments in key
South American countries, i.e., Argentina and Brazil, poses big questions
of which country will lead regionalism in the subsequent years. In this
sense, the change from a left-wing to a right-wing government in Argentina
poses impairments on South American Regionalism given that the new
president has so far avoided attending any summits of the UNASUR or
the CELAC and has publicly declared intention to join the AP and sign
preferential agreements with the EU and the USA. In a similar vein, Brazil,
after Dilma Rousseff’s impeachment, has also experienced a turn to the

right that has expressed similar interests to the new Argentinean govern-
ment in terms of its regional integration preferences. In summary, political
crises in Brazil and Venezuela, vis á vis the arrival of right-wing govern-
ments in Argentina and Brazil, have left South American regionalism with-
out any leader to encourage deeper levels of cooperation regarding political
issues.
On the other hand, the “populist revolts” of 2016 that conveyed the
Brexit in the UK and Donald Trump’s election in the USA have set new
standards in terms of integration, putting an end to an era characterized
by bilateral hectic-deal making of trade agreements (Rodrik 2016). This
did not create a big problem for South America several years ago particu-
larly because within the LA region, with the exception of Mexico and
Central America, South America has been on its own since the beginning
of the commodities boom at the beginning of 2000s in which, for many
countries, China became the biggest trading partner, and the USA played
a back-seat role. However, the end of the commodities boom in 2012, in
combination with the end of the left-wing cycle, is leaving South American
regionalism underfinanced and leaderless. Nonetheless, it would not be
fair to blame the change in politics of the governments for the problems
South American regionalism is experiencing. A common sign after a
decade of political amalgamation in the majority of the South American
countries is that the level of intraregional trade has stagnated despite
cooperation possibilities in many areas.
As Quiliconi (2017) argues, the expansion of trade relations between
Asia and LA has reoriented the local production factors towards sectors
that encompass less value added products, discouraging intraregional
trade and participation in global/regional value chains. The reorientation
towards a neo-extractivist model of development has made the LA econo-
mies much more dependent on the export of commodities. This depen-
dence has had a direct impact on intraregional trade flows and, in turn, has
hindered the influence that regional trade integration had back in the 90s.
This lack of economic incentives to consolidate economic regionalism,
due to the shift toward a partnership with Asia and particularly with China,
has more recently been followed by the lack of leadership to support
regionalism in South America. Brazil has mostly been a reluctant leader
but its uneven involvement in the UNASUR ended with the impeachment
of Dilma Rosseff in mid-2016. This new political situation left the
UNASUR without the support of three of its most earnests proponents,
i.e., Argentina, Brazil, and Venezuela. The new Brazilian government

quickly aligned with the North and abandoned any type of regional
endeavor except for its intention to join the AP. Argentina, in turn, with
the change of administration from Fernandez de Kirchner to Macri, also
took a similar path joining the AP as an observer and showing a clear lack
of interest in any South American endeavor, except for the MERCOSUR,
where it has recently joined forces with Brazil to exclude Venezuela due to
its breaches of the agreement. Finally, Venezuelan leadership in the
UNASUR has been declining given the deep domestic crisis this country
has been facing.
In summary, the region is going through a transition phase in which
regional integration in its pure economic sense has taken a backseat due to
a decade of reprimarization of South American economies that took away
any incentives to support intraregional trade. Most of these economies
favored political regionalism under the UNASUR creating a new platform
to address new topics but leaving aside the trade agenda of the old instru-
ments of integration such as the CAN and the MERCOSUR and losing
the impetus of their initial and primary objectives. This view is concomi-
tant with the proposal of Briceño Ruíz (2017: 77–78) who suggests that:
“there is a consensus that the logic of regionalism was transformed in the
first decade of the new century. Conversely to the era of hegemony of
open regionalism, free trade is not central to many regional initiatives such
as ALBA and UNASUR.”
The abandonment of the trade agenda is due to the high dependency
of the region on commodity exports having sharply increased, particularly
in South America, where raw materials exports currently represent around
40% of the total value of exports to the world, while at the end of the 90s
they were only around 25% (CEPAL 2014). However, this situation began
to stagnate in 2012, but many South American countries have already
shifted their production towards those commodities and have become less
diversified in terms of production and, in turn, highly dependent on the
price fluctuations of these products (Quiliconi 2017).
Even though 2017 is the year in which LA is expected to emerge from
the recession that began at the beginning of this decade, growth forecasts
are negative. Particularly as the international scenario does not seem to
aid a recovery since the USA and Europe are facing nationalist revolts that
encourage protectionism. In addition, many LA countries face impor-
tant domestic challenges. Ocampo (2017) points out that Venezuela’s
ongoing political and economic crises are the most important, and that
Brazil is not yet positioned for a strong recovery from its recession and
faces a weak political situation.
On the other hand, Argentina is still fighting high inflation and fiscal
deficits. Finally, to complete the picture, Ecuador is in a delicate situation
due to falling oil revenues and the lack of a monetary policy due to its dol-
larized economy in a region where most countries have already depreciated
their currencies. Clearly, this situation directly affects the level of commit-
ment that South American countries have towards regionalism. As we
pointed out before, the lack of leadership in many of the regional initiatives
has become one of the most common characteristics in a regionalism à la
carte. In this context, Malamud (2017) suggests that regionalism has
receded and diversification or à la carte regionalism has not paid off in a
context in which US hegemony has receded. Paradoxically, China appears as
the only counter hegemon capable of exerting leadership in South America.
Summing up, it could be said that in a situation of a contested interna-
tional neoliberal order, poor regional leadership, lacking economic resources
and weakness of the instruments of regionalism and integration set up by
left-oriented regimes, the other options on the menu for cooperation,
trade, and integration can be reconsidered and revitalized in South America.
The Present International Political Spectrum

and the Globalization Backlash
As part of the wave of globalization of the 90s, many PTAs between the
USA and countries from the South took place and continued to be
arranged in the first decade of the twenty-first century as a way of deepen-
ing the export-oriented strategies propelled by the neoliberal policies,
which were supported mainly by the USA and the EU. Those PTAs have
particularly intensified in the 2000s with the characteristic of crossing the
North-South divide. This is one of the factors of regionalism in the twenty-
first century and which was referred to in a previous investigation as neo-
liberal regionalism reloaded (Quiliconi and Salgado 2017). In LA this
particular development was crystallized by the creation of the AP that
gathers those countries that have active joined the trend of North-South
preferential trade agreements.
This development created the impression that globalization was still
spreading at the beginning of the present decade. However, this global-
izing development experienced two big backlashes in 2016. First, the UK
voted to abandon the EU through a close referendum, and most recently,
Donald Trump’s election in the USA. As Riggirozzi and Tussie (2016)

claim, Brexit is revitalizing a conventional argument that links regional
integration to loss of sovereignty, and to markets, and normative regulat-
ing flows of people, which might be the case in terms of tariff liberalization
but not necessarily generating incompatibility with a revitalization of state
power in other governance spheres that the EU has encouraged.
Nonetheless, the loss of sovereignty vision prevailed in the UK favoring
Brexit.
This regionalism backlash has left open questions in terms of its mean-
ing for the LA region as many countries have already signed PTAs with the
EU. Other countries within regional organizations, such as those mem-
bers of the MERCOSUR, have recently revived the need for such agree-
ment. Particularly, since the impeachment of Dilma Rouseff and her
replacement by Michel Temer vis-à-vis the election of Mauricio Macri in
Argentina, the interest to accelerate trade talks between the MERCOSUR
and the EU is evident. However, given the complexity that these negotia-
tions experienced since they began in 1998, it is clear that, without the
UK the EU continues to be an interesting market for the MERCOSUR,
but for the EU the MERCOSUR does not seem to be a priority. In this
context, the revitalization of trade discussions within the MERCOSUR is
the result of a new appetite for trade deals, with the recent political shift
towards the right in Brazil and Argentina, showing again a new chosen
menu in the regionalism à la carte in the region.
This new appetite to encourage trade deals has recently encountered
pitfalls at the international level. As we pointed out before, globalization
backlash in the UK and the USA poses new challenges for regionalism and
open international trade. The active role of the USA as the promoter of
bilateral PTAs might have ended after Trump’s nationalistic speech favor-
ing protectionism of the North-American market. In that sense, a slow
trade growth, as well as economic and financial decline, signifies a big risk
for the LA economies. As Ocampo (2017) explains, USA protectionism—
or even the start of trade wars—is now a real possibility. Moreover,
Trump’s threats centered not only on China, but also on Mexico, where
firms have already started to reduce investments and cancel plans to expand
output to serve the USA market, shows the beginning of a globalization
backlash. Particularly, Trump’s promise to renegotiate the NAFTA could
begin a domino effect that could be felt throughout LA, as many other
bilateral free-trade agreements between the region’s countries and the
USA are essentially NAFTA’s offspring. In this context, the MERCOSUR
countries that were also interested in signing a bilateral agreement with

the USA face a new unfavorable scenario.
Particularly, Trump’s abandonment of the TPP opened the door for
China to push its own brand of trade in a very dynamic region. In that
sense, President Xi Jinping recently said, at the World Economic Forum,
that China would defend globalization against populist forces that want to
end free trade (World Economic Forum 2017). As Trump has pledged to
renegotiate NAFTA, and even CAFTA, that can turn to be an enormous
source of leverage for China in LA.
In this sense, Trump’s suspension of the TPP has generated two differ-
ent reactions: first, the explicit intention of many countries to advance
TPP negotiations even without the USA and second, a good receptivity to
president’s Xi proposal to add them to the RCEP1 and eventually a FTA of
the Asia Pacific (Serbin 2016). China is eager to participate in bilateral and
multilateral trade deals, as a way to deepening reform and opening up its
own economy vis-à-vis its involvement in the BRICS Development Bank
that gave institutionalization to the group and still has the potential to
challenge traditional multilateral organizations (Quiliconi and Kingah
2016). China has also reinforced its presence in LA under the umbrella of
what they have called “comprehensive cooperation” and “strategic asso-
ciation” in a document presented in 2016 in which they ratified the stra-
tegic importance of the region for Chinese global projection.
Conclusion
South American regionalism is experiencing a phase of uncertainty and
lack of homogeneity. The period of the boom of commodities and the
contrasting ideological factors of the governments in power have moti-
vated the creation of a variety of regional international organizations that
make up a menu of regionalism à la carte whereby political actor (states)
can behave as being in a “shopping forum”. Some states with right-wing
governments have maintained a close relationship with the USA and have
signed commercial treaties with it and with the EU enabling these actors
to play a more prominent role in the region in subsequent years. On the
other hand, regional organizations created during the domination of the
left-wing governments such as the ALBA and the UNASUR appear to be
in decline and are showing a tendency to play a back-seat role in the South
American regionalism due to a financial and political crisis affecting the
whole region and the return of right-wing governments. In this context,
the South American regionalism is best explained as a regionalism à la

carte. This means that regional political actors focus on policies and areas
of cooperation that encompass the interests of the governments in power.
For this reason, actors choose the regional institution that has as an aim
such concomitant objectives; as there is no single organization that
includes all of their objectives in a specific project. Not even the CELAC
and the UNASUR, which include all the South American states, have the
same explicit objectives. Moreover, in the context of regional leadership,
economic decline and weakness of the instruments of regionalism and
integration set up by left-oriented regimes, the other options from the
menu for cooperation, trade, and integration, such as the AP and the
MERCOSUR, can be strengthened and revitalized.
Finally, in light of the present economic nationalism, isolation, and pro-
tectionism of two big global players, the USA and the UK, both
globalization and regionalism are experiencing a challenge. First, US

President Trump´ s protectionist ideas and threats centered not only on
China, but also on Mexico, show the beginning of a globalization back-
lash. President Trump’s decision to renegotiate NAFTA could start a
domino effect in the USA-LA relationship, as most of the bilateral free-
trade agreements between the USA and other LA countries are based on
the ideas of expanding NAFTA to the South. On the other hand, the
Brexit has put the efficiency and stability of the EU and their relationship
with extra-regional actors into question. In this context, the MERCOSUR
and Andean countries that have signed or were also interested in signing a
bilateral agreement with the USA as well as with the EU face a new unfa-
vorable scenario of uncertainty as well as a redefinition of their regional
and global projection.
In summary, the region is facing three big changes simultaneously.
First, the end of the boom of commodities cycle poses deep economic
challenges to support South American regionalism. Second, the end of the
pink tide leadership that supported South American political regionalism
during the 2000s poses new tests to these initiatives. Finally, the beginning
of a globalization backlash in two of the traditional guarantors of the neo-
liberal economic order reshuffles priorities in the region and opens up new
spaces for Chinese influence in South America. It is still early to diagnose
whether post-liberal or post-economic regionalism will survive these deep
challenges but it will definitely be deeply affected facing these deep
changes.
Notes
1. RCEP is a proposed free trade agreement between the ten member states of
the ASEAN that gathers Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, the Philippines, Singapore, Thailand, and Vietnam, and the six
states with which ASEAN has existing free trade agreements (Australia,
China, India, Japan, South Korea, and New Zealand). RCEP negotiations
were launched formally in November 2012 at the ASEAN Summit in
Cambodia.
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———. 2012. Cambio de Ciclo en el Regionalismo y la Integración Regional en
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———. 2014. Enfoques Diferenciados y marcos comunes en el regionalismo
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regional. Pensamiento Propio 44: 7–11. Available at http://www.cries.org/wp-
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Regionalism. In Exploring the New South American Regionalism (NSAR), ed.
E. Vivares, 1–6. Surrey: Ashgate.
———. 2014b. Toward a Political Economy of the New South American
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https://www.weforum.org/agenda/2017/01/full-text-of-xi-jinping-keynote-
at-the-world-economic-forum
CHAPTER 14
Africa: Clues About the Tendencies

of the Global South
Timothy M. Shaw
The South has risen at an unprecedented speed and scale … By 2050,

Brazil, China, and India combined, are projected to account for 40%
of world output in purchasing power parity terms …
The changing global political economy is creating unprecedented
challenges and opportunities for continued progress in human
development. (UNDP 2013)
As a central feature of “global” development, including both MDGs and

now SDGs, African “development”, both applied & analytic, was at a sig-
nificant conjuncture mid-decade in the symbolic year of 2015 (Shaw
2015): what prospects/directions post- or beyond-2015 (www.post2015.
org) until 2030 (Cilliers and Sisk 2013) if not the AU’s symbolic 50th
anniversary in 2063 (www.agenda2063.au.int): can the African political
An earlier & shorter version of this paper appeared as the Preface to the revised
paperback edition of Cornelissen et al. (2015) published in the Palgrave
Macmillan IPE Series in Spring 2015, ix–xxi.
T.M. Shaw (*)

UMAss Boston, Boston, USA

DOI 10.1007/978-3-319-62551-5_14
310 T.M. SHAW
economy continue to aspire to being “hopeful” rather than “hopeless”, as

The Economist has come to articulate in a revisionist rethinking (Kararach
et al. 2015)?
Such concerns are becoming ever more salient as the global economy
slows in the middle of the second decade of the new millennium: from
crash in commodity prices 2014–2015 to China’s devaluation of the ren-
minbi in August 2015, now reinforce by Brexit, Trump, and the never-
ending Eurozone crises (see first section below): who are the shorter-/
longer-tem winners and losers among states, sectors, companies, genera-
tions? Beyond a “statistical” to a developmental “tragedy” (Johnston and
Jerven 2015): the real drama of 2015? Ian Taylor (2015a) is very skeptical
that Africa is rising.
The above opening citation from the 2013 UNDP HDR on the rise of
the “global” South brings together global change/governance, and
human development/security to which I would add transnational rela-
tions/regulation and regional relations/institutions (inter-governmental/
formal and otherwise)/development (Shaw et al. 2011). Apparent
• research/writing in part funded by QNRF NPRP # 6-1272-5-

160 on the diversification of the Qatari political economy out of
LNG and into new sectors in Africa
African growth and the attraction of FDI/ETFs/SWFs to the conti-

nent also raise awkward issues around data and methods: how can Africa
have a burgeoning middle class when its data suggest is it impoverished
and failed to reach MDG goals, at least in the aggregate (Jerven 2015)?
Controversially, arising out of a SFU Vancouver conference on African
data, in mid-April 2013, Morten Jerven (2015) has suggested that African
data are rubbish, which has not endeared him to African statisticians …
but has served to generate a healthy, interdisciplinary debate about Africa,
coedited with Deborah Johnston (Johnston and Jerven 2015) on the
“statistical tragedy” of Africa … and, in 2014, the WB did indeed recalcu-
lated upwards the GDPs of Ghana, Kenya, Nigeria, etc.
Discourses on African & Global IR/Development

At independence, now over a half-century ago, African international rela-
tions and foreign policy were largely monopolized by new, jealous, albeit
problematic, “sovereigns”. Today, a quarter-century after the end of the
AFRICA: CLUES ABOUT THE TENDENCIES OF THE GLOBAL SOUTH 311
Cold War, cross-border connections are increasingly non- or extra-state,

from the APP (www.africaprogresspanel.org) to the West African
Commission on Drugs (www.wacommissionondrugs.org/), through Kofi
Annan (www.kofiannanfoundation.org) and Mo Ibrahim Foundations
(www.moibrahimfoundation.org). Similarly, peoples, goods, and ideas,
legal/legitimate or otherwise, flow across borders with minimal regula-
tion, as indicated by the Ebola virus “crisis” in 2014–2015; the regular
delivery of “ghat” to Somali communities (at least, the men) around the
Horn; the cross-border networking of Islamic fundamentalists connected
to Al-Quaeda/Boko Haram, especially in West and East Africa (e.g., US
Embassy bombing, Westgate attack, etc., in Nairobi); inter- and intra-
religious tensions between, say, Sunni and Shiite, orthodox Christians
(such as Anglicans and Catholics) as well as heterogeneous Coptic/
Orthodox churches, and the “born-again” as the latter, Pentecostals, pro-
liferate throughout the Global South, especially in LA, Africa, etc. …
Meanwhile the notion of “global IR” is beginning to gain traction,
initially advocated by Tickner and Waever (2009) and now espoused by
the leading IR professional association, the ISA (www.isanet.org), as its
theme for its February 2015 annual conference: “Global IR and Regional
Worlds: a new agenda for international studies”. Asia is generating inter-
esting comparative analyses and debates (Acharya 2009). I am especially
pleased that my two coedited collections on African IR have gone into
revised paperback editions mid-decade (Dunn and Shaw 2013).
I build on the increasingly familiar and compatible concepts of “the
transnational” (Findley et al. 2014, Mukherjee-Reed et al. 2012) and
“global governance” (Harman and Williams 2013; Roger and Dauvergene
2016) as together they advance analysis of transnational African relations
and regulation symbolized by the KP and EITI, and now the APP (www.
africaprogresspanel.org). The subsequent articulation of an AMV, in turn,
advances the notion and prospect of an “African Agency” (Brown and
Harman 2013) reflective of unanticipated and unprecedented growth
prospects generating a broader range of policy options in Africa as else-
where in the Global South: from MDGs to SDGs?
Symbolic of a hopeful Africa was the advocacy by the UNECA of an
African “developmental state” at the start of the second decade of the
century (2011, 2012), reminiscent of the activist role of the UNECLA of
dependent development in an earlier era: an African variant of earlier Asian
NICs with dirigiste regimes. Moreover, in 2016, the ECA began to con-
sider the prospects of “developmental regionalism” (Adejumobi and
312 T.M. SHAW
Kreiter 2016), from SADC to TFTA, and on to CFTA? These obviously

need to be distinguished from the many classic “fragile” states (Brock
et al. 2012) concentrated on the continent (www.foreignpolicy.com). In
short, there are several “Africas”, just as the Global South is hardly homo-
geneous (Bergamaschi et al. 2017; Modi 2011).
This stark contrast—between Botswana and Mauritius on the one hand,
and DRC and Somalia on the other—poses difficulties for a singular
approach to both analysis and practice/policy (Kararach et al. 2015). So,
what is/are development/development policy/development studies in
2015 with the rise of the BRICS/EMs/FMs but also the persistence of
fragile states and local to national inequalities with implications for sus-
tainable human development/security given rise of fundamentalisms/
radicalisms? A special report from the Financial Times (2015), on the
continent, asks whether Africa can “bridge the development divide”.
Similarly, The Economist (2015a) leads its Middle East and Africa section
from Lokichar, in the distant north-west of Kenya, on how “Wild, ancient
and oil-rich Turkana shows how fast the continent is changing” under the
title of “Oil in the cradle of mankind: a glimpse of Africa’s future”.
Furthermore, given the ubiquity of “private” regulation, such as fair
trade/organic certification (Hudson et al. 2013), even developmental
states do not really/authoritatively control burgeoning new sectors such
as mobile phones/finance, broadband internet, brands/franchises/logis-
tics (particularly South African), ATMs (SWIFT is a non-state network
controlled by the world’s banks (www.swift.com), etc. And, a range of
non-state rules on conflict-free minerals, diamonds, fish, forests, symbol-
ized by the FSC, the KP, Isealalliance (www.isealalliance.org), the MSC,
etc., set limits on statist or presidential ambitions even corruption and
capital flight/money-laundering).
Finally, the first decade of the twenty-first century was that of the
BRICs/BRICS, especially China and India, leading Jan Nederveen
Pieterse (2011: 22) to assert that the established North-South axis is
being superseded by an East-South one, especially in the second decade
of the twenty-first century, that of the MINT/MIST or “emerging
economies”:
“… the rise of emerging societies is a major turn in globalization … North-

South relations have been dominant for 200 years and now an East-South
turn is taking shape. The 2008 economic crisis is part of a global rebalancing
process.”
The Post-2015 Global Political Economy

To situate post-2015, this paper juxtaposes a set of parallel/overlapping
perspectives to consider whether the several “worlds”—from North
Atlantic/Pacific and on to eurozone PIIGS versus “second world”
(Khanna 2009) of BRICS/CIVETS/MINT/MIST/VISTA—have
grown together or apart as global crises and reordering have proceeded
(see myriad heterogeneous analyses, such as (Cooper and Antkiewicz
2008; Lee et al. 2012; Pieterse 2011; WEF 2012; O’Neill 2011). The
continent enjoyed a surge in FDI to almost US$90 billion in 2014, accord-
ing to a report from Di Intelligence in the Financial Times mid-May
(2015), concentrated in sectors such as energy (Hicks 2015), real estate,
and communications (de Waal 2015), and in more mature FMs such as
Egypt, Kenya, Morocco, and Mozambique.
The world monetary system is now triangular—the euro (Daianu et al.
2014) and renminbi as well as the US$ (Vermeiren 2014)—but global
growth is largely a function of another trio of markets—China and India
as well as the USA …
As global investment in the BRICS and other EMs peaked (Armijo and
Katada 2014), Africa became the continent with the most promising FMs.
Its growth trajectory will outlast that of the BRICS even if the risks are
greater; so continent-wide and country-specific ETFs proliferate (e.g.,
Market Vector Africa Index ETF by Van Eck Global and South Africa’s
first from the JSE (www.jse.co.za) at the start of the new century, now
over 20 available). In 2013–2014, Africa’s performance was enhanced by
the financial and telecommunications sectors rather than energy or mining
and SMEs rather than large-caps. It is increasingly able to attract new
sources of finance such as non-traditional donors (Sumner and Mallett
2012) such as the Gulf states, Korea, and Turkey, SWFs, and global pen-
sion funds, remittances from myriad diasporas, and new foundations such
as Annan, Clinton, Gates, Ibrahim, etc. As indicated below, FDI reached
US$50 billion in 2013. As a result, the continent has spawned a growing
number of indigenous economic/financial advisors/consultants such as
DaMina (www.daminaadvisors.com) and Franie Leautier’s Fezembat
Group (www.fezembatgoup.com) …
The Third International UN FFD (FFD3) gathered in Africa’s inter-
state center—i.e., Addis Ababa—in mid-July 2015, following the first pair
of events in Monterrey (2002) and Doha (2008), as part of getting beyond
2015 to SDGs (www.un.org/esa/ffd), especially the SDG summit at the
314 T.M. SHAW
UN in New York City around the annual General Assembly in September

2015. However, some in global civil society may be a little optimistic about
sidelining the Bretton Woods IFIs (Caliari 2015) as the BRICS/EMs have
their own stake in evolving multilateralism post-2015 (Besada and
Kindornay 2013). For the commentary on why/whether FFD3, see Yusuf
Bangura’s paper post-UNRISD: www.unrisd.org/road-to-addis-bangura.
The JSE is one of the world’s top 20 stock markets playing an increas-
ingly continental role and being part of the BRICS alliance and the BRICS
bank; its index stood around 50,000 mid-decade having risen from 5000
two decades earlier. The JSE can increasingly claim to be the regional
financial hub, advancing FMs throughout the continent.
Emerging Worlds/Regimes?
Each proposed grouping of, or acronym for, EMs & FMs embodies
slightly different sets of assumptions/directions/implications; PWC
expanded the “Next-11” of Goldman Sachs (i.e., 15 without South Africa)
to 17 significant EMs by 2050 (Hawkesworth and Cookson 2008): what
implications for transnational governance? Also, Laura Carsten Mahrenbach
(2013) put EM and EP together for her case studies of Brazil and India
(2/3 of the IBSA (Stuenkel 2015)), combining their roles in both inter-
national economy and global diplomacy.
Symptomatically, the initial iconic acronym was proposed at the start of
the new century by a leading economist working for a global financial
corporation—Jim O’Neill (2011) of Goldman Sachs (www2.goldma-
nsachs.com) —who marked and reinforced his initial coup with celebra-
tion of its first decade. As he noted at the start of the second decade,
global restructuring has been accelerated by the simultaneous decline, of
not only the USA and UK, but also the southern members of the Eurozone.
Many now predict China to become the largest economy by 2025, having
overtaken the USA in purchasing power parity (PPP) terms by 2015, with
India to catch-up with the USA by 2050 (Hawkesworth and Cookson
2008: 3). PWC (2013: 6 and 8) suggests that:
“The Emerging 7 countries (E7) countries could overtake the Group of

7 countries (G7) as early as 2017 in PPP terms … the E7 countries could
potentially be around 75% larger thEmerging Markets, Emerging States:
Globalan the G7 countries by the end of 2050 in PPP terms …”
“By 2050, China, the USA, and India are likely to be the three largest econ-
omies in the world …”
But, Stuart Brown (2013: 168–170) notes that there are competing
prophecies about the cross-over date when China trumps the USA, start-
ing with the IMF advancing such a transition (transformation?) to 2016
(cf. Kiely 2015).
As the G8 morphed into the G20 (Cooper and Antkiwicz 2008) a vari-
ety of analysts/agencies attempted to map the emerging world, including
Parag Khanna’s (2009) “second world” and Fareed Zacharia’s (2011)
“rest”: for example:
a) the WEF’s GRI advanced by a small state caucus centered on

Qatar, Singapore, and Switzerland (Cooper and Momani 2011)
(for a readers’ guide to GRI see www.umb.edu/cgs/research/
global_redesign_initiative);
b) the Constructive Powers Initiative advanced by Mexico (www.conse-
jomexicano.org/en/constructive-powers), which brought older and
newer middle powers together (Jordaan 2003) such as the old anglo-
Commonwealth with inter alia Indonesia, Japan, and South Korea;
c) the Emerging Powers Policy Forum for “established” powers’ part-
nerships with emerging “global swing states” (Kliman and Fontaine
2012), orchestrated by the German Marshall Fund for the USA
(www.gmfus.org) (Kliman et al. 2013);
d) at the end of 2012, from both sides of the pond, the US National
Intelligence Council produced Global Trends 2030: its alternative
worlds (GT 2030) (www.gt2030.com) identified four “mega-
trends”, such as “diffusion of power” and the “food, water, energy”
nexus; a half-dozen “game-changers”; and four “potential worlds”
from more to less conflict/inequality, including the possibilities of
either China-USA collaboration or of a “non-state world”;
e) Chatham House in London reported in Resources Futures (Lee et al.
2012: 2) with a focus on “the new political economy of resources”
and the possibility of global natural resource governance by “Resource
30” (R30) of major producers/consumers, importers/exporters
(www.chathamhouse.org/resourcesfutures): this comprised the
G20, including the BRICs, but not BRICS (i.e., no South Africa),
plus Chile, Iran, Malaysia, Netherlands, Nigeria, Norway, Singapore,
Switzerland, Thailand, United Arab Emirates, and Venezuela.
Other agencies/think tanks/consultancies that also make regular pre-

dictions/scenarios include CIGI at Waterloo (www.cigionline.org) and
316 T.M. SHAW
the Munk School at the University of Toronto (www.munkschool.uto-

ronto.ca); BCG, McKinsey (www.mckinsey.com), Deloittte, etc. … and
the Secular Forum at PIMCO, however discredited the brand (www.
global.pimco.com/EN/insights/pages/secular-speakers.aspx)
And, in the case of the most marginal continent—Africa—its possible
renaissance was anticipated at the turn of the decade by BCG, CGD,
McKinsey et al (Shaw 2012), with the Economist admitting, in January
2011, that it might have to treat Africa as the “hopeful” rather than
“hopeless” continent. Meanwhile, as already noted, the supply of devel-
opment resources is also moving away from the old North towards the
BRICS (Chin and Quadir 2012; Sumner and Mallet 2012) and other
new official OECD/ODA/DAC donors such as South Korea and
Turkey, plus private foundations such as Gates, FBOs, remittances from
diasporas, SWFs, and novel sources of finance such as taxes on carbon,
climate change, emissions, financial transactions, etc. (Besada and
Kindornay 2013).
In turn, especially in Africa, “contemporary” “global” issues—wide
varieties of ecology, gender, governance (de Waal 2015; Henley 2015;
Jensen 2015), health, norms, technology, etc.—have increasingly con-
fronted established analytic assumptions/traditions and actors/policies
leading to myriad “transnational” coalitions and heterogeneous initia-
tives/processes/regulation schemes as previewed in Bernstein and Cashore
(2008); Dingwerth (2008); these impact prospects for economic, envi-
ronmental, health, and natural resource governance in Africa, as
elsewhere.
Such extra- or semi-state hybrid “global governance” increasingly
challenges and supersedes exclusively interstate international organiza-
tion/law (Harman and Williams 2013). African IR has always been
quite transnational or non-/semi-state: it is becoming more so as the
continent’s non-state sectors—centered in the worlds of civil societies
(Africa Civil Society Secretariat; www.askafricanow.org) and companies
(e.g., Sub-Saharan African Chamber of Commerce (www.ssachamber.
org), and the Corporate Council on Africa; www.africacncl.org) —
expand. African Business Schools have proliferated this century to aug-
ment the trend away from the state (www.aabschools.com) and public
administration/policy; they are increasingly ranked globally as by the
Financial Times such as those in Lagos, Pretoria, and Stellenbosch.
Emerging Economies/States/Societies?
Africa’s economy is growing steadily. Last year average growth was 3.9% and
it is set to accelerate this year … FDI is helping to spur growth. It is expected
to reach US$55 billion in 2015, 20% higher than in 2010. Inflows of capital
are increasingly focused on less resource-rich countries as investors target
the continent’s booming middle classes. The amount of investment into
technology, retail, and business services increased by 17% between 2007 and
2013. FDI is also becoming a two-way affair. Last year, Africa’s outward
investment hit US$11.4 billion, up nearly two-fifths since 2011–2012.
(“Investment in Africa” box The Economist 2015b)
The salience of “emerging markets”, especially the BRICS and other politi-
cal economies in the second world, has led to debates about the similarities
and differences among emerging economies/middle classes/multinational
companies/states/societies, etc., informed by different disciplinary can-
nons; e.g., by contrast to Andrea Goldstein (2007) on EMNCs, Pieterse
(2011) privileges sociologically-informed emerging societies. In turn,
especially in IR, there are burgeoning analyses of emerging powers/
regional and otherwise (Flemes 2010; Jordaan 2003), some of which
might inform new regionalist perspectives, especially as these are increas-
ingly impacted by the divergence between BRICS and PIIGS. In turn, they
inform and advance alternative definitions of, and directions for, develop-
ment post-2015 (Grant et al. 2014).
Despite the US subprime and EU euro crises at the start of the twenty-
first century, FDI in Africa continues to grow, reaching US$50 billion in
2013, more than double ODA, primarily from outside the OECD: China,
India, and Malaysia, and myriad SWFs and SOEs. The drivers are increas-
ingly services for the burgeoning middle class (e.g., banking, real estate,
retail, telecoms, tourism, etc.) plus food and energy (www.un.org/africa/
osaa). The Globe & Mail (2015) suggested that “Africa’s clicking”.
However, the continent’s ranking in the latest Global Competitiveness
Report/Index from the WEF (www.weforum.org) is not overly impressive
or reassuring, at least compared to the BRICS: the top ten is led by
Mauritius (#39 globally), followed by South Africa (#56), Rwanda (#62),
and Botswana (#74), with #10 being Lesotho (#107 globally); by con-
trast, the top of the BRICS listing is China (#28) and the lowest India
(#71), with the remaining trio being in the fifties (as above, South Africa
# 56). The bottom of the competitiveness index, like that for fragile states,
318 T.M. SHAW
is monopolized by Africa: between #132 and #144: Guinea, Chad,

