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Assessment of Latin American and Caribbean countries in the international economy.

Article Excerpt
Based on the construction of two composite indices for economic integration, this paper looks at the hierarchical position of Latin America and the Caribbean. The two indices, called the speed of integration and the initial level of integration, are composed of changes and initial values of real trade as a share of GDP, institutional investor rating, FDI as a share of GDP, and manufacturing export as a share of GDP. Mexico ranked first and Peru ranked last for the speed index, while Trinidad and Tobago ranked first and Nicaragua ranked last for the initial level index. (JEL F4)

Introduction

While global economic integration as a consequence of international trade is not new, distinctive features mark the present era as described by the overview of the United Nations Development Programme [UNDP, 1999]. These include new markets where foreign exchange and capital markets operate 24 hours a day, year round; new tools, such as Internet links and cellular phones; new players, such as the World Trade Organization, with authority over national governments; and new rules for multilateral agreements on trade, services, and intellectual property.

The new global integration is perceived to provide improved resource allocation and exposure to new technologies [Hirst and Thompson, 1996] and capital migration to areas where the return is relatively high [Gavin and Hausmann, 1996]. The majority of economists are committed to the principle of free trade, yet there are those who advise caution on the grounds that disruptions in the international economic environment may foster instability, as indicated by Malinvaud [1985], Lal [1985], Burtless [1995], and Bhagwati [1998]. Aside from economic stability, globalization may create threats to human security in the form of sudden and hurtful disruptions in the pattern of daily life [UNDP, 1999]. Financial turmoil, job insecurity, income insecurity in both poor and rich countries, and health insecurity due to the growth of migration and travel must also be added. Cultural and personal insecurity are also factors where criminals reap the benefits of deregulated capital markets.

Global Indicator Variables

There are many ways to measure global economic integration, according to the World Bank [1996], where economic integration facilitates participating in international markets for goods, services, capital, and labor. One measure is the degree to which domestic prices and interest rates reflect international counterparts, in the sense that prices would be the same everywhere if markets were perfectly integrated. Another measure is the extent to which a country can absorb the stock of technology and other knowledge from the rest of the world. Other measures such as exchange controls, quantitative restriction on imports, or institutional factors such as membership in the World Trade Organization are good candidates as well. The World Bank, recognizing that such measures are hard to calculate, selected measures of integration considered to be powerful indicators to rate and rank countries for their participation in the global economy.

The World Bank [1996], questioning whether integration is an opportunity or a danger, constructed two indices using four indicator variables to assesses countries for their global linkages....

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