Latin America’s Growth : Looking through the Demand Glass
This paper revisits the historical roots of Latin America’s disappointing growth using a novel macro and trade-based growth decomposition and a simple model of industrialization in a commodities-exporting country with a large informal sector. The approach suggests the need to better qualify two opposite narratives: that the post-1982 (“neoliberal”) reforms have failed, and it is time to look back to the import substitution industrialization era for policy inspiration; and that the post-1982 reforms went in the right direction but must be completed to unleash significant productivity gains. Both can be misleading because they downplay the role of demand. The apparent “miracle” of import substitution industrialization does not provide a realistic point of comparison because it reflected an unsustainable, demand-induced boost in productivity. And the gains expected from Washington Consensus-style reforms alone can be overstated because they are derived from overly restrictive assumptions on demand. By allowing demand to play a more central role, the paper finds a close and revealing relationship between the growth patterns followed by Latin American countries, the quality of their macroeconomic policies, the nature of their trade, and the segmentation of their labor markets. Going forward, the policy agenda calls for an outwardly oriented growth strategy, supported by a more proactive role for the state that promotes not only efficiency in supply, but also the appeal to demand.
| Main Authors: | , |
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| Format: | Working Paper biblioteca |
| Language: | English English |
| Published: |
World Bank, Washington, DC
2022-11
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| Subjects: | GROWTH, CONVERGENCE, IMPORT SUBSTITUTING INDUSTRIALIZATION, COMMODITY DEPENDENCE, