Chapter 13 Flashcards
(11 cards)
What is the reversal of fortune?
Initial development of Latin America and then decline
Inward looking development
A nation becoming self sufficent and isolating themselves from the rest of the word
Import substitution industralisation
Limiting exports in order to shifting manufacturing. Boosting your own manufacturing sector through producing goods in which you have previously produced
income per capita and wages in Latin America and US, 1870-2010
- Wages rose until 1920. Brazil was half to the US.
- Until the 1920s, wages fell.
- Income per capita was growing until the great depression as on the onset of the great. Depression many countries defaulted. Hard for debt collectors to collect debt as many of those were in Europe.
- High wages because they had high migration and labour scarcity. Frontier style environment.
Development models in LA-6 before and after WW2
- Before was export of primary goods. Borrowed heavily. 1920: Push for greater ownership of private property.
- After, it was ISI. Tariffs, subsidies to domestic industries, ERPs. Move from primary sector to the manufacturing sector. Import licence, overvaluation of domestic currency. Protectionism on inefficient small industries. Wage raises. Regional integration so they could have some form of export. Nationalisation of many industries
Why ISI?
- International shocks created a hatred of export led growth
- Want to replace the final goods
- Financial story: Investment was from individual therefore the legal power was not on the investors side
- Prebisch-Singer hypothesis: A countries develop, there would be greater demand for primary products. Worsening terms of trade will slow development in the long run so foster policies of manufactured goods
Why ISI failed ?
- Poor planning, conflict between foreign advisors and financiers, changing political scene meant there was not a full understanding of what should be done
- Didn’t solve the long term issues
- Depriving agriculture which the economy was dependent on suppressed the market
- Underemployment
- Can’t export the goods they produce as they are inefficient therefore they are still reliant on the primary sector
- Labour was not skilled enough for manufacturing - historical legacy of low human capital rates therefore trouble with skilled employees
- Underutilisation of capital
- New manufacturers who were dependent upon domestic demand as they could not export, were set to fail because agriculture, was the main part of the economy and their failure meant declining demand
- Level of GDP per head is calculated in the price of the given year so there is a distortion associated with ISI and that create upward biases
What was underemployment rates in 1970?
Argentina: 28% from 22% in 1960
Chile: 29% from 26% in 1960
What are the tariff rates?
Argentina: 131%
Brazil: 168%
What was the GINI index in 1970?
Brazil: 57
Columbia: 52
USA: 37
Using 1960 as 100, what was the exchange rate?
Argentina: 482
Brazil: 2439