Mauritania, Angola, Burundi, Sierra Leone, Burkina Faso, Mozambique,
and Malawi .
With new energy discoveries and investments, a second tier of oil pro-
ducers has emerged after Nigeria and Angola: Equatorial Guinea, Congo-
Brazzaville, Gabon, South Sudan, and now Ghana, with Uganda (Mbabazi
2013) eager to join (Hicks 2015). LNG is now exported from Nigeria,
Equatorial Guinea, and Mozambique, with the latter possibly able to chal-
lenge the dominance of Qatar and Australia by 2020. And, by mid-2014,
the World Bank planned to launch a US$ 1 billion fund to map the conti-
nent’s mineral resources to advance the AMV (www.africanminingvision.
org), though all such expenditures have been slowed down by declining
commodity prices over the last 18 months.
Varieties of Development
“Development” was a notion related to post-war decolonization and bipo-
larity. It was popularized in the “Third World” in the 60s, often in relation
to “state socialism”—an official euphemism for one party even one man
rule—but superseded by neoliberalism and the Washington Consensus.
Yet the NICs then BRICs pointed to another way, by contrast to those in
decline, like fragile states (Brock et al. 2012); such “developmentalism”
(Kyung-Sup et al. 2012) has now even reached Africa (Hanson et al. 2014,
UNECA 2011, 2012). However, while the “global” middle class grows in
the South (Dayton-Johnson 2015), increasingly, major cruise-line compa-
nies—such as Carnival, Royal Caribbean, and Norwegian—sail out of
Shanghai and Singapore, as well as Miami, so do inequalities along with
NCDs such as cancers, heart disease, and diabetes.
Nevertheless, Africa has advanced as well as benefitted from mobile
technologies, from cell phones to mobile finance such as M-Pesa, devel-
oped in Nairobi at its iHub, its mini-MIT, Waterloo or Cambridge (UK).
IBM opened a research lab in Kenya’s capital mid-decade and now, in
2015, a trio of Kenya’s major universities is to build a basic laptop com-
puter, for over one million schoolchildren, with an initial US$ 170 million
from the government.
Given the elusiveness as well as limitations of the MDGs (Wilkinson
and Hulme 2012), the UN has been debating and anticipating post-2015
development desiderata (www.un.org/millenniumgoals/beyond2015)
including appropriate innovative forms of governance (Campbell 2013) as
encouraged by networks around INGOs (www.beyond2015.org) (de

Waal 2015) and think tanks (www.post2015.org). Aid is now about coop-
eration, networks (Smith and Reilly 2013), or alliances (Ritchey and Ponte
2014) not finance, as a range of flows is attracted to the Global South
including private capital, FDI, philanthropy/FBOs, remittances, let alone
money-laundering (Shaxson 2012); ODA is a shrinking proportion of
transnational transfers (Brown 2011, 2013: 24–28). Meanwhile, given
such dramatic global reordering (Henley 2015), the varieties of capital-
isms, state and non-state, proliferate.
Varieties of Capitalisms
The world of capitalisms has never been more diverse: from old trans-
Atlantic and trans-Pacific to new—the Global South with its own diversi-
ties, such as Brazilian, Chinese, Indian, and South African “varieties of
capitalisms”. Andrea Goldstein (2007) introduced emerging market
MNCs in the IPE Series, including a distinctive second index—five pages
of company names of EMNCs (see next paragraph)—and Andreas Nolke
(2014) has developed such comparative analysis of EMNCs in the middle
of the second decade. And, in the post-neoliberal era, SOEs, especially
NOCs (Xu 2012), are burgeoning. Both US/UK neoliberal, continental/
Scandinavian corporatist, and Japanese/East Asian developmentalist “par-
adigms” are having to rethink and reflect changing state-economy/society
relations beyond ubiquitous “partnerships” (Overbeek and van Apeldoorn
2011). Furthermore, if we go beyond the formal and legal, then myriad
informal sectors and TOC/money-laundering/OFCs are ubiquitous
(Findley et al. 2014).
For the first time, in the “Global Fortune 500” of (July) 2012, MNC
HQs were more numerous in Asia than in either Europe or North America.
There were 73 Chinese MNCs so ranked (up from 11 a decade ago, in
2002) along with 13 in South Korea, and eight each in Brazil and India.
Each of the BRICS/EMs hosted some global brands: Geely, Huawei and
Lenovo (China), Hyundai, Kia and Samsung (Korea); Embraer and Vale
(Brazil); Infosys, Reliance, and Tata (India); Anglo American, De Beers,
and SABMiller (South Africa), etc. On 20 June 2015, The Economist based
on Boston Consulting Group data reported that, “private wealth in Asia
overtook that in western Europe in 2014 and is set to overtake North
America by 2016”. It also noted that, “by 2021 it (China) will overtake
America as the world’s wealthiest nation”. And, in the August 2015
320 T.M. SHAW
Fortune Global 500 listing, China had almost 100 companies identified
(98 actually) (www.fortune.com/fortune500)!
Reflective of African growth prospects, as already noted in (i) above, by
2013, there were over 20 ETFs on sale at the JSE. Market Vectors’ Africa
ETF invested most in Egypt, South Africa, Nigeria, and Morocco, espe-
cially in: banking, breweries, and cement (www.vaneck.com). Many of its
largest investments are Nigerian: First, Guaranty Trust, United and Zenith
banks, and Nigerian Breweries. Meanwhile, the increasingly diversified (in
both products and locations, let alone markets) Nigerian Dangote Group
cement empire, owned by the continent’s richest man (at US$25 billion),
is expanding into a dozen African economies, from Senegal to Ethiopia,
into pastas, salt, and sugar, from cement, logistics, and real estate (www.
dangote.com), just as global cement giants, Lafarge and Holcim, agreed a
proposed merger. Also, in the first half of 2014, Nigeria announced that it
had recalculated its GDP—now almost double the previous level (to over
US$500 billion), so, leap-frogging South Africa—but the supposedly
ubiquitous energy sector is now down to 14% GDP, less than half of previ-
ous estimate. This reflects growth sectors such as mobile telecoms and
Nollywood (1.4% GDP from nothing) plus manufacturing (7%). The main
sectors leading to this recalibration were telecoms and trading.
The pair of dominant economies in SSA is unquestionably Nigeria and
South Africa yet, despite being increasingly connected, they display strik-
ingly different forms of “African” capitalisms and governance. Nigeria,
including its mega-cities, Lagos and Ibadan, is a highly informal political
economy with a small formal sector (beer, consumer goods such as soft
drinks and soaps, energy, finance, telecommunications, etc.). By contrast,
despite its ubiquitous shanty-towns, South Africa is based on a well-
established formal economy centered on mining, manufacturing, farming,
finance, services, etc. Both have significant diasporas in the Global North,
especially the UK and the USA, including Nigeria’s in South Africa, espe-
cially Jo’burg, remitting funds back home. Since majority democratic rule,
South African companies and supply-chains, brands, and franchises have
penetrated the continent; initially into Eastern from Southern Africa, but
now increasingly into West Africa and Angola. Transnational relations in
Africa, as elsewhere, are increasingly subject to transnational regulation,
including fair trade, by multi-stakeholder groups and supermarkets to
MNCs, including SOEs in agriculture, energy, mining, and telecommuni-
cations (Mukherjee-Reed et al. 2012).
New Regionalisms
The proliferation of states along with capitalisms post-bipolarity has led to a
parallel proliferation of regions (Haastrup and Eun 2014), especially if
diversities of non-state, informal even illegal regions are so considered rather
than just traditional inter-state organizations. Also, the eurozone crisis con-
centrated in the PIIGS has eroded the salience of the EU as a model
(Dosenrode 2015), leading to a recognition of a variety of “new” regional-
isms (Flemes 2010). In turn, inter-regionalisms have proliferated from those
around the EU and the ASEAN towards novel multi-lateralisms around
emerging donors—e.g., China-African FOCAC (www.focac.org), Japan’s
parallel TICAD (www.mofa.go.jp)—and a proliferations of focused arrange-
ments ex-China, such as the AIIB, (www.aiibank.org) Chang-Mai Initiative
(CMI) and CMI Multilateralization, SCO (www.sectsco.org), and now the
BRICS’ Bank (wwwbrics6.itamaraty.gov.br; www.thebricspost.com).
These can now be claimed to include instances of “African agency”
(Brown and Harman 2013) like South African franchises and supply chains
reaching to West Africa and the recently formalized Trilateral FTA among
the COMESA, the EAC, and the SADC (T-FTA) (Hartzenberg et al.
2012) along with older/newer regional conflicts such as the GLR plus the
regional as well as global dimensions of, say, piracy off the coast of Somalia
(ACBF 2014). Such piracy has proliferated and intensified off West Africa
too, as oil generates illegal as well as legal supply chains; so-called “bun-
kering”. In addition, Africa is installing pipelines as well as broadband
cables in the Sahara, coast of West Africa, and, soon, East African oilfields
(Hicks 2015). As climate change increases, the continent is likely to need
water pipelines too. Together these erode any claims to Africa hosting
“gatekeeper states”: GVCs, hubs, logistics, etc., all part of “development”
in 2015, are largely defined by “private” interests and rules.
ACBF published a formal evaluation of African regionalism in 2004 but
was limited to inter-state arrangements. With the AfDB, it is undertaking
a more comprehensive evaluation mid-decade (details to be added from
ACBF draft and consultation in mid-2015). Moreover, Chatham House
in London is organizing a conference on “Advancing Inclusive Insurance
in Africa” in late-September, in Nairobi (www.chathamhouse.org)
Also, mid-decade, emulating China and its AIIB, AfDB, donors, and
African companies have established “Africa 50” for the continent to
finance its own infrastructure through indigenous developers and inves-
tors. (www.africa50.com) …
322 T.M. SHAW
“New” Non-traditional (In)securities

Africa may have been growing at an unprecedented rate in the twenty-first
century but it has also had to confront a range of unanticipated and unfa-
miliar security challenges (Hentz 2014). Such NTS threats and myriad
novel and orthodox responses (Peter 2014) stretch from drugs, gangs,
and guns—citizen insecurity?—to fundamentalist or radicalized jihadist
networks, loosely connected to global al-Quaeda or “Islamic State”; e.g.,
Al-Shabaab in the Horn (Webersik 2014) and Boko Haram in West Africa
(Akinola 2015).
The former, drug supply chain has been recognized through the WACD
(www.wacommissionondrugs.org); the latter—terrorist threats—through
media and regional military responses. WACD (2014) published its report
on “Not Just in Transit” in mid-2014 and a variety of analyses, confiden-
tial and otherwise, have been produced about the dangers of “radicaliza-
tion” in both East and West Africa (Harman 2014). Al-Shabaab generates
particularly difficult dilemmas for Kenya and neighbors, such as Djibouti
and Ethiopia, given its established Somali citizens, especially around “little
Mogadishu”, the Eastleigh suburb of Nairobi (Carrier 2015). The mix of
immediate and distant diasporas as sources of remittances along with ideas
and weapons presents policy challenges for states and NGOs, let alone
global franchises such as Western Union and MoneyGram (Farah and Dini
2014) and now Dashabili.
And, given seemingly exponential climate change, increasing recogni-
tion of the emerging nexus of “water-energy-food”/land is likely to gen-
erate novel forms of tension, juxtaposing so-called “global” issues (see
next section) and NTS (www.water-energy-food.org; www.weforum.org).
However, Africa could be in the avant garde in responding to global
warming, especially this el niño year with regard to renewable energy,
especially CSP, which turns sunshine into steam and then electricity. Yet,
the continent at present has more unconnected people than other regions,
including South Asia: according to the latest APP report (mid-2015), 600
million lack access to grid electricity. According to The Economist (2015c):
“In 2010–2012 Nigeria’s renewable power production posted the world’s

fastest growth, at more than 15% a year … Africa is leading the embrace of
this idea (CSP): it hosts six of the ten biggest CSP plants being built around
the world.”
Emerging “Global” Issues

A growing number of global issues is increasingly recognized to be arising
in Africa as in the rest of the Global South as well as resulting from exces-
sive consumption/pollution in the North as NCDs, such as diabetes. In
the immediate future, these issues will include environmental and other
consequences of climate change and health viruses/zoonoses. They will
also extend to myriad computer viruses and cyber-crime (Kshetri 2013).
In response, the Gates Foundation (www.gatesfoundation.org), with oth-
ers, has advanced the GAVI (www.gavialliance.org) and the AGRA (www.
agra-alliance.org). The ubiquity of the Gates Foundation in African devel-
opment this century, especially health and now agriculture (Moran 2013),
is symptomatic of burgeoning transnational relations on the continent
which trump established inter-governmental institutions such as the WHO
or the FAO. Africa post-2015 will be different, but not necessarily as
anticipated in UN debates around SDGs (www.post2015hlp.org; www.
post2015.org; www.beyond2015.org). Similarly, the continent will bene-
fit from the US$200 million GIFof four OECD donors (Australia, Sweden,
the UK, and the USA) plus the Omidyar Network, intended to improve
the lives of the world’s poorest people.
Some suggest that we may be running out of basic commodities, like
energy (Klare 2012) and water plus food and land, let alone REEs. Finally,
after recent global and regional crises, the governance of the global economy
is at stake: the financialization syndrome of DBRAs, derivatives, ETFs/ETNs,
hedge and pension funds, SWFs, etc. (Overbeek and van Apeldoorn 2011).
The prospects for new African energy regions have receded as the global
commodities crash intensified mid-decade (www.africa-energy.com), espe-
cially the promising eastern African energy region from South Sudan
through East Africa to northern Mozambique (www.eac.int/energy):
when will ambitious plans for extraction, pipelines, LNG, etc. now get
underway post-2015 (Hicks 2015)? Moreover, what prospects for the
peripheries of such emerging regions, such as Somalia with its ubiquitous
and connected diasporas? (www.eaenergyforum.org)
Informal and Illegal Economies: From Fragile

to Developmental States
Emerging out of an increasingly wired world with its very visible and ubiq-
uitous mobile “poles” and underground/undersea broadband wires, pro-
liferating mobile technologies increasingly facilitate the informal and
324 T.M. SHAW
illegal as well as otherwise. The “informal sector” is increasingly recog-

nized in the “discipline” of “anthropology”, etc. (Hirschfield 2015) as the
“illegal” in IPE (Friman 2009), informed in part by the annual SAS (www.
smallarmssurvey.org), now joined by Andrew Feinstein (2012) on The
Shadow World: inside the global arms trade (www.theshadowworldbook.
org) and the saga of the IRB on at least one US campus and OFCs docu-
mented in Findlay et al. (2014) (Global Shell Games: experiments in trans-
national relations, crime, and terrorism) (see www.globalshellgames.com):
how a score of “consultants” made 7000 solicitations in 180 countries
about how companies could be successfully established in a tax haven
despite G7/8, FATF, media exposure, etc.; i.e., in this project, IRB
approved misinformation of mistruths).
Similarly, TOC is increasingly transnational with the proliferation of
(young/male) gangs from myriad states (see Knight and Keating (2010):
274–300). In response, the fields of African development and global stud-
ies, as well as IPE, need to develop analyses and prescriptions from the
established informed annual SAS and LA, then Global Commissions on
Drugs and Drug Policy/Health (www.globalcommissionondrugs.org);
and now, at the start of a new decade, onto Ideas Google with respect to
the illicit (www.google.com/ideas/focus.html). As supply chains shifted
away from Central America and the Caribbean towards West Africa in
response to the “war on drugs”, the Kofi Annan Foundation created a
pre-emptive West African Commission on Drugs (www.wacommissionon-
drugs.org); another instance of emerging African agency (Shaw 2015), in
this instance, encouraged by the IDPC (www.idpc.net). Together, these
lead towards the UN’s global conference on drugs set for April 2016
orchestrated by UNODC (www.unodc.org) and the Open Society (www.
opensocietyfoundations.org).
Varieties of Transnational Governance

Just as “governance” is being redefined/rearticulated (Bevir 2011), so the
“transnational” is being rediscovered/rehabilitated (Dingwerth 2008)
following marginalization after its initial articulation at the start of the 70s
by Keohane and Nye (1972): they identified major varieties of transna-
tional relations such as communications, conflict, education, environment,
governance, labor, MNCs, religions, etc. Moreover, Stuart Brown (2011)
updated such perspectives with a more economics-centered framework
that included civil society, remittances, etc. EITI (www.eiti.org), along

with the Mo Ibrahim governance index (www.moibrahimfoundation.
org), impact any African claims to gate-keeping.
In turn, we would add contemporary transnational issues such as brands
and franchises; conspicuous consumption by emerging middle classes;
world sports, such as the FIFA and the IOC; global events from World
Fairs to Olympics and world soccer; logistics and supply-chains (legal and
formal and otherwise); mobile digital technologies; new film centers, such
as Bollywood and Nollywood including diasporas, film festivals, tie-ins,
etc.; new media, such as Facebook and Twitter. However, such heteroge-
neous transnational relations/perspectives including KP, EITI, and the
AMV deserve further attention in terms of their contribution to gover-
nance in Africa and elsewhere post-2015.
The “third sector” of civil society and think tanks has been developing
on the continent along with its economies, companies, supply chains, etc.,
especially in the fleeting decade of commodities’ boom; it now justifies its
own handbook (Obadare 2014). This is particularly the case for higher
education, some of which, especially burgeoning business schools, is now
for profit, and related networks of policy developers. In an era of mobile,
hand-held IT devices, Africa’s infrastructural deficit is no longer an obsta-
cle to continental collaboration in the social sciences from more tradi-
tional CODESRIA (www.codesria.org) and OSSREA (www.ossrea.net) to
more innovative AERC (www.aercafrica.org) and, now, PASGR (www.
pasgr.org). Many national think tanks have been advanced by support and
connections from ACBF (most members of the AU) (www.acbf-pact.org)
and IDRC’s global Think Tank Initiative, which has assisted 18 in SSA
supported by Gates and Hewlett Foundations and Western ODA from the
Dutch, Norwegians, and the UK (www.thinktankinitative.org) (Smith
and Reilly 2013). And the continent can boast its own regional top 50
along with others in the established Penn State think tank rankings; almost
10% of the total 7000 of such agencies are located in Africa (www.goto-
thinktank.com): SAIIA, ISS, AERC, CODESRIA, ACCORD, AISA,
CCR, etc. (see listing of websites at end) now encouraged by “Africa 50”,
APP, GIF, etc.
Just as the UNECA has advocated Africa advancing towards develop-
mental state ambitions, so annual reports from the APP (www.africap-
rogresspanel.org) have begun to define African issues, advancing a form
of African agency: e.g., 2013 on “Equity in Extractives: stewarding
326 T.M. SHAW
Africa’s natural resources for all”, then “Grain, Fish, Money: financing
Africa’s green and blue revolutions”, and in mid-2015, on how Africa
can turn climate challenges into opportunities. In brief, Africa has some
of its ideas about post-2015, such as the AMV, reflecting is own desid-
erata and possibilities after a decade of more of sustained growth.
Some of the global INGOs are now based in Africa as well as elsewhere
in the global South (e.g., CIVICUS (www.civicus.org), which generates is
own civil society index and produces is own annual report on the sector
(2014). In addition, almost all of them work on the continent, now
including some from elsewhere in the Global South, such as BRAC from
Bangladesh now in five states in Africa: Liberia, Sierra Leone, South
Sudan, Uganda, and Tanzania (www.brac.net). Yet, CIVICUS (2014) still
ponders whether such changes really advance global governance in a sus-
tainable way (www.civicus.org).
Global Governance and African IR by Mid-Century?

In conclusion, I juxtapose four changes that may impact the global gover-
nance of “development” in policy and practice in Africa and the rest of the
Global South, post-2015, reinforced by the crash in commodity process
and China’s devaluation of the renminbi in 2015:
a) exponential global restructuring via heterogeneous regulatory

regimes in myriad areas, from economics and ecology to diplomacy
and security (Armijo and Katada 2014; Besada and Kindornay 2013;
Overbeek and van Apeldoorn 2011);
b) a shift in the direction and concentration of supply chains away from
South-North towards South-East (Pieterse 2012; Ritchey and
Ponte 2014);
c) continued evolution in heterogeneous, hybrid, multi-stakeholder
communities to incorporate SOEs, SWFs, pension funds, ETFs,
etc., especially from the BRICS and other EMs/FMs (Besada and
Kindornay 2013; Mukherjee-Reed et al. 2012; Sumner and Mallett
2012);
d) in response to inequality and alienation, further escalation of radi-
calization/fundamentalisms leading to redefinitions of
human/citizen security and global citizenship post-2015: unantici-
pated, non-explicit SDGs?
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CHAPTER 15
Conclusions
Ernesto Vivares
This concluding chapter extends and assesses the critical theoretical and
methodological discussion taken up in the introduction, in light of the
collective works presented by the authors of this collection. Accordingly,
the quest for this collective edition has focused on how a South American
IPE and regionalism may attempt to account for the orientations of
national and regional development in a time of uncertainty about the con-
flictive change of the post-1945 liberal world order.
We started this journey discussing where the major findings of LA IPE
end, including research on the historical structures of inequality, unsteady
regional development, and international insertions in the current unset-
tled post-war Neoliberal Order. The collective endeavor demanded under-
taking a multidisciplinary and eclectical, theoretical, and empirical study
about South America in order to evaluate, adapt, and adjust regional
knowledge for the new realities of change, in relation to the regional his-
torical caveats or major regional features mentioned. This involves focus-
ing on existent theoretical and methodological tools concerning regional
structural issues, identifying and deconstructing conceptual cages as well
as adjusting regional knowledge as a critical aggiornamento via a critical
and constructive dialog with Western and non-Western approaches. This
E. Vivares (*)

DOI 10.1007/978-3-319-62551-5_15
334 E. VIVARES
chapter continues the analytical discussion of the introduction and sets out
key related findings.
Three Key Empirical Distinctions of South America

The central premise of these works is that Latin and South America are
part of, shaped by and shape the Americas, which is the location of the
world’s hegemonic power. This puts in perspective how the region has
followed different paths of reconfiguration in light of, and in relation to,
the transformations of the hegemonic and post-1945 liberal order. This
present world order has increasingly turned into four different overlap-
ping and intertwined configurations: (1) Powerful industrial-military
states; (2) International neoliberal institutions (3) Central and peripheral
regions; and (4) Networks of complex informal economies and under-
ground worlds, each of which, playing a role in the diversification of the
historical links and insertions of a South that has become global. The
reconfiguration and remapping of the Americas and LA have historically
followed the pattern of North American attention or diversion towards
international conflicts, when North America is focused on international
issues of hegemonic attention the region move forwards substantive
regionalisms. Today, adding to that, more specifically, the region is further
reshaped by the return of South-East Asia and the decline of the EU. A
setting where summing to the past historical regional issues, there are new
ones challenging academics from the South to research and explain.
On the grounds of historical, empirical, and analytical evidence, a sec-
ond research criterion in this book has been that the category “LA” is a
conceptual cage consisting of several different LA. They share few lan-
guages although are very different to one another in their configurations,
conflicts, and international insertions. Thus, what really helps the research
is to split the cage of “LA” into three major, complex Political Economic
configurations, differentiating these in terms of development on the basis
of their relations with the hegemonic world order and formal-informal
development configurations: (1) Mexico, which, in institutional and polit-
ical economic terms, can be considered part of North America configura-
tions; (2) Central America and the Caribbean; and (3) South America.
The next concept issue that needs to be addressed is that these three
regional settings are the result of the reconfiguration or remapping of the
Americas as part of the world liberal order instead of LA isolated internal
changes. These different configurations have been tied to the relations of
CONCLUSIONS 335
the region with the world order and hegemon, where each one of these
LA regions present configurations and structures of development that
shape rather different regional identities. They are socio-historical config-
urations, different capitalisms, different underworlds, and varied struc-
tures for shaping different political economic settings and borders. The
LA regions are constructed, deconstructed, and re-constructed around
different axes of development by states and one state actor, defining a
formal and an informal region, regionalism as well as regionalization. To
think of the condition of a region as homogeneous, in terms of institu-
tional convergence, is a rational conceptual cage that can only lead to
sophisms.
One Regional IPE or Three IPEs?

