15 we measure IIT using the adjusted Grubel-Lloyd Index, which ranges from zero (pure interindustry trade) and one (pure intra-industry trade).<sup>30</sup> While the share of IIT has risen in most LAC countries over the past 20 years, it is still substantially below that observed in the Southeast Asian economies.<sup>31</sup> Moreover, the gap has not systematically declined, although Mexico appears as an important exception. Within LAC, the Caribbean and Central American countries typically show a higher degree of IIT than South American countries. Nonetheless, the countries in LAC that exhibit a relatively high degree of trade openness are the ones with relatively lower levels of IIT.

By contrast, the growth miracle of the East Asian Tigers (Hong Kong SAR, China; the Republic of Korea; Singapore; and Taiwan, China) was associated high degrees of intra-industry trade. Indeed, Urata (1993) stresses that vertical intra-industry trade in particular characterized to a large extent the trade dynamics in certain sectors, and especially so for machinery. This type of development came at later stages for other Southeast Asian middle-income countries (Indonesia, Malaysia, Philippines, and Thailand). Underlying this LAC-East Asia contrast is, of course, the difference in overall composition of exports and imports. The LAC-7 countries (Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela) typically export natural resourceintensive goods and import manufacturing goods, mostly non-natural resource intensive ones. The majority of East Asian economies, on the other hand, import and export manufactured goods.

A different yet related way to gauge the quality of international trade focuses on the manner and extent to which a country is inserted into global value chains (GVCs). Such insertion may have important positive spillover effects. UNCTAD’s 2011 World Investment Report emphasizes that, in addition to being an important driver of trade flows around the world, GVCs chains can bring direct benefits (employment generation, direct local value added, and export generation) as well as, and perhaps more importantly, indirect benefits. These can not only catalyze technology and knowledge enhancement but also capacity building and economic development more widely, thus having the potential to lead to virtuous circles.

As insertion in GVCs is done via firms, we present comparative data on multinational corporations (MNCs) with headquarters in Latin America (the so-called “multilatinas”) and those from Southeast Asian countries in Figure 16. The main message of this figure is that the activity of Latin American MNCs abroad tends to be mainly of a “horizontal” nature—that is, they cross borders mainly to set up subsidiaries that sell the same product that the parent company sells at home. This suggests that the key motives for LAC MNCs to move abroad are either to diversify country risk or to take advantage of larger markets for their products. MNCs from the Southeast Asian middle-income economies, in contrast, tend to move operations abroad mainly to build or join GVCs, by going either upstream or downstream. This may be of greater significance considering the results in Didier and Pinat (2014) that suggest that countries that have stronger

> 30 This measure is adjusted by the overall trade balance. In order to capture the degree of IIT at a more vertical level, a rough classification of industries, at the 2-digit sector level, is used. For further details, see Grubel-Lloyd (1975).

> 31 For an early discussion of intra-industry trade in the context of the rising connections between LAC and China, see De la Torre, Didier, and Pienknagura (2012b).

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