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The reasons why to care about Latin America: They are entering the international panorama

In recent years it was considered that the main reason behind economic growth was the accumulation and use of factors of production such as physical capital, with which industrial policies recommended the investment in tangible goods such as machinery and physical infrastructure since it was understood that These assets could raise a country’s productivity and income. However, in recent years the world economy has been subject to structural changes that have affected trade patterns and have shown the application of knowledge as a driver of economic growth and international trade.

The rapid technological advance

Technology in the framework of the 4th industrial revolution (or Industry 4.0) is characterized by the automation, digitalization and connectivity of the industry erupts in Latin America, a region characterized by a productive matrix and exportable basket with little diversification and dependent on the volatility in the prices of raw materials.

What does this mean?

This reality puts us at a disadvantage in the face of a scenario of accelerated technological change that creates new business models, professions, jobs and comparative advantages based on disruptive technologies such as artificial intelligence, robots, big data, cloud storage, internet of things. and 3d printing among others and that demand high levels of knowledge in science and technology. This poses a new scenario where employment, commerce and production will be developed between human effort and intelligent machines with the capacity to quantify and process millions of data, erasing the boundaries between the physical and the digital.

This new era

In this new productive era characterized by the intangibility of what is produced and exported, knowledge and innovation become new engines to achieve the desired macroeconomic stability, increase productivity and competitiveness, promote startups and SMEs, take advantage of the chains global value and overcome the concentration of production in goods with little added value. Why is knowledge and technological advance so important? Through technological progress, the productive, technological and income gaps between advanced and developing economies can be reduced, it is an urgent opportunity that requires new industrial policies and the coordination of public and private actors.

The knowledge economy: Basic foundations

During the last decades in the region a productive structure based on industry prevailed and sustained by the investment in tangible goods. However, knowledge and technological progress has once again become important in the academic debate before the development of a new economic dynamic determined by the scientific revolution and the diffusion of new technologies. The main focus of the knowledge economy is the management and dissemination of information and ideas in the generation of added value. That is why the value in this type of economy lies in intangible assets such as human capital through the skills and training of the population rather than in the production of tangible goods. Three essential components of this new economy are: human capital, the technological stock and innovation systems

Human capital can be defined as the skills and abilities of the population that are expressed in the creation and use of knowledge in the production process. Several studies indicate that high levels of human capital determine the productivity, competitiveness, degree of innovation and development of a country through variables such as the enrollment rate in primary, secondary and higher education, the level of research in science and technology Inter alia.

How is human capital expressed in the economy?

Through the use of knowledge in the production process, in the improvement of production techniques, in new business models or the development of new inputs.

On the other hand, the technological acquis refers to the accumulation of technological goods that are characterized by their high added value and the intensive use of knowledge to be produced as 3D printers, robots or intelligent sensors. The use of these technologies can improve indicators of productivity and competitiveness because they demand human capital.

On the other hand, innovation is understood as the combinations (of knowledge) that lead to the development of new products, production techniques and business models. Innovation is a dynamic and cumulative process where public and private actors participate and interact through the knowledge transfer and the discovery or improvements of goods.

An opportunity to raise the economic complexity of what we produce and export

Services have played an important role in the global economy, accounting for the bulk of GDP and employment in many advanced and developing economies. This sector is becoming a generator of innovations and added value grouping various segments such as accounting, audiovisual services, marketing, design, IT services, research and development, advertising, legal and financial advice, education, health and engineering (Inter-American Bank of Development, 2018). All these services have a common feature: They are intensive in human capital and have the capacity to produce and process large amounts of information and knowledge.

These knowledge-intensive services can be exported thanks to information and communication technologies that have reduced the costs of transmission, storage of information and the time needed to carry out activities at a distance. Many multinational companies and SMEs demand these services outside their borders thanks to the existence of various international providers that offer these services around the world and can be carried out remotely and remotely. The importance of this sector is such that, according to calculations measured in terms of value added by the United Nations Conference on Trade and Development, services represent almost 50% of international trade.

Challenges for the region

A great challenge for Latin America is to diversify its productive and export structure, characterized by its low added value. Venezuelan foreign trade based on the production and export of primary products such as fossil fuels (due to the abundance of these natural resources) with low technological content coupled with poor management and administration of resources has caused periods of booms and negative shocks in the last decades that prevent long-term sustainable economic growth. This reality collides with the technological advance that is displacing international trade towards knowledge-intensive digital goods and services, with which investment in innovation ecosystems and the adoption of disruptive technologies become imperative.

The increasing fragmentation of production with the Global Value Chains and the adoption of these technologies is changing the international economic geography of trade exchanges, which makes it necessary to add value to natural resources in two ways: increase the degree of processing (raw materials with levels of differentiation and / or primary manufacturing or derivatives, orimulsion is an example) and the adoption of services based on knowledge in the processing of these activities.

Mechanisms to boost the knowledge economy

Finally, we have read how diffusion of new technologies challenges the commercial patterns of the region that are based on the use of comparative and competitive advantages based on natural resources and low wages. The reality is that commerce is shifting to knowledge-intensive digital goods and services. It is essential to develop technological advantages through investment in education, research and development (R & D), access to new technologies, promotion of innovation ecosystems, investment in communication infrastructures and the establishment of an institutional framework that fosters trust. and investment through respect for property rights and economic freedoms to encourage human ingenuity and creativity.

Also published on Medium.

Published inTechnology

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