Stages of diversification in Latin America

This article investigates the relationship between sectoral concentration and per capita income over the period 1963 to 2009 for 17 Latin American countries. Results confirm the existence of a U-shaped relationship between sectoral concentration of manufacturing value added and the level of per capita income. Import substitution industrialization policies encouraged excessive sectoral diversification early in the development process. Re-specialization in comparative advantage activities by higher per capita income countries coincided with a shift towards more market-oriented policies. The 'Lost Decade' of macroeconomic turmoil did not disrupt the evolving pattern of sectoral concentration.