Heterogeneity, Dynamic Losses, and Institutional Lock-in: A Study on the Deindustrialization in Latin American Countries from 1980 to 2010

Since the 1980s, many Latin American countries have undergone deindustrialization, unlike East Asian economies such as South Korea and Singapore, which successfully industrialized. This paper examines the characteristics and drivers of industrial structural transformation in eight Latin American countries between 1980 and 2010. Grouping countries by per capita income, it identifies three distinct trajectories: Chile experienced comprehensive deindustrialization; Argentina, Brazil, Mexico, and Venezuela underwent efficiency-led deindustrialization associated with middle-income stagnation; while Bolivia, Colombia, and Peru had not yet entered the deindustrialization phase. A three-dimensional decomposition of labor productivity shows that growth relied mainly on positive static between-sector effects, whereas labor shifted into low-productivity service sectors, producing negative dynamic effects and a pattern of “static gains and dynamic losses.” From an institutional economics perspective, this outcome reflects a structurally inefficient equilibrium shaped by extractive institutions and low adaptive efficiency, highlighting priorities for industrial and institutional reform.