emerging economies (Indonesia, Malaysia, Philippines, and Thailand) to document that the two regions show in effect a sharp contrast in these key variables.

Figure 18 shows the marked difference in the structure of aggregate demand, which is clearly tilted in favor of domestic demand in the case of Mexico and South American countries (LAC-SAM) and much more reliant on external demand in the East Asian emerging economies.<sup>37</sup> Domestic demand is not only much higher in LAC-SAM but it has been on the rise over the past decade and is at present around 105 percent of GDP. In the Southeast Asian middle-income countries, by contrast, it has been low and stable over the same period, at below 95 percent of GDP. The persistence of this structural feature in spite of the commodity export bonanza indicates that LAC systematically metabolizes favorable external conditions into domestic demand dynamics. LAC’s globalization and growth patterns are clearly not like those in East Asia and are unlikely to become more Asian-like in the foreseeable future. If anything, it is more likely for the structure of aggregate demand in East Asian emerging economies to become more LAC-like as per-capita income and consumption in the former rises.<sup>38</sup> However, contrary to popular belief, the strong expansion of domestic demand in LAC over the last decade was not an overriding consumption story. Real investment grew faster than private consumption and significantly in excess of real GDP in the LAC-SAM countries (Figure 19). Real investment LAC-SAM is now around 24 percent of GDP, compared to around 25 percent in the Southeast Asian economies. And as the second panel in Figure 19 shows, the closing of the traditional investment gap has been a feature of many LAC-SAM countries, with the notable exceptions of Brazil and Bolivia. While the sustainability and quality of these higher investment rates in LAC are a different matter that requires more analysis, it is worth stressing that investment dynamics played a larger role in LAC’s growth in the past decade than commonly believed.

The flipside of LAC-SAM ́s domestic demand-led growth is a tendency toward current account deficits, which started to emerge, following modest surpluses, already in 2008, despite the continued commodity export bonanza (Figure 20). For all of the debate about the commodity boom in the 2000s, the fact is that the current account surpluses in LAC ́s commodity exporters was in most cases rather short lived—the surpluses were virtually gone by mid-2008 and only temporarily recovered in 2009 as an undesired consequence of the global trade collapse. By 2011, only Bolivia and Venezuela (2 out of the 11 Latin American commodity exporters) displayed a current account balance in positive territory. This said, however, LAC’s current account deficits in the recent past have been mainly financed by FDI and have hence been driven by relatively large factor payments abroad, mainly dividend payments (i.e., the trade

> 37 We use real values for GDP as well as for its components, in which each component is deflated by its respective deflator. Since real variables are sensitive to the choice of base year, we use national accounts data collected by the U.N. Statistics Office and reported in the same base year, making real values comparable across countries. Working with these real values is essential to get an accurate picture of aggregate demand dynamics in times of significant changes in terms of trade. For example, when terms of trade rise, the share of investment to GDP will be underestimated by nominal variables because the denominator (GDP) contains exports, whose prices are rising fast, while the numerator (investment) will be typically intensive in imports, whose price are falling relative to the price of exports.

> 38 For a more detailed discussion of the LAC versus EAP aggregate demand structures see De la Torre, Levy Yeyati, and Pienknagura (2013a).

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