Investment Without Development : Is Latin America’s Global Integration Leaving People Behind?

Daniela Lopez MSc Development Management, Political Economy  

On Tuesday February 17th the Paraguayan Minister of Finance amazed his audience at the LSE Old Theater with a speech about how Paraguay went from default in 2003 to obtaining the Investment Grade (IG) in 2023. Obtaining the IG meant that Paraguay is considered to have strong capacities to meet international financial commitments, showing a positive integration into the global investment and trade ecosystem. The macro economic numbers presented by the Minister were outstanding; GDP per capita growth, regional trade integration, even the issuance of international bonds in guaraníes, the national currency. Unfortunately these kinds of triumphs, while essential for the development of the region, don’t always benefit the most vulnerable people in those countries. Paraguay still faces high levels of poverty ① and informality due to structural abandonment ② particularly in rural areas, and it is amongst the countries in the region with the lowest spending in social services. Paraguay illustrates a pattern of regional policymaking, in which integration into global markets and investment has produced uneven results precisely because domestic sectors have not been sufficiently included or made competitive, a gap that citizens must push to close for the region to achieve a less unequal future.

According to theory, the increase in external capital flows into the region would result in job creation, technology transfers, and higher tax collection that could be used for redistribution. The Latin American reality shows a very different picture, in which multinational companies, where Foreign Direct Investment is concentrated, often have goals that are incompatible to national long-term development goals ③. As of 2024, Latin America accounted for 19%  ④ of the world's Foreign Direct Investment (FDI) flows, yet the region remains at the top of the income inequality charts ⑤ and poverty alleviation stagnated since 2015. According to the United Nations’ Agency for Trade and Development (UNCTAD) 2025 annual report⑥, Latin America and the Caribbean has become increasingly integrated into global trade and investment, yet the staggering inequality levels remain high, deepening the region into the integration and growth paradox. 

  Since the adoption of Structural Adjustment Programs in the 1990s, which consisted in austerity reforms prescribed by the IMF after the Latin America debt crisis in the 1980s, governments in the region have prioritized international investors  ⑦ interests over spending in citizen welfare. Centering investment in sectors that favoured Global Value Chains and global trade integration but did not necessarily increase productivity in the rest of the local  economy. The Trade and Development report  ⑥ describes this as the growth without development paradox in which short term political and electoral wins in terms of macro economic indicators do not always translate into improved livelihoods for the poorest. Agendas that prioritize “investor confidence” often result in a tradeoff where debt servicing costs are prioritized over the fiscal space needed to build social and climate resilience. The politicization of such agendas has entrenched a permanent populist discourse of short-termism goals over long term development outcomes. 

Latin America’s political scale turning sharply to the right is intrinsically connected to such economically populist narratives. In contrast to populist rhetoric in Latin America during the 90s  ⑧ , where protectionist and unsustainable debt for social spending were the common discourse, the region faces a new wave of populism, this time using narratives focused on macro economic indicators prevailing over social welfare. The narrative established in Argentina of  “pain now, gain later” has expanded across the region, reaching countries with welfare state models like Costa Rica. Since 2022 the Costa Rican government reprioritized reducing sovereign debt levels at the expense of slashing spending on healthcare, education and housing for the poorest communities ⑨. This reprioritization of the political agenda to please international financial institutions resulted in a deep polarization and deterioration of the social contract in the country. Local opposition in the National Assembly warned about the potential consequences of this agenda by stating that “social investment without fiscal discipline as unsustainable, but fiscal discipline without social investment is dangerous” ⑩ .

The regional trends characterize Latin America as successfully integrating into global trade and investment, but have lacked the translation into inclusive development that leads to structural transformation of the economy. For example in larger scale countries like Brazil, which in 2024 received 38% of all FDI in the region ⑪ , 13.8% more than the last year; and yet income inequality remains one of the world’s highest ⑫ at 0.506 as of 2024 in the Gini Index. Even  ranking second most unequal ⑬ in the region in 2022. In the case of Brazil, income inequalities overlap with intersectionalities of rural poverty and marginalized groups, since the poorest states of Ceará and Pernambuco ⑬ also have the highest rates of indigenous and afrodescendent population   ⑭.  On the other hand, states like Sao Paulo, Rio de Janeiro and Minas Gerais have successfully attracted FDI towards their industry and energy sectors ⑮. This example further illustrates the complexity of regional trends of successful trade integration and deep inequality. 

While the UNCTAD ⑥ 2025 report on Trade and Development, reminds us of some of the region’s weaknesses, it also emphasizes that integration can be approached in ways that it benefits the wider local economy. As the Paraguayan Minister noted, “the best investment for a country is its people”; yet this investment should be more than volume of trade or GDP growth, but the quality of jobs created, and the redistribution of productive activities across the country. If citizens participate in the political debate around inclusive growth and require that policymakers treat trade, finance and investment as interrelated, the region could move towards a far less unequal future.

Sources 

① «Paraguay : Nuevo para de pobreza para guiar la inversión », World Bank Group , 16 October 2025.

② José Ospina-Valencia, «Paraguay : un país atrapado entre vestigios de la dictadura », DW, 8 March 2021. 

③ Pablo Quiñonez Riofrío, «La Inversión Extranjera Directa y la pobreza en América

Latina», CelagData , 20 February 2026.

④  «Economy, investment and finance Data insights »,

UN Trade and Development, 1 September 2025.

⑤ Rodriguez Castelán, et al., «Nine key facts about poverty and inequality in Latin

America and the Caribbean », World Bank Blogs, 2 July 2024 .

⑥ «On the brink: Trade, finance and the reshaping of the global economy », UN Trade and Development, 2 December 2025.

⑦ Andrew McCutchan, «Understanding The Inefficacy of Structural Adjustment

Programs in Latin America », Lund University, June 2010. 

⑧ Thomas Kestler, «Radical, Nativist, Authoritarian—Or All of These? Assessing Recent Cases of Right-Wing Populism in Latin America », Journal of Politics in Latin America, 4

August 2022.

⑨Esteban Arrieta, «Rodrigo Chaves llega a la mitad del camino con grandes aciertos económicos y una creciente deuda social », La República, 2 May 2024 .

⑩Alonso Martínez, «Rodrigo Arias recrimina a Chaves recortes al gasto social en su gobierno », Delfino.CR, 3 May 2024.

⑪ «Foreign Direct Investment in Latin America and the Caribbean Rose by 7.1% in 2024, Totaling $188.962 Billion Dollars », United Nations, 17 July 2025.

⑫ Adele Cardin, «Brazil’s Inequality Drop in 2024 Stands Out, But Still Trails Regional Peers », The Rio Times, 9 May 2025.

⑬ Anna Fleck, «The State of Global Inequality », Statista, 16 October 2024.

⑭Catalina Espinosa, «Poverty and inequality in Brazil - statistics & facts », Statista, 17 December 2025.

⑮ «Brazil’s Difficulties in Attracting Foreign Investment », Geopolitical Future, 12

November 2021.