Argentina, Brazil and Mexico should have grown much faster than the United States in the past few decades. They didn't. Admittedly, per capita growth or per capita income as a share of US income would be better measures to capture income convergence. Yet, it is remarkable that the United States whose per capita income is 3-4 times higher than in Argentina, Brazil and Mexico managed to generate faster growth than in the three largest Latin American economies. That's why they call it "conditional (!) income convergence."
Argentina, Brazil and Mexico have very different economic characteristics and they differ widely in terms of their financial strength as well as their approaches to economic policy and international trade integration. Remarkably, their long-term growth performance has not differed much. In the past four decades, real GDP growth has averaged 2.0%, 2.5% and 2.1% in Argentina, Brazil and Mexico, respectively. Ten-year average growth differs a little more, but not dramatically so. It was zero, 0.6% and 1.5%, respectively. This is quite remarkable given the vastly different economic trajectories and different approaches to economic policy and international economic integration taken in the three countries.
The composition of GDP in the three countries is very comparable in terms of primary, secondary and tertiary sectors. The service center represents 50-60% of GDP in all three countries. Mexico’s agricultural sector is slightly smaller than in in Argentina and Brazil, but not considerably so. Manufacturing exports account for 14%, 25% and 77% of total exports in Argentina, Brazil and Mexico, respectively. Not surprisingly, Mexico’s terms-of-trade have been far less volatile than Argentina’s or Brazil’s. Yet, the three countries’ economic performance has been very similar.
Mexico’s economy is also far more open than Argentina’s and Brazil’s. Exports account for 40% of GDP, compared to 20% in Brazil and less than 20% in Argentina. Mexico’s exports are far more geographically concentrated. Around 4/5 of Mexican exports go to the United States. Only 2% of Mexican exports to go to China. By contrast, a full 25% of Brazilian exports go to China, which is Brazil’s largest trade partner. Less than 10% of Argentinian exports go to China, which is Argentina’s third-largest trading partner after Brazil and the EU.
Last but certainly not least, all three countries differ in terms of their overall financial stability. Mexico is rated investment, Brazil sub-investment grade, and Argentina teeters on the verge of yet another default. Remarkably, the three countries’ long-term economic performance is almost impossible to distinguish, even though Mexico has by and large pursued Washington Consensus types policies, while Argentina’s economic policy has swing form orthodox to heterodox, to put it politely. And yet, their long-term economic performance has been virtually identical. Possible explanation? Similar investment ratio. Implication? Economic policies should be geared toward raising investment as well as productivity.