Download Reyes and Sawyer, Chapter 1

NS4540
Winter Term 2016
Reyes and Sawyer, Latin American
Economic Development Ch. 1
Overview I
• Javier Reyes and W. Charles Sawyer, Latin American
Economic Development Ch. 1 Latin America and the
World Economy
Main themes in Latin American economic development
• Growth – The most serious problem of modern Latin
America has been that economic growth has been slow
relative to much of the rest of the world
• Especially the case in the last several years
• Commodities – Many countries in Latin America are
major producers and exporters of commodities, and this
has had a substantial influence on the economic
development of the region.
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Overview II
• Import substitution industrialization (ISI) -- in in the
second half of the twentieth century, many countries in
Latin America attempted to create industries designed to
replace imports from developed countries.
• ISI has had very important implications for economic
development in the region
• Trade Policy – From the 1930s Latin America has pursued
trade policies that tended to make the markets of the
region relatively closed to foreign competition
• This overall policy had a tendency to make Latin America less
integrated into the world economy
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Overview III
• Exchange rate policy – Countries have a choice between
managing their exchange rate and allowing it to float.
• In Latin America these choices at times have had serious
implications in terms of economic growth
• Debt – A recurring theme in Latin American economic
history has been the tendency for governments in the
region to borrow heavily from banks and other financial
institutions
• Several debt crisis have ensued involving the International
Monetary Fund (IMF)
• Macroeconomic instability – On average GDP growth,
inflation, and unemployment have been somewhat
unstable in many countries in Latin America
• This instability has been so pervasive that for many it is one of
the defining characteristics of the region
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Overview IV
• Poverty and Inequality – GDP per capita in Latin America
is low relative to the high income countries.
• In addition Latin America has had one of the most unequal
distributions of income in the world.
• A recurring question is what went wrong in Latin
America.
• Standard answer is a mixture of the history of the
region, the natural endowments, and poor economic
policy
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Actual vs. Potential Growth
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