Unlocking greater investment through policy reform, innovative financing instruments and regional cooperation can help Latin America and the Caribbean (LAC) develop more dynamic, diversified and higher value-added economies - also referred to as production transformation - according to a new OECD report.
Latin American Economic Outlook 2025: Promoting and Financing Production Transformation shows that the region faces several challenges that slow the pace of production transformation. LAC governments spend only an average of 0.5 % of GDP on productive development policies, compared to 3% in OECD countries. Tax expenditures absorb significant resources - averaging 4.0% of GDP in the region and 0.9% for corporate income tax incentives, restricting LAC governments' ability to support economic development. More than 55% of workers are employed informally, with only 2.1% working in medium- or high-technology sectors, well below the OECD average of 7.7%. Limited skills development and weak innovation systems make it harder for the region to transition towards higher value-added activities.
"Ambitious reforms are needed to boost labour productivity, tackle high levels of informality and grow value-added export industries in Latin America and the Caribbean," OECD Secretary-General Mathias Cormann said. "By deepening regional connectivity, encouraging the development of regional capital markets, building skills and increasing domestic resource mobilisation, policymakers can unlock new investments for strong, sustainable and inclusive growth."
The report highlights positive trends in the region that can enable transformation. In 2024, green, social, sustainability, sustainability-linked and blue bonds reached a cumulative USD 164.4 billion, accounting for 27.2% of LAC's total bond issuance in international markets, up from 9.3% in 2020. Foreign direct investment (FDI) reached 2.8% of GDP in 2024, largely in renewable energy, digital infrastructure and technology-intensive industries. While equity markets remain shallow, with a market capitalisation of 37.4% of GDP vs. 64.4% in OECD countries, development banks and other development finance institutions (DFIs) are playing a growing role to boost production capacity, diversify exports, promote technology transfer. Thirty-two percent of LAC DFI portfolios are now targeting support to micro, small and medium enterprises (MSMEs).
To achieve the region's development ambitions, international cooperation and policy alignment are key. The report recommends that LAC strengthen regional and international collaboration to foster research and development networks and to improve knowledge-intensive production. Coordinated investment in energy, transport and digital connectivity can also upgrade infrastructure with lower transaction costs. Moving from fragmented national policies to regional initiatives, such as unified electricity markets and cross-border digital corridors, can help multiply investment impact and accelerate LAC's low-carbon transition.
The report will be officially launched on Monday 10 November at the LAC-EU Business Forum held in the context of the IVth CELAC-EU Summit, in Santa Marta, Colombia.
