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An introduction to the history problems and future of argentina a latin american country

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The five teams answered an invitation from the editors of the Latin American Journal of Economics to explain why these countries' growth experiences lag so far behind those of the developed world, and at the same time, why their trajectories have been so dissimilar. This paper serves as an introduction to the special issue, characterizing the patterns of growth in Latin America, and discussing the teams' answers.

Argentina, Chile, Colombia, Mexico and Venezuela. Independence, nevertheless, was not achieved until the end of the decade, when Spanish troops were finally defeated in Argentina and Chile 1818Colombia 1819and in Mexico and Venezuela 1821. Year 2010 marked two centuries of political and economic independence in these countries. The occasion invited social scientists to make a longrun assessment of development in Latin America and address the underlying question of why economic growth has been mediocre, elusive, and highly unstable, while developed countries and the emerging Asian economies have been able to deliver, to a large extent, the promise of material welfare for the vast majority of their inhabitants.

This project is the response to such opportunity. The challenge to the participants in this project was to move beyond the mere account of facts and anecdotes into the rigorous testing of well-founded economic theories. Economics in Latin America has a long history of explanations for its economic phenomena, a history in which rigorous testing of hypothesis is largely absent and data is merely used for illustrative purposes.

As aptly expressed in one of the papers in this volume, the statistical analysis of past data is as valuable as history repeats itself, but to move forward one needs to test a theory.

  1. Latin America at the end of the 20th century The last two decades of the 20th century witnessed a generalized economic crisis in Latin America, triggered in large part by external factors but aggravated by domestic mismanagement; in search of a way out, countries put their trust in neoliberal approaches favouring a free flow of trade and investment and reduction of the role of the state, all as recommended by the International Monetary Fund or other lending and advisory agencies. Intra-Latin American trade increased, but probably not much more than would have happened without special agreements.
  2. With such a dramatic development of the industry, income levels expanded extraordinarily but as the oil sector began to dominate all other economic sectors in the country other industries receded dramatically.
  3. The Mexican Constitution of 1917 , still the current constitution, was proclaimed but initially little enforced. That is, since independence Colombia had a significant "technological backwardness" relative to the developed economies.

Using different, ingenuous and novel theoretical frameworks the authors of the papers in this volume set out to discuss the salient aspects of development or lack thereof of each country: Undoubtedly, the explanations provided in these five papers are a significant contribution to our understanding of sustainable development and the role of economic policies.

At the same time, these papers provide only partial answers to the pressing needs of Latin American development. But as such, they are solid stepping stones for future research. The rest of this paper is organized as follows. Section 2 gives an overview of the last two centuries in Latin America. Section 3 discusses common aspects of the conclusions in the other five papers in this issue. Economic growth has been slow, wealth inequality substantial and economic and political instability pervading.

Progress has undoubtedly been made: However, at times such progress has been too slow to provide lasting solutions to the pressing demands of our societies thus fueling social unrest and political turmoil.

At others, progress has been fast enough to raise hopes, only to show at later stages that it was indeed unsustainable and ephemeral. Instability in economic growth as well as in political life is a defining trait of Latin America's development. Disappointment with economic growth in Latin America is amplified by the successful development of East Asian economies in the 1980s and 1990s and, more recently, China World Bank, 2001.

At the times of independence, nevertheless, Latin American economies were not in disadvantage to achieve economic development. In Table 1 it can be seen that, according to estimates by Angus Maddison 2006as of 1820 Chile and Mexico had per-capita income levels that were around one half that of European economies and the US.

Venezuela lagged slightly behind. Data for Colombia and Argentina are not available but one could safely assume that income levels in Colombia were not markedly different to the other three Latin American economies, while that of Argentina is estimated as equivalent to the US in James Coatsworth 2008. In fact, income levels in these Latin American countries seem to have been typical for non-European economies: The very low income level of Singapore reflects that it an introduction to the history problems and future of argentina a latin american country only been founded in 1819 by Thomas Raffles and amounted to little more than a British overseas trading post.

Historians tend to agree that there was a decline in income per-capita in Latin American countries relative to Europe between 1750 and 1850 Coatsworth, 2008 although estimates of economic activity are scarce and imprecise. Independence would then locate at the end of a declining period.

Explanations for such decline point mainly at the poor quality of institutions: Iberian colonialism failed to create dynamic societies that could independently generate technological or organizational innovation. Engerman and Kenneth L. Sokoloff 1997 pose that institutions designed for the exploitation of Latin America's natural resources large slave plantations in the tropics and large grain and cattle haciendas elsewhere led to wealth concentration and unequal societies in which settler elites exploited the majority indigenous or imported slave populations.

Robinson 2001 deny the importance of natural resource endowments and pose that inequality stem from the enactment of extractive institutions by settler elites designed to dominate large populations of native or African descent.

Again, these "extractive institutions" deliberately excluded majorities from power and failed to protect their property and human rights, thus leading to low investment in human and physical capital. Matthew Lange, James Mahoney and Matthias vom Hau's 2006 theory points at the differences between colonial rulers, whereby institutions stemming from "mercantilism" in Spain were inimical to growth as opposed to those arising from "liberalism" in Britain.

Accordingly, major institutional or policy constraints that inhibited economic growth in both Spain and its colonies include the burdensome Spanish legal system, the political risk of confiscation or other losses, the slow rate of human capital formation, and antitrade policies.

History of Latin America

Coatsworth 2008 correctly points out that these explanations do not match the data and are inadequate to explain the slow growth of the first fifty years after independence for a variety of reasons. First, income inequality in Latin America was not different to that in North America. Second, productivity differences between the richest and poorest Latin American colonies in the early 1800s were nearly as great as for the richest and poorest regions of the entire world and seem to be entirely unrelated to subsequent economic success or failure.

Third, because Latin American countries were not in disadvantage in 1820, it seems that institutions mattered for development only after independence.

The reality of scientific research in Latin America; an insider’s perspective

Fourth, and more importantly, there is little evidence that settler elites were able to dominate colonial administrations, control policy making, or shape institutions just as they pleased.

Independence did not necessarily bring political stability to Latin American countries, with the exception of Chile where a unitary republic was in place already by 1830. In other countries, internal conflicts were reinforced by territorial disputes with neighboring countries e.

Interestingly, evidence for Spain in Table 1 indicates it performed less dynamically that its ex-colonies and its income level grew very slowly, reaching around one half of that in the US and not significantly different of those in Argentina and Chile. One hundred years after effective independence, economic growth in Latin American economies continued steady but countries started to diverge. As discussed by all papers in this volume, the Great Depression of the 1930s marked a decisive change in economic policy and long run growth.

Figure 1 plots the cyclical component of GDP per-capita defined as the deviations from trend the latter obtained as customary using Hodrick and Prescott's filter with the smooth parameter set at 100. It can be seen that, in addition to the Great Depression downturn, Argentina and Colombia had been also affected by negative shocks in the early 1920s resulting from the post World War I adjustment.

In response to the decline in exports and protracted recession, Latin American economies closed their economies and embarked in massive programs of public investment in support of import substitution and the development of domestic manufacturing industries. The import substitution experiment ran for about four decades in all economies but Venezuela. By the end of the 1960s it had ran out of momentum and the numerous distortions it induced had become a heavy burden for Latin American economies.

In addition, the massive restructuring of the economies under the import substitution strategy led to mounting social tensions that expressed in increasing political instability Edwards, 2009.

Between 1930 and 1970, income per-capita grew at around 1. Real income er capita tripled in advanced economies while it only doubled in these four Latin American countries: Slow growth during the import substitution experiment was, nevertheless, accompanied by significantly lower levels of volatility in Argentina, Chile and Mexico and, after 1950, also in Colombia.

The papers in this volume also document the slow growth in labor productivity that characterizes the period of import substitution. And while economic cycles may have ameliorated, increasing instability showed in other dimensions of the economy. In particular, the main Latin American countries in the second half of the 20th century became the epitome of chronically high inflation and structural massive unemployment. Venezuela, on the other hand, benefited enormously from the discovery and extraction of oil in Maracaibo in 1922 and became the richest economy of the region.

By 1929, Venezuela was the second largest oil producing country behind only the United States and the largest oil exporter in the world. With such a dramatic development of the industry, income levels expanded extraordinarily but as the oil sector began to dominate all other economic sectors in the country other industries receded dramatically. The paper an introduction to the history problems and future of argentina a latin american country Bello, Blyde and Restuccia in this volume documents how substantial oil revenues were initially used to build infrastructure and basic industries thus fostering growth, but later massively misused hampering economic growth and productivity gains.

While Latin American countries were enthusiastically embarking on import substitution policies, East Asian countries chose the exact opposite strategy World Bank, 2001.

And while in Latin America economic growth languished, countries such as Hong Kong and Singapore managed to grow at astonishing rates. Table 1 provides the evidence of such remarkable growth: In all papers in this volume, the authors find evidence of a significant break in trend in economic growth during the 1970s.

The nature of such break, however, is not common to all economies. On one hand, Chile successfully implemented a series of pro market reforms and managed to grow at much faster pace than during the import substitution years: In Mexico, similar reforms were enacted but their impact has been less significant.

On the other hand, the break in trend for other economies has been quite negative, in particular for Argentina and Venezuela, which sloped into economic collapse despite the very favorable external conditions they enjoyed. Income per capita in Argentina expanded quite slowly at 0.

In Venezuela, income per capita declined in absolute terms. In Colombia and Mexico, the sustained growth of the import substitution strategy gave way to a long and protracted stagnation, in particular in the "lost decade" of the 1980s.

  • New geopolitics in Latin America The main factors influencing geopolitical thinking in Latin America since the 1990s can be summarized as follows;
  • In 2000 a coup led by indigenous Indian leaders and military members briefly toppled the ruling government, removing the president from power;
  • There was hardly any possibility of preventing a major crisis of supply;
  • As exports increased decreased , foreign exchange flowed into out of the country;
  • Health Res Pol Syst.

The disillusion with economic growth and development strategies in Latin America is amplified by the contrasting experiences of East Asian economies, first, and India and China more recently. The last column in Table 1 presents the evidence: Early birds, such as Hong Kong and Singapore, had already achieved or surpassed the income levels of Europe and the US.

Even backward economies of the 1970s such as China and Thailand had already advanced to the level of Mexico and Venezuela. However, as the papers in this volume indicate, economic policy seems to have played a major role. Economic growth would be, then, the result of capital accumulation, expansions in the use of manpower, and changes in productivity, i. Once taken into account the contribution of capital and labor, the papers concentrate in analyzing deviations of TFP growth from that longrun trend.

While each of the papers focuses on different aspects of the development path in each economy, a different time period, or a different idiosyncratic fact, there is a remarkable commonality among studies: They start by decomposing the evolution of real per-capita GDP into trend and cyclical components.

An annual growth rate in per-capita GDP of around 1. From the volatility of the cyclical component, they identify three distinctive periods in the economic history of the country in concordance with our Figure 1.

  1. All of these regimes sought to maintain Latin America's lucrative position in the world economy as a provider of raw materials. El Pilar Ignorado en el Desarrollo de Chile.
  2. In the sixteen years after 1913, annual growth in the dollar value of world exports barely exceeded 3 percent. However, grants to support applied research are not easy to obtain because national priorities are unfocused and because it is difficult to publish the results in high-impact journals, which is against the interests of the investigators, thus creating a vicious circle.
  3. In the final decade of the century, most countries experienced a resumption of modest economic growth after the disastrous 1980s, an often dramatic fall in inflation, and a strengthening of the private sector of the economy. However, new geopolitical narratives deal with border issues in a more nuanced way, as they are not an issue exclusive to security politics but are also of importance for geo-economic interests.
  4. Debates increased over the course of the war and sometimes led to violent fights in the streets. Fights between adherents of the Allies and the Central Powers were frequently seen.
  5. Mexico, as well as other countries in this volume, has had massive institutional shocks during the 20th century that have affected its income level, the ISS being a primary example others include land reform and outbursts of political violence.

The first one starts in 1885 and ends with the unveiling of the Great Depression in 1930. The second period, which is characterized by much lower volatility, ends in 1974 while the third one, which comprises the last 35 years, shows a return to the higher volatility levels of the period 1885-1930.

Although the differences in volatility of these three periods may be of importance for example, Does increased volatility reduce growth? The authors prefer to concentrate on the basic insight of the paper, namely, that there is quantitative and qualitative evidence of a significant break in the trend of GDP after 1974 and that this phenomenon is largely the result of fiscal mismanagement.

Using a calibrated Solow type growth model, they show that economic growth in Argentina in the period 1950-1974 is congruent with a calibrated economy in which total factor productivity TFP grows at around 1. However, after 1974 the data can only be replicated if the model is simulated from 1950 onwards with zero growth in TFP.

In other words, per-capita growth in Argentina after 1974 has been so low that its current situation is the same to what could have been achieved if there had been no productivity growth whatsoever in the last 50 years.

The economic development of Argentina, accordingly, has largely been the result of factor accumulation. Argentina's break in trend is not unique and it has been documented before for 12 Latin American economies Andres Solimano and Raimundo Soto, 2006.

What sets apart this paper from the previous literature is that it provides a causal economic explanation for the phenomenon. Crisis years are those where fiscal deficits have reached peak levels. A government without recourse to loans is forced to default.