Certainly, LA’s regions, regionalisms, and world political economic order
occur simultaneously as regional developments adapt, contest, and coexist
with globalization creating all time winners and losers. We can agree with
the fact that former ideas of LA growth, development, and regionalism are
marked strongly by top-down approaches, formal Political Economic per-
spectives, institutional incentives, and aims of market integration. While
this is not an academic sin, it is not sufficient to deal with the oscillations
of the region or its Gramscian shifts from right- to left-wing orientations
and then back again. South America as a region is crossed by a wide range
of different overlapping sovereignties at several levels, the setting for a sort
of Global South medievalism around a metropolis with different regional
political projects and structural configurations, fragmented national-states,
informal regional settings, and sub-regional social forces. All may be con-
sidered a regional complex of development, but they are also conflict and
security axes defined by geo-social historical structures of development
with particular links in the international order, creating a setting for mul-
tilevel international insertions. Organized crime works on levels distinct to
those of formal trade and finance, although some points may permeate
them. We can say something similar about informal and solidary econo-
mies in relation to migrations or between technology and primary
economies.
In South America, different overlapping sovereignties exist, laying out
different structures of unequal and unsteady development. In order to
analyze this, for analytical and empirical reasons, it may help to split the
wider notion of IPE into three major dimensions. In other words, into
336 E. VIVARES
three Political Economies of Regionalism and Development for the South:

The formal, informal, and that of its whole and complex international
insertions, which cannot be reduced to formal economics and official
diplomacy. Unquestionably, there is a great deal of significant contribu-
tions concerning what might called “formal IPE” and it has been, and
played, a central role to the study and comprehension of the field in order
to understand its dominant political economic nature. Nonetheless, the
same cannot be affirmed about the academic understanding of the infor-
mal world of Southern regions and their heterogeneous and unsteady
global insertions. As a matter of fact, the IPE’s epistemic communities
from the South have not consistently concentrated their efforts and
focused their research agendas on unpacking the informal regional world
and even more in their relations with undercover worlds and security, the
undeniable dimension and distinction of the South American regional
IPE. The great challenge is how to use multidisciplinary, ontologically,
and methodologically eclectic and critical approaches in relation to the
dominant concepts and methods, which challenge scholars from the
South. Something similar happens to the research in the relation between
the formal and informal regional worlds with their international insertions
as they are usually based on the regional-global academic theoretical rela-
tionships. We know how energy can be central both to maintaining bal-
anced fiscal budgets and to supporting wide ranging social access for mass
populations in developing countries, but we rarely relate them to geopo-
litical global-regional games and struggles or consider how to take the
measure of these balances.
However, the above mentioned multidisciplinary differentiation of
IPEs must be complemented with another flexible conceptual and critical
conceptual matrix as sharply opened and defined by different authors (i.e.,
Thorp 2012; Bonilla and Long 2010; Bøås et al. 2005; Saguier and Brent
2015; Söderbaum 2013). The region can be understood as playing a cen-
tral role as a frame of state and non-state actions in the South and the
North as their part of the world order, a configuration together with states
and international institutions. Thus, as the world order shifts and shakes,
regions also move and enter into geopolitical economic reconfigurations
as demonstrated by Ikenberry (2011). In addition, they have become
crisscrossed by varied structures of development and social forces with dif-
ferent orientations (Katzenstein 2005). Regions possess identities but they
are fundamentally constituted by historical amalgams within certain
dynamic boundaries consisting of formal and informal complementary
CONCLUSIONS 337
structures of development, social configurations, and collective imaginar-

ies and ideas.
Perhaps, one the most dominant conceptual cages in the field is both
the focus on regions as state-led and inter-state regional institutional
frameworks, and the melting of any notion of region into the meaning of
formal economic integration. However, there are not “natural”, “ahistori-
cal”, “homogenous”, unified, or top-down regions; those notions are only
useful in approaching “formal regions”. Historically, however, it is more
integral and eclectic to view regions as diversities of historical, political,
economic, cultural, and social constructs. According to the literature,
regions are closer to the notion of socio-historical regional constructs,
with their own orientations and links within a sort of hierarchy to a given
world order (Braudel 1979; Söderbaum 2012). It follows that in a glo-
balised neoliberal economy and institutional order, regions have become
less attached to spaces and more to cross-border institutional settings,
underground work, and virtual networks.
Regionalism thus consists of both formal and informal political proj-
ects, whose ideas, values, and policies aim to a create a region or type of
world order, where different governments may share these in opposition
to others within a given region, but this may also be pursued by different
organized crime groups, terrorist, or para-governmental networks.
Therefore, in a region, there are necessarily several regionalisms coexisting
and struggling with each other. Regionalism does not necessarily mean
positive “benign regionalism” or “integration”, it can mean the opposite,
as the different experiences have contemporarily shown in the African
Sub-Sahara, Syria and Iran, Colombia and Mexico. On the other hand, to
reduce regionalism to institutionalization and economic integration is to
enclose it in a rationalist conceptual cage, leaving out of any research cen-
tral dimensions of the analysis. Formal and informal regionalism is a flexi-
ble and eclectic concept that allows us to analytically link formal and
informal IPEs horizontally in a given region. In other words, regionalism
is part agency and part structure, defined by the dynamic between the
whole (region), and its parts (nations), and informal or underground reali-
ties. Hence, formal and informal regionalism can be seen as a particular
configuration of social forces that are bound within a region and are func-
tional to a specific global order in the reproduction of reality. Regionalisms
are material structures and capabilities, processes, ideas, and institutions,
which do not determine regionalization but define conflict and develop-
ment and the creation of opportunities and the imposition of constraints.
338 E. VIVARES
Regionalization, finally, is “the substantive [and structural] process

[generated by state and none-state actors] that leads to patterns of coop-
eration, integration, complementarity and identity within a particular
cross-national geographical space” (Söderbaum 2003: 22). Finally, inte-
gration refers to the outcomes of regional agency as well as the encounters
and dynamics between different regionalist political projects of regional-
ization, which can complement or oppose regional integration according
to the structures and substantive processes that give them sense and orien-
tation. These three elements constitute the basis of the IPE of regional-
ism; and not one can be understood without the others but each holds its
own value as an independent research focus.
Unequal and Unsteady Structures of Development

There is a long tradition in the IPE literature, mainstream and LA, con-
cerning the meaning and the role of structures in relation to regional
development and international insertion. This literature, however, focuses
mainly on the measurement of the interactions between formal institu-
tionality of politics and flows in economics. Contributions have been vast
and significant, but often leave out important dimensions of the national
and regional life from the research in their interactions and impact of one
upon another. We know that formal economics are formal because they
are the reality that is measured, but what about those realities that we do
not officially measure and have deep impact and live within the umbrella
of the informal economics and development in the region? Why leave
them out when they, in case of the South America, represent an average of
the 55% of the entire regional development? What are the informal pro-
ductions linked to regional inequality, political instability, and unsteady
structural global insertions? This book has not presented unified or com-
mon analytical answers to those questions, but it holds that a new multi-
disciplinary, critical, and eclectic IPE approach may give us a fuller account
than the partial formal realities in regional politics and economics of South
America.
This work pays specific attention to the IPE focused on the structures
of development, and structures that have been considered historically in
the research as centrally bound to major regional issues (inequality, polit-
ical instability, and unsteady global insertions). The empirical
contributions here have presented work around the notion of unequal
structures of development and global insertion. Each chapter, given its
CONCLUSIONS 339
diverse disciplinary approach, has taken that notion within their specific
disciplinary perspective, aiming at studying the domestic implications
and international links, creating a mosaic of IPE multidisciplinary South
American insights.
The book has departed from the hypothesis that what explains the dif-
ferent and diverse orientations of national and regional, as well as the set-
backs of development, rests on the resilience of the different historical,
unequal, and unsteady structures of the region. We define them as mate-
rial, institutional, and ideational configurations that work across the for-
mal and informal domestic development with their own settings of
international insertion. Oil and gas, knowledge, organised crime, trade,
and finance have their own singular international links; they overlap and
coexist and they define a unique regional configuration functional to an
order of things.
Historically, LA has been a region of peace but not of democracy and
citizen security, where development cuts across regional security, in
geopolitical economic terms. Security, for instance, is and has been for
decades, the first major structural continental issue for the North
American hegemon. LA can appreciate the fact that the US Southern
Command (SOUTHCOM) operated exclusively for the region, dedi-
cated to building partner capacities and fighting organized crime.
Security can be studied as an unique dimension but also in relation to
regional disequilibrium such as inequality, political instability, and inter-
national position. Security can be also be approached in relation to the
role of cities and metropoles in the region, to the environment and even
development finance.
Development finance is another example of a key structural regional
issue, although these days, by large, is more dependent of Washington.
Historically, regional development finance has shifted from one order to
the next, and the same in terms of economic sources. The structure has
been demonstrated by the significant contributions from LA scholars such
as Stephany Griffith-Jones (1984) and Leonardo Stanley and Jose
Fernandez, Chap. 5 in this book. This structural issue is the case of why
economics or politics, isolated and domestically focused, cannot provide
the answers to major structural configurations that frame the apparently
contradictory developments and orientations of the region.
To sum up, LA’s structures of development exist and have proved to be
powerfully resilient, despite decades of neoliberal and developmentalist
changes and reforms. Nonetheless, the resilience of these structures of
340 E. VIVARES
development have been matters almost forgotten in the Political Economy

scholarship of the region, despite the fact that these have played key roles
in the success and failures of LA regional development. In that sense, we
consider that any framework for a research agenda of LA regional develop-
ment must account for these premises in relation to their assumptions as
well as their theoretical and methodological approaches.
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Index1
A Argentina, 54, 58, 60, 66n4, 93,

à la carte, 291–293, 301–304 105–107, 112, 113, 116n5, 125,
Administration model, 218, 219, 221, 129, 131, 141, 151, 152, 155,
229, 234–236 156, 159, 165, 172–175,
Africa, 3, 90, 91, 102, 108, 113, 115, 177–180, 182, 184, 187, 188,
116n8, 150, 172–175, 179, 180, 190, 193, 206–208, 282–285,
186, 187, 207–209, 283, 297–302
309–326 Arms, 324
Aging, 245–247, 250, 255, 262, 265 Asia, 26, 118n23, 167, 182, 186, 188,
Agricultural sector, 90 189, 209, 299, 311, 319, 334
ALBA, see Bolivarian Alliance for the Automotive industry, 165–195
Americas Autonomous regions, 228
Alliance, 77, 84, 85, 172, 203, 279,
280, 282, 314, 319
Americas, v, vi, 1, 25–44, 47, 48, B
55–58, 60–65, 67n12, 77, 101, Bank, 34, 85, 87, 101–104, 106–114,
121, 147, 165–195, 200, 201, 117n13, 117n18, 118n23,
218, 219, 247, 249, 291–296, 118n24, 118n27, 151, 158, 312,
298, 300, 301, 319, 324, 314
333–335, 338 Beijing Consensus, 63
Andean Community, 49, 59, 60 Benchmarking, 171
AP, see Pacific Alliance Block, 16, 53, 123, 129–139, 141
Note: Page number followed by ‘n’ refers to notes.

1

DOI 10.1007/978-3-319-62551-5
342 INDEX
BNDES, see Brazilian Development 206–208, 224, 225, 232, 280,

Bank 295, 315
Bogota, 217–238 China, 47, 77–95, 103, 106–109,
Bolivarian Alliance for the Americas 121, 127, 132, 133, 150, 173,
(ALBA), 58–60, 84, 129, 199, 294, 310
132–139, 141, 142, 292, China Development Bank (CDB),
294–296, 300, 303 106, 108, 112, 116n6, 117n15,
Bolivia, 28, 61, 78, 83, 94, 95, 105, 117n18, 151
125, 129, 131, 141, 142n7, 156, China ExIm bank, 106, 108
157, 159, 165, 178, 181, 182, Cities, 4–6, 11, 12, 14, 43, 217–238,
206, 281, 283, 284, 295 279, 284, 339
Bond, 101, 102, 104, 105, 107, 114, Citizen security, 326, 339
116n6 Civil society, 220, 228, 314, 316, 325,
Brazil, 26, 54, 78, 105, 122, 151, 326
165, 206, 292, 314 Class structure, 244, 258, 260,
Brazilian Development Bank 263–266
(BNDES), 158 Cold War, v, 8, 311
Brazil, Russia, India, China, South Colombia, 66n6, 125, 129–132, 141,
Africa (BRICS), 3, 93, 102, 113, 148, 152, 156, 157, 165,
172, 303, 312–319, 321, 326 173–175, 177, 179, 180, 182,
Bretton Woods, 8, 102, 104, 114, 206, 208, 221, 223, 225, 226,
116n2, 151, 158, 314 279, 282, 284, 295, 337
Brexit, see Britain Exiting the EU Commodities boom, 3–7, 79, 89, 94,
BRICS, see Brazil, Russia, India, 103, 106, 109, 121, 131, 148,
China, South Africa 204, 208, 299, 325
Britain Exiting the EU (Brexit), 4, 65, Commodities Consensus, 18, 61
299, 302, 304, 310 Commodity/ies, 2, 3, 9, 16, 18, 29,
31, 42, 43, 61, 78–81, 83, 86,
88–92, 94, 95, 103, 105, 106,
C 109, 112, 115, 121, 131, 148,
CAN, 60, 129–136, 138, 139, 141, 152, 153, 157, 159, 161, 171,
142, 142n6, 202, 294, 296, 297, 198, 200, 201, 204–206, 208,
300 210, 292–294, 298–301, 303,
Caribbean countries, 163n8 304, 310, 318, 323, 325, 326
Cartel, 279, 280 Community of Latin American and
Cash transfer program, 28, 31, 37, 41 Caribbean States (CELAC), 58,
CELAC, see Community of Latin 59, 80, 88, 114, 294–298, 304
American and Caribbean States Company, 54, 67n12, 88, 90, 93, 109,
Central Intelligence Agency (CIA), 280 110, 112, 116n8, 129, 151,
CEPAL, 7, 165, 190 153–158, 166–173, 182–186,
Chile, 28, 78, 83, 89, 94, 95, 125, 193, 194n1, 203, 210, 230,
132, 141, 149, 152, 155, 159, 238n4, 310, 316, 318–321, 324,
165, 173–177, 179–182, 325
INDEX
343
Competitiveness, 150, 172, 218, 230, 151, 152, 155–157, 160, 165,
232, 236, 295, 317 173–177, 179–182, 202, 205,
Conceptual cages, 3, 8, 11, 13–17, 206, 209, 224, 225, 228, 235,
333–335, 337 236, 249, 281–283, 295, 297, 301
Consumer goods, 91, 320 Education, 5, 26, 31, 41, 43, 59, 202,
Core suppliers, 171 206, 207, 209, 210, 218, 233,
Crime, 271, 275, 278, 283, 324 275, 296, 297, 324, 325
Criminal governance, 279, 284 Emerging economies, 44, 150, 154,
Criminal group, 272, 273, 279 158, 312, 317
Employment, 26, 29, 31–33, 40–43,
89, 90, 261, 297
D Energy, 17, 59, 79, 86, 87, 105, 109,
DEA, see Drug Enforcement 110, 112, 147–163, 204, 205,
Administration 209, 210, 292, 313, 315, 317,
Decision-making process, 219 318, 320, 322, 323, 336
Defense, 59, 276, 295 Energy integration, 147
Deindustrialization, 10, 67n12, 90, Environment, 4, 104, 157, 197–211,
199, 200, 210 218, 219, 230, 233, 237, 243,
Demographic bonus, 247, 249, 250, 244, 257, 258, 262, 265, 273,
264, 265 280, 324, 339
Demographic replacement, 245, 246, Epistemic community, 8, 16, 336
250, 266, 266n3 Epistemology, 14, 276
Demographic surplus, 249, 250 EU, see European Union
Demography, 244, 265 Eurocentric, vi, 8, 14–17
Developmentalism, 318 Eurocentric regionalism, 14, 16, 17
Development finance, 6, 10, 101, 339 European integration, 48
Development structures, 5, 12, European Union (EU), 4, 16, 17, 59,
197–201, 219–221, 244 65, 81, 130, 131, 138, 142,
Diasporas, 313, 316, 320, 322, 323, 173–175, 177, 179, 180, 182,
325 188, 204–208, 292, 298,
Distribution of income, 33 301–304, 317, 321, 334
Dollarized economy, 30, 131, 301 Eurozone, 310, 313, 314, 321
Drug Enforcement Administration Exportations, 121, 184–187, 193
(DEA), 274, 280, 281, 283, 284
Drug trafficking, 273, 274, 278,
280–285 F
Dutch Disease, 81, 91, 95 FDI, see Foreign direct investment
Fertility, 245, 262
Follow sourcing, 170
E Foreign direct investment (FDI), 79,
Ecology, 10, 18, 316, 326 82, 90, 92, 94, 105, 106, 109,
Ecuador, 25, 58, 61, 106, 112, 117n20, 110, 117n16, 117n17, 166, 172,
125, 129, 131, 141, 142n7, 148, 200, 310, 313, 317, 319
344 INDEX
Formal sector, 29, 40, 42, 320 H

Fragmentation of production, 166 Historical regional structures, 5
Free Trade Area of the Americas
(FTAA), 55, 148, 157
I
IADB, see Inter-American
G Development Bank
G8, 91, 315 IEA, see International Energy Agency
G20, 90, 91, 315 IFI, see International financial
Gas, 87, 94, 147–154, 156–160, 203, institutions
339 Illegal, 202, 218, 271, 272, 277–279,
GATT, see General Agreement on 284, 321, 323, 324
Tariffs and Trade IMF, see International Monetary
GDP, see Gross Domestic Product Found
General Agreement on Tariffs and Importation, 184
Trade (GATT), 52 Income elasticity, 122
Geopolitics, 77, 78, 80, 132, 147 Income inequality, 3, 29–34, 40,
Germany, 125, 140, 208, 210, 245, 42
266n1 India, 59, 90, 91, 93, 113, 124, 125,
Gini coefficient, 30, 33, 208, 209 173, 174, 179, 180, 205, 305n1,
Global, 165–193 312–314, 317, 319
Global geopolitics, 147 Industrial trade, 123, 137–141
Global governance, 311, 316, 326 Inequality, 1, 26, 29, 33–35, 40,
Global insertion, 1, 65, 109, 336, 338 42–44, 44n5, 59, 155, 203, 204,
Globalization, v, xxv, 3, 4, 8, 15, 44, 208, 217, 218, 220, 237, 244,
104, 156, 166, 170, 183, 219, 258, 260, 262–266, 295, 312,
237, 243, 244, 253, 254, 258, 315, 318, 326, 338, 339
260, 266, 273, 277, 278, Informal actor, 335
291–293, 301–304, 335 Informal sector, 13, 14, 26, 28–33,
Global middle class, 26, 27, 33–35, 40, 41, 43, 319, 323
43, 318 Informal world, 272, 281, 336
Global order, 6–8, 337 Infrastructure, 12, 17, 40, 80, 87,
Global political economy, 313, 314 101, 103, 104, 106, 107,
Global production growth, 166 112–115, 118n23, 151, 152,
Global South, vi, 1, 3, 5, 309–326, 335 156, 158, 218, 220, 224, 230,
Global value chains (GVCs), 175, 321 236, 238n4, 292, 296, 321
Gray area, 272, 276, 278 Initiative for South American Regional
Gray governance, 276–282 Integration (IIRSA), 158
Gross Domestic Product (GDP), 83, Institutionalism, 16, 17, 218, 219,
89, 93, 102, 106, 110, 123, 128, 231–237, 273
150, 155, 200, 204–206, 209, Integration, 14–17, 47–65, 79, 121,
223, 255–258, 310, 320 147, 165–195, 291–304, 335,
GVCs, see Global value chains 337, 338
INDEX
345
Intellectual property, 155, 202–204, Left-wing, 5, 88, 298, 299, 335

207 Liberalization, 8, 10, 17, 29, 30, 33,
Intelligence agencies, 274, 279 42, 43, 44n5, 50, 53, 54, 56,
Inter-American Development Bank 66n3, 66n8, 90, 102, 104, 129,
(IADB), 55, 102, 114 131, 199, 277, 293, 302
International Energy Agency (IEA), Liberal order, 334
150, 156 Lima, 5, 14, 160, 217–238
International financial institutions Local government, 220, 227, 231,
(IFI), 112, 115, 156 234
International insertion, 1–4, 6–9, 12, Low intensity war, 276
13, 166, 198, 199, 210,
333–336, 338, 339
Internationalization, 107, 110, 151, M
166, 169, 170, 184, 193, 219, Macri, Mauricio, 93, 107, 131, 282,
277 300, 302
International Monetary Found (IMF), Macroeconomics, 28–30, 42, 54, 78,
104, 105, 107, 115, 315 79, 81, 86, 89, 95, 105, 187,
International Political Economy (IPE), 188, 193, 256
v, vi, xxv, 1–18, 319, 324, 333, Manufactured products, 62, 121, 136
335–338 Manufacturing sector, 78, 81–83, 86,
International trade, 47, 57, 90, 87, 89–92
121–125, 132, 136, 166, 185, MERCOSUR, 54, 59, 60, 67n10,
197, 198, 278, 302 129, 131, 134–139, 141, 142,
Investment, 54, 79, 80, 82, 90–93, 158, 172, 173, 188, 275, 294,
102, 106, 107, 110, 112–114, 296, 297, 300, 302, 304
150–152, 154, 155, 157, 161, Methodology, v, vi, 2–4, 6–8, 13, 14,
162, 168, 169, 171, 172, 184, 30, 39, 122, 244, 276, 282, 333,
187, 188, 193, 199, 202, 206, 340
211n2, 211n5, 230, 236, 238n4, Metropolis, 11, 12, 335
256, 302, 313, 317, 318, 320 Metropolitan areas, 217–224, 227,
ISI model, 48, 55, 60, 104, 114 231, 233, 235, 236
Mexico, 28, 55, 61, 66n6, 67n13, 80,
104, 105, 130, 132, 142n9, 173,
K 174, 179, 189, 209, 249, 256,
Knowledge, xxvii, 5, 14, 15, 124, 156, 257, 295, 299, 302, 304, 315,
166, 194n1, 197–211, 333, 339 334, 337
Middle class, 10, 18, 25, 310, 317,
325
L Middle-class population, 26
Labor force, 9, 10, 33, 41, 44n3, Middle-class workers, 28
44n4, 207, 251–258, 263–265 Migration, 9, 12, 14, 218, 220,
Latin America, 25, 48, 55, 67n12, 243–266, 277, 278, 297, 335
101, 247, 249 Multilateral lending, 102, 105, 108
346 INDEX
Multilateralism, 17, 53, 59, 65, 115, Ontology, 14

