Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336000 
Year of Publication: 
2025
Series/Report no.: 
IZA Discussion Papers No. 18352
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
The paper applies the "dual synergies" model—linking economic growth, poverty reduction, and human capability formation—to explain why Latin America (LAC) remains trapped at middle-income levels. It challenges orthodox views that prioritize growth alone, arguing instead that growth, social policy, and human capital mutually reinforce each other. Using stylized facts, the paper shows that LAC's extractive, commodity-dependent development model has produced volatile growth, weak job creation, high informality, and limited poverty reduction. This contrasts sharply with East Asia, where coordinated industrial policy, early investments in health and education, and financial deepening enabled sustained growth and structural transformation. In LAC, weak fiscal capacity, low savings, foreign-dominated banking, and inequality constrain public investment in human capital, weakening growth–poverty links. The paper argues that breaking the middle-income trap requires an integrated strategy: a renewed, state-capable industrial policy aimed at diversification, innovation, and manufacturing upgrading, combined with stronger social policies.
Subjects: 
Latin America
industrial policy
East Asia
JEL: 
O11
O14
O15
O25
Document Type: 
Working Paper

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