not just the longest but also the most comprehensive since the 1960s—affecting almost all commodities relevant to LAC. The strong tail winds coming from the high commodity prices along with large volumes of capital inflows, driven at least in part by low interest rates in advanced economies and a widespread search for yield among international investors, have resulted in appreciated currencies across the LAC region for most of the 2000s. The fast expansion of the services sector observed in a number of LAC countries may in fact be a reflection of LAC’s real exchange trends and evolving external connections. In this context and unsurprisingly so, many have raised concerns about the long-term development prospects for LAC within this new multipolar world.

This paper focuses on the nature and the implications for the economic development of LAC that the emergence of this new multipolar world economy entails. Latin America is an increasingly globalized region and its economic future depends a great deal on the quality of its external connections. That is, LAC’s future growth will be affected not only by the quantitative incidence of the evolving international trade and finance linkages, but also by the qualitative nature of such linkages. To shed light on these issues, in Section 2 we start by contrasting the performance and globalization patterns of LAC vis-à-vis the Southeast Asian economies, particularly the so-called Asian Tigers. In Section 3, we revise the theoretical arguments on the costs and benefits of various dimensions of globalization. In Section 4, we explore the nature of trade connections and other macroeconomic aspects that may affect the globalization-growth nexus. We conclude in Section 5.

# **2. LAC vs. the Southeast Asian Tigers: A case for globalization?**

For development economists, the ultimate test of the benefits of globalization has to be economic convergence—that is, the convergence of the per capita income of the less advanced economies towards the per capita income levels of the more advanced economies. In fact, a case for globalization would rest convincingly before the profession if one could show that the per capita income for a developing country converges consistently and sustainably towards that of the advanced economies as a consequence of the country’s persistent increase in its degree of international trade and financial integration. The state of our theory and evidence does not allow us to make that claim categorically, however. To be sure, there is a strong tendency among economists in favor of a causal connection going from trade openness to growth, although it is far from being a consensus.<sup>2</sup> The growth effects of international financial integration command even less agreement and the views in this regard are rather tilted towards the negative.<sup>3</sup> In all, and not least because of the changing nature of globalization (Lane and Milesi-Ferretti, 2008; Baldwin and Lopez-Gonzalez, 2013) as well as the endogeneity challenges facing empirical work, the growth enhancing effects of rising globalization have not yet been fully established—

> 2 The seminal article of Frankel and Romer (1999) showed (using data for 1985) that differences in trade openness across countries were positively associated with higher levels of GDP per capita. Others have argued, however, that when institutional differences across countries are taken into account, there is a lack of statistical significance on the coefficient linking trade to growth (see for instance Acemoglu et al., 2001; and Rodrik et al., 2004). The debate has not been settled yet and a number of papers keep pondering on the question of whether trade causes growth. See for example Dollar and Kraay (2002), Alcalá and Ciccione (2004), and Noguer and Siscart (2005).

> 3 See for example Prasad, Rajan and Subramanian (2007), Aizenman and Sushko (2011), and Aizenman, Jinjarak, and Park (2013) for recent empirical analysis of the links between financial globalization and growth.

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