314 OPEC, see Organization of the
Multinational companies, 167, 317 Petroleum Exporting Countries
Municipal governments, 219, 230 Open regionalism, 17, 55, 56, 58–60,
66n7, 66n8, 294, 300
Organization, 18, 52, 118n26, 132,
N 156, 167, 219, 221, 228, 260,
NAFTA, see North American Free 278–280, 282, 292–298,
Trade Agreement 302–304, 321
National Energy Council, 152 Organization of the Petroleum
National Finance Corporation (NFC), Exporting Countries (OPEC), 84,
158 154–156
National Oil Companies (NOC), 150, Organized crime, xxv, 4, 12, 14,
319 218, 220, 271–285, 335,
National poverty line, 26 337, 339
Natural resources, 9, 61, 108, 112, Orinoco Belt, 148, 151
147, 148, 150, 198, 211, 315, Outsourcing process, 171, 172
316, 326
Neo-developmental, 78, 83–93
Neoliberalism, 3, 4, 56–58, 61, 84, P
318 Pacific Alliance (AP), 2, 60, 129, 132,
Neoliberal order, 301, 333 134, 139, 142n9, 294–298, 300,
Network of suppliers, 171, 188 301, 304
NOC, see National Oil Companies Paraguay, 58, 125, 131, 141, 149,
North America, 17, 167, 173–175, 159, 165, 178, 182, 206, 209,
177, 179, 180, 182, 185–187, 284
207–209, 220, 292, 319, 334 PDVSA, see Petroleum of Venezuela
North American Free Trade Corporation
Agreement (NAFTA), 52, 65, Pension funds, 313, 323, 326
129, 136, 138, 141, 142, 142n3, People’s Republic of China (PRC),
302–304 102, 103, 105, 106, 109, 115,
116n8
Peru, 66n6, 77–83, 88, 89, 94, 95,
O 125, 129–132, 141, 152, 157,
Oil, 28–32, 43, 79, 80, 83–85, 90, 159, 165, 173, 174, 178,
92–94, 104, 109, 112, 117n15, 180–182, 209, 223, 225, 227,
147–153, 156–158, 160–162, 283, 295
205, 301, 312, 318, 321, 339 Petrobras, 79, 90, 92, 93, 117n15,
Oil company, 83 157, 158, 162
Oil prices, 28, 30, 32, 85, 94, 150, Petroleum of Venezuela Corporation
153–156, 161, 205 (PDVSA), 83, 151, 156
INDEX
347
PIIGS, see Portugal, Italy, Ireland, Regional government, 224, 227, 228,
Greece, Spain 231–233
Pink Tide, 2, 5, 16, 304 Regional integration, vi, 14, 17, 50,
Population, 3, 5, 10, 25–28, 35, 36, 51, 54–63, 129–132, 134, 137,
39, 40, 218, 223, 224, 228, 233, 139, 147, 148, 157–159, 162,
236, 244–247, 250, 255, 167, 185, 188, 296, 298–300,
258–261, 263–266, 266n1, 285, 302, 338
336 Regionalism, vi, 1, 2, 5–8, 11, 12,
Population reproduction, 244, 245, 14–17, 47–63, 271–285,
250, 258–261, 263–265 291–304, 311, 321, 333–335,
Populism, 8, 105 337, 338
Portugal, Italy, Ireland, Greece, Spain Regionalization, xxv, xxvii, 2, 147,
(PIIGS), 313, 317, 321 335, 338
Poverty, 3, 11, 25, 26, 28, 29, 32–37, Region-city, 218
39, 42, 59, 81, 263, 285, 295 Reprimarization, 5, 18, 47, 150, 161,
PRC, see People’s Republic of China 199, 200, 300
Primarization, 199 Reproduction of capital, 244,
Primary export, 32, 39, 43, 61, 63, 253–255, 258, 264, 265
135, 136, 138, 141, 153 Right-wing, 6, 8, 88, 95, 292, 294,
Primary export sector, 198 298, 299, 303
Primary product, 47, 60–62, 64, 65, Russia, 59, 118n26, 124, 125, 188
67n12, 124, 135–139, 141, 161,
199
Production, 5, 9, 10, 15, 43, 61, 82, S
83, 87, 92–94, 148, 151, 152, Santiago, 217–238
154, 156, 165–191, 193, 194n1, SCO, see Shanghai Cooperation
198, 199, 204, 209, 253, 272, Organization
284, 299, 300, 322, 338 Security, 10, 12, 17, 18, 32, 33, 40,
Productivity, 41–43, 123, 150, 198, 42, 59, 154, 159, 161, 218,
200, 204, 205, 209, 220, 281, 271–285, 295, 296, 310, 312,
285 322, 326, 335, 339
Shadow world, 324
Shanghai Cooperation Organization
Q (SCO), 113, 118n26, 321
Quito, 217–238 Skilled work, 40
Social force, 10, 14, 335–337
Socialism, 85, 318
R Social reproduction, 252, 254,
Refugees, 4, 220 256–265
Regional development finance, South Africa, 90, 91, 167, 207,
101–118, 339 313–315, 317, 319, 320
348 INDEX
South America, v, vi, 1, 47, 57, 58, U

60–65, 77, 121, 147, 165–195, Union of South American Nations
200, 201, 210, 218, 219, 249, (UNASUR), 18, 58–60, 129,
291–298, 300, 301, 304, 134, 136–139, 142, 158–160,
333–335, 338 292, 294–300, 303, 304
South Korea, 26, 59, 81, 173, 174, United States of America (USA), 9,
179, 180, 204, 205, 207, 208, 27, 52, 53, 79, 91, 104, 121,
305n1, 315, 316, 319 150, 165, 202, 220, 245, 272,
Sovereign energy integration, 158 292, 311, 339
State-business cooperation, 90 Unskilled work, 32, 40, 41
Structural inequality, 13 Urbanization, 218, 233, 237
Structures of development, 2, 10, 13, Urban work, 41, 221, 230, 257
14, 335–340 Uruguay, 52, 58, 125, 131, 141, 149,
157, 165, 173, 174, 176, 177,
179–182, 206, 208
T USA, see United States of America
Tax, 32, 33, 50, 54, 117n19,
187–189, 193, 210, 230, 232,
233, 238n4, 316, 324 V
Technology, xxvii, 106, 109, 110, 123, Value chain, 5, 66n7
166, 168, 184, 193, 198, 199, Venezuela, 58, 61, 78, 83, 94, 95,
203, 204, 206, 210, 253, 273, 106, 112, 117n20, 125, 130,
316–318, 323, 325, 335 131, 141, 142n2, 142n6, 142n7,
Temer, Michel, 93, 302 148, 149, 151, 152, 155, 157,
Theory of migration, 260 158, 165, 173–175, 177, 179,
Third World, 104, 318 180, 182, 201, 209, 281, 282,
TOC, see Transnational Organized 292, 295, 299, 300, 315
Crime
Top-down, 5, 16, 335, 337
TPP, see Trans-Pacific Partnership W
Trade, xxvii, 29, 47, 78, 103, Wage premium, 40–42
121–142, 149, 165, 197, 218, World Bank (WB), 3, 26, 33–35, 53,
278, 292, 312, 335 79, 82, 83, 87, 102, 105, 115,
Trade network, 10, 121, 123 151, 156, 158, 200, 204–207,
Transnational criminal world, 273 209, 310, 318
Transnational organized crime (TOC), World order, v, 2–4, 6–14, 16, 18,
271–285, 319, 324 333–337
Trans-Pacific Partnership (TPP), 52, World Trade Organization (WTO),
303 52, 53, 66n2, 66n3, 89, 90, 121,
Trump, Donald, 65, 299, 302–304, 310 124, 194n2, 201, 202

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International Political Economy Series

Edited by Ernesto Vivares

More information about this series at

International Political Economy Series

Library of Congress Control Number: 2017955026

© The Editor(s) (if applicable) and The Author(s) 2018

Cover illustration: © Rob Friedman/iStockphoto.com

Printed on acid-free paper

This Palgrave Macmillan imprint is published by Springer Nature

also rejects “methodological nationalism”, a point strongly emphasized in

on both the formal configurations of development (e.g., trade, finance,

School of Global Studies Fredrik Söderbaum

over the years. Also, to Christina Brian, editorial director at Palgrave

1 The IPE Puzzle of Regional Inequality, Instability,

2 Is Latin America’s Rise of the Middle Classes Lasting or

3 Past and Present of Latin American Regionalisms,

4 The Impact of China on South America Political

5 The Changing Problem of Regional Development

6 South America: Trade and Integration in the New Global

7 Energy Integration in South America

8 Productive Integration in South America and Its

9 The Regional Political Economy of Knowledge

10 Cities in the South American Development: Bogota,

11 Global and Regional Political Economy of Migration243

12 Organized Crime, Security, and Regionalism:

13 The South American Regionalisms: A Shift or the

14 Africa: Clues About the Tendencies of the Global South309

John Cajas-Guijarro is an economist and professor at the Department of Social

Gustavo Duran is a research professor of urban studies, planning, and regional

Pesquisa em Econômica Aplicada (IPEA), the Korea Institute for International

ACBF African Capacity Building Foundation

BRAC Building Resources Across Communities

ECLAC Economic Commission for Latin America and the Caribbean

IDRC International Development Research Center

NOC National Oil Company

SDR Special Drawing Rights

Fig. 3.2 Composition of exports from South America as well as the

Fig. 9.3 Evolution of R&D expenditure (as % of GDP) in South

Table 2.1 Transition matrix of mobility across income classes, 2007–2014 39

Table 10.1 Government models of metropolitan areas 222

The IPE Puzzle of Regional Inequality,

© The Author(s) 2018 1

dilemmas, paradoxes, and contradictions of development as well as its

in terms of formal, informal regional development, and international

Commodities Boom or Unequal Structures

take advantage of high commodity prices have joined transnational pro-

regional and LA development (Halperin Donghi 1995; Weaver 2000;

The relation between regional domestic and the international is perhaps

Latin American IPE, Inequality and World Order

explain, and contest the agenda of the neoliberal globalization based on

intervening centuries. Third, she argues that institutions created around

in LA’s insufficient diversification of production structures made it diffi-

Historians and other social scientists, beyond different perspectives,

as South America (Söderbaum 2000; Acharya 2015). In this sense, LA

insertions. Briefly, three different but complementary dimensions of the

Successful Ideas at One Time Can Turn

The idea that scholarly IPE is biased by certain preconceptions, concepts,

These variations are central, both theoretically and methodologically,

research towards an ahistorical, top-down, and liberal-institutionalist

School of Global Studies Fredrik Söderbaum

1 The IPE Puzzle of Regional Inequality, Instability,

2 Is Latin America’s Rise of the Middle Classes Lasting or

3 Past and Present of Latin American Regionalisms,

4 The Impact of China on South America Political

5 The Changing Problem of Regional Development

6 South America: Trade and Integration in the New Global

7 Energy Integration in South America

8 Productive Integration in South America and Its

9 The Regional Political Economy of Knowledge

10 Cities in the South American Development: Bogota,

11 Global and Regional Political Economy of Migration243

12 Organized Crime, Security, and Regionalism:

13 The South American Regionalisms: A Shift or the

14 Africa: Clues About the Tendencies of the Global South309

Table 2.1 Transition matrix of mobility across income classes, 2007–2014 39

Table 10.1 Government models of metropolitan areas 222

returned to Ecuador as employment o pportunities in the USA and

Fuente: CEPAL, Anuarios Estadíscos y Base de Datos CEPALSTAT