Latin America's Economies: An Overview

A tour of the region's major economies, what they have in common, and why Latin America has often been called a region of unfulfilled promise.

Latin America stretches from Mexico to the southern tip of Chile and Argentina, and includes the countries of Central America and South America along with parts of the Caribbean. It is home to around 650 million people. Most of its countries are middle-income: richer than most of Africa and South Asia, but well below the United States and Western Europe.

The major economies

Brazil is the largest economy, with huge agricultural exports, oil, mining and a large industrial base.
Mexico is the second largest and closely tied to the United States through trade and manufacturing.
Argentina has rich farmland and a long history of economic crises.
Colombia, Chile and Peru are important commodity exporters with growing service sectors.

Shared features

Despite their differences, many Latin American economies share certain features:

Commodity exports: soybeans, beef, coffee, copper, lithium, oil and iron ore are major exports.
Volatility: booms and busts, often linked to commodity prices and capital flows.
High inequality: Latin America is among the most unequal regions in the world.
Large informal sectors: many workers lack formal contracts and social protection.
Urbanisation: most Latin Americans live in cities, a higher share than in many developing regions.

Unfulfilled promise

In the early twentieth century, Argentina was among the richest countries in the world by income per person. Many economists have asked why Latin America as a whole did not converge with rich countries, as parts of East Asia did. Explanations include weak institutions, high inequality, low investment in education, protectionist policies for much of the twentieth century, and repeated financial crises.

Argentina's changing rank

Around 1900 to 1913, economic historians estimate that Argentina's income per person was comparable to that of countries like France and Germany. Over the following century, repeated crises and policy swings left it far behind. Argentina is often cited as the clearest example of a rich country that became middle-income.

Recent decades

The 2000s commodity boom lifted growth and helped reduce poverty and inequality in many countries. Growth slowed after 2014 as commodity prices fell, and the COVID-19 pandemic hit the region very hard. Economists debate how Latin America can raise productivity and escape the middle-income trap.

Thinking Latin America is uniformly poor

Latin America includes countries with incomes close to some European countries, such as Uruguay, Chile and Panama, as well as much poorer countries like Haiti and Honduras. The region is mostly middle-income, with big differences within and between countries.

Key takeaways

Latin America has around 650 million people, mostly in middle-income countries.
Brazil and Mexico are the largest economies.
Commodity exports, volatility, high inequality and informality are common features.
The region's failure to converge with rich countries is a long-standing puzzle.