Latin American Economic Development

357 Pages·2019·33.813 MB·English

by  Javier A. Reyes, W. Charles Sawyer

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Latin American Economic Development

Latin America is one of the most intriguing parts of the world. The region’s illustrious
history, culture, and geography are famous internationally, but in terms of economics,
Latin America has been generally associated with problems. For many, the combination
of a resource- rich region and poor economic conditions has been a puzzle.
This extensively revised and updated third edition of Latin American Economic
Development continues to provide the most up-t o- date exploration of why the continent
can be considered to have underperformed, how the various Latin American economies
function, and the future prospects for the region. The book addresses the economic
problems of Latin America theme by theme.
Changes and new features in this new edition include:
• a new chapter on economic growth that reflects the new understanding of slow
growth in the region;
• two new appendices on basic microeconomics and macroeconomics;
• expanded coverage on new commodities such as lithium and quinoa;
• a number of new boxes and updates to existing boxes.
The book provides a comprehensive text for undergraduate economics courses on Latin
America and is also suitable for use by students in other disciplines looking for a wide-
ranging guide to the region. This book will continue to be an invaluable resource for
undergraduates looking at Latin American economics, growth, and development.
Javier A. Reyes is Professor of Economics and the Milan Puskar Dean of the John
Chambers College of Business and Economics, University of West Virginia, US.
W. Charles Sawyer is the Hal Wright Professor of Latin American Economics, Texas
Christian University, US.
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Routledge Textbooks in Development Economics

African Economic Development
Steven Langdon, Archibald R. M. Ritter and Yiagadeesen Samy
Development Economics
A Critical Introduction
Shahrukh Khan
Latin American Economic Development, 3e
Javier A. Reyes and W. Charles Sawyer
For more information about this series, please visit: www.routledge.com/ Routledge-
Textbooks- in- Development- Economics/ book- series/ RTDE
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Latin American Economic

Development
Third edition
Javier A. Reyes and W. Charles Sawyer
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Third edition published 2020
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
52 Vanderbilt Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2020 Javier A. Reyes and W. Charles Sawyer
The right of Javier A. Reyes and W. Charles Sawyer to be identified as authors
of this work has been asserted by them in accordance with sections 77 and 78
of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised
in any form or by any electronic, mechanical, or other means, now known or
hereafter invented, including photocopying and recording, or in any information
storage or retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or registered trademarks,
and are used only for identification and explanation without intent to infringe.
First edition published by Routledge 2011
Second edition published by Routledge 2016
British Library Cataloguing- in- Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging- in- Publication Data
A catalog record has been requested for this book
ISBN: 978- 1- 138- 38840- 6 (hbk)
ISBN: 978- 1- 138- 38841- 3 (pbk)
ISBN: 978- 0- 429- 42556- 1 (ebk)
Typeset in Times New Roman
by Newgen Publishing UK
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Contents

List of figures vii

List of tables ix
List of boxes xi
Acknowledgments xiii
Preface xv
1 Latin America and the world economy 1

2 Latin American economic history 16

3 Economic growth and Latin America 47

4 Limits to growth in Latin America 69

5 Growth and the environment in Latin America 91

6 Latin America and primary commodities 124

7 Import substitution in Latin America 146

8 Latin American trade policy 169

9 Exchange- rate policy 204

10 Financing current- account deficits 228

11 Macroeconomic policy in Latin America 247

12 Macroeconomic stability 268
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vi Contents
13 Poverty and inequality 287

14 Economic policy debates in Latin America 306

Index 321
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Figures

1.1 Actual vs. potential changes in GDP per capita in Latin America
(constant 2005 US dollars) 11
3.1 The production function and changes in labor 57
3.2 The production function and changes in capital or technology 59
5.1 Equilibrium price and output with no externalities 92
5.2 Equilibrium price and output in the presence of negative externalities 93
5.3 The marginal cost and marginal benefit of pollution 97
5.4 The environmental Kuznets curve 112
5.5 Demand curve 116
5.6 Supply curve 117
5.7 Interaction demand and supply 119
5.8 Inelastic demand and supply 120
6.1 Equilibrium price and output for a commodity 127
6.2 Equilibrium price and output with changes in demand 129
6.3 Equilibrium price and output with changes in supply 130
6.4 Changes in supply and demand in commodity markets 133
8.1 Equilibrium price and output in autarky 179
8.2 Changes in welfare resulting from trade 180
8.3 The effects of a tariff 180
8.4 The effects of a quota 185
9.1 The demand and supply of foreign exchange 210
9.2 Intervention in the foreign- exchange market 212
10.1 Flows of FDI into Latin America 230
10.2 Flows of portfolio capital into Latin America 232
10.3 Flows of ODA into Latin America 234
10.4 Latin American debt 238
10.5 Debt service in Latin America 240
10.6 The effects of IMF austerity programs 242
11.1 The equilibrium price level and real GDP 248
11.2 The price level and changes in aggregate demand 257
11.3 Changes in aggregate demand and changes in the price level
and real GDP 258
11.4 The effects of changes in inflationary expectations 260
11.5 Long- run increases in the price level 261
11.6 Long-run aggregate supply 262
11.7 Macroeconomic equilibrium 264
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viii Figures
11.8 An increase in aggregate demand 264
11.9 A decrease in aggregate supply 265
12.1 Macroeconomic effects of a commodity price shock 270
12.2 The price of oil (per barrel) 273
12.3 Macroeconomic effects of an oil shock 275
12.4 Policy responses to an oil shock 276
12.5 Maintaining a fixed exchange rate 277
12.6 Macroeconomic effects of an exchange- rate shock 278
12.7 Macroeconomic effects of oil shocks, inflationary expectations and
current- account deficits 279
12.8 The J- curve 280
12.9 An exchange- rate shock combined with an austerity program 281
12.10 The effects of falling inflationary expectations 283
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Tables

1.1 Population, GDP, and GDP per capita for Latin America, low- , middle- ,
and high- income countries, and the world (2017) 3
1.2 The Human Development Index in Latin America (2017) 5
1.3 Latin America and international trade (2017) 7
1.4 Capital flows in Latin America (2017) 8
1.5 The economic relationship between Latin America and the US
(US$ billions) 12
3.1 Property rights in Latin America 49
3.2 Intellectual- property protection in Latin America 51
3.3 The rule of law in Latin America 53
3.4 Judicial independence in Latin America 55
3.5 The labor force in Latin America (millions of workers) 61
3.6 The capital– labor ratio and GDP per capita in Latin America 62
3.7 Educational attainment in Latin America 64
4.1 Average economic growth in Latin America, 1960– 2017 71
4.2 Growth accounting gaps between Latin America and the world economies 71
4.3 FDI and savings in Latin America 73
4.4 Infrastructure quality in Latin America (2017– 2018) 75
4.5 Road quality and road fatalities in Latin America 76
4.6 Starting a business in Latin America (2018) 79
4.7 Business taxes in Latin America (2018) 79
4.8 Labor-m arket flexibility in Latin America 81
4.9 Measures of institutional quality in Latin America 84
5.1 Natural disasters in Latin America 95
5.2 Major natural disasters in Latin America, 1974– 2003 95
5.3 Access to clean water and sanitation in Latin America 102
5.4 Industrial water pollution in Latin America 104
5.5 Urban air pollution in Latin America 105
5.6 Urbanization in Latin America 106
5.7 Deforestation in Latin America 107
6.1 Commodity booms in Latin America 125
6.2 World commodity prices, 2006–2013 126
6.3 Commodities’ share of exports and GDP in Latin America (2017) 135
8.1 Trade based on absolute advantage 170
8.2 Trade based on comparative advantage 171
8.3 Capital- to- labor ratio in Latin America 175