Towards Inward Looking Development

Lecture # 8

Week 4

From previous classes:

• Protectionists policies in Latin America started prior to 1913

• In early 20th C Latin America, protectionist policies were not associated with “terms of trade deterioration”

• Instead: revenue, domestic market, and “trade strategies”, were influential determinants at this early stage

• Latin America recovered rather quickly after WW I and up until the end of the 1920s most Latin American countries (except for Argentina) did not have a modern manufacturing sector, export – led growth continued

• The real turning point was the Great Depression!! This period laid the foundations of a pure import substitution model, which reached its most extreme form in the 1950s and 60s

Structure of this class

• What happened during the Great Depression

• The contribution of ideology revisited

• What happened during and after WW II

• Cross country differences

• Growth, Income distribution, and Poverty until 1970

During the Great Depression

Since Latin America was still an export-led growth region, primary commodity exports’ prices were adversely affected

For countries producing inelastic supply tropical products, declining demand provoked a large fall in prices

For countries producing minerals, the slump in the industrialized countries led to the collapse of production

Countries less adversely affected: Argentina and Brazil

Balance of Payment crises

Recession, devaluations, political unrest

Contribution of ideology ( “Dependency School”, ECLA) based on declining terms of trade

Which was not really the case (e.g., Argentina last class)

Ideology also had an impact on Foreign Direct Investment

What happened during and after World War II

• Concentration of exports in few commodities as a result of protection and discrimination in industrialized countries

• Market share maintained in cotton and copper, but lost to other developing countries in coffee, oil, sugar, wheat, beef, wool, maize, and hides

• Overall Latin America lost out the opportunities created by the post war boom in international trade

• The limited success of a handful of small republics (Central America, Ecuador, the Dominican Republic, and Mexico) could not disguise that the region had lost market share

• A phenomenon often referred to as a “lost opportunity”

→ Manufacturing sector increased rapidly

→ Growth

However:

Technological constraints → FDI legislation reviewed

Financial constraints → BOP crises

ISI prescriptions

Argentina, Brazil Chile, Colombia, Mexico & Uruguay

The other 14 remained outward looking but more diversified

→ Growth linked to export performance

However:

Primary commodity exports only

Terms of trade deterioration

Poor export performance

→ Some ISI policies adopted

Intra-regional trade

Growth

Distribution

And

Poverty

Next class: Topic 9 in your syllabus

Enjoy Columbus day weekend -