Latin American Economic Development PDF
Preview Latin American Economic Development
Latin American Economic Development Latin America is one of the most interesting 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 prob- lems. For many, the combination of a resource-rich region and poor eco- nomic conditions has been a puzzle. Latin American Economic Development provides the most up-to-date exploration of how this happened with a focus on why the continent can be considered to have underperformed, how the various Latin American economies function, and the future prospects for the region. This textbook addresses the economic problems of Latin America theme by theme. The first four centuries of Latin American economic development are explained with reference to historical and institutional factors; the role of commodities; import substitution industrialization; and the resultant slow growth of the region. The development of Latin America during the twentieth century is examined through the policies of governments toward international trade and the management of the exchange rate. These policies lead to the accumulation of significant debt in the region that resulted in substantial economic instability. The final section of the book explains how all of these themes have contributed to two dominant problems for the region: poverty and inequality. The purpose of this book is to provide a comprehensive text for increasingly popular undergraduate economics courses on Latin America. However, the book has been carefully designed for use by both students majoring in economics and for those in other disciplines looking for a wide-ranging guide to the region. This book should be an invaluable resource for undergraduates looking at Latin American economics, growth, and development. Javier A. Reyes is an Associate Professor of Economics in the Economics Department of the Sam M. Walton College of Business at the University of Arkansas, USA. W. Charles Sawyer is the Hal Wright Professor of Latin American Economics at Texas Christian University, USA. Latin American Economic Development Javier A. Reyes and W. Charles Sawyer First published 2011 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Avenue, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business This edition published in the Taylor & Francis e-Library, 2011. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. © 2011 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 the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilized 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. 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 Reyes, Javier A. Latin American economic development / by Javier A. Reyes and W. Charles Sawyer. p. cm. Includes bibliographical references and index. 1. Latin America—Economic conditions—1982 2. Latin America—Economic policy. I. Sawyer, W. Charles. II. Title. HC125.R4834 2010 338.98—dc22 2010037782 ISBN 0-203-82932-8 Master e-book ISBN ISBN: 978-0-415-48613-2 (hbk) ISBN: 978-0-415-49733-6 (pbk) ISBN: 978-0-203-82932-5 (ebk) Contents List of figures x List of tables xii List of boxes xiv Preface xvi Acknowledgements xxi 1 Latin America and the world economy 1 Introduction 1 Latin America and the world 2 The economic output of Latin America 3 GDP per capita in Latin America 5 Latin America and international trade 7 Capital flows and Latin America 8 Latin America and world resources 10 Latin America and the world: a summary 11 Recurring themes in Latin American economic development 14 Major economic policy debates in Latin America 16 Key terms and concepts 19 Questions for review and discussion 20 References and recommended readings 20 2 Economic growth and Latin America 22 Introduction 22 Institutional basics 23 A basic model of economic growth 31 The Latin American labor market 36 Capital and Latin America 43 New growth theory 46 vi Contents Growth accounting in Latin America 50 Institutions and growth in Latin America 53 Key concepts and terms 60 Questions for review and discussion 61 References and recommended readings 61 3 Growth and the environment in Latin America 65 Introduction 65 Pollution as a negative externality 66 Pollution and environmental policy 71 Environmental issues in Latin America 78 The environment and growth 87 Key concepts and terms 93 Questions for review and discussion 94 References and recommended readings 95 4 Latin American economic history 97 Introduction 97 The colonial period 98 Independence and post-colonial turmoil 106 The Golden Age: 1870–1914 109 Wars and depression 112 Import substitution 116 The Lost Decade of the 1980s 119 Key concepts and terms 121 Questions for review and discussion 122 References and recommended readings 122 5 Latin America and primary commodities 124 Introduction 124 Commodities in Latin America: a brief history 124 The microeconomics of commodities 128 The macroeconomics of commodities 134 Commodities and economic development 136 Commodities and Dutch disease 139 Key concepts and terms 142 Questions for review and discussion 142 References and recommended readings 142 Contents vii 6 Import substitution in Latin America 144 Introduction 144 Structuralism, dependency theory, and ISI 144 How ISI worked 150 The results of ISI 157 Key concepts and terms 167 Questions for review and discussion 168 References and recommended readings 169 7 Latin American trade policy 170 Introduction 170 Comparative advantage 170 Comparative advantage and ISI 174 Comparative advantage, factor prices, and the distribution of income 176 The economic effects of tariffs and quotas 180 Latin American trade policy 188 Latin America and GATT/WTO 194 RTAs in Latin America 197 Key concepts and terms 202 Questions for review and discussion 203 References and recommended readings 204 8 Exchange rate policy 206 Introduction 206 The balance of payments 207 Flexible exchange rates 212 Fixed exchange rates 214 The real exchange rate 221 Managed exchange rates 225 Key concepts and terms 227 Questions for review and discussion 228 References and recommended readings 228 9 Financing current account deficits 231 Introduction 231 Debt vs. equity 232 FDI 233 viii Contents Portfolio capital 235 Official development assistance 236 Remittances 239 Debt 240 The role of the IMF 244 Key concepts and terms 247 Questions for review and discussion 248 References and recommended readings 248 10 Macroeconomic policy in Latin America 250 Introduction 250 Fiscal policy in Latin America 251 Financing deficits and the money supply 253 The money supply, prices, and GDP 256 Economic populism 262 Key concepts and terms 267 Questions for review and discussion 268 References and recommended readings 268 11 Macroeconomic stability 270 Introduction 270 Commodity price shocks 271 Oil shocks 275 Debt and exchange rate shocks 279 The Lost Decade 281 The recovery from the Lost Decade 286 Key concepts and terms 288 Questions for review and discussion 288 References and recommended readings 289 12 Poverty and inequality 290 Introduction 290 Poverty in Latin America 290 Income inequality 294 Causes of poverty and inequality 297 ISI 299 Reducing poverty and inequality 303 Key concepts and terms 308 Questions for review and discussion 308 References and recommended readings 309 Contents ix Glossary 310 Notes 316 Index 323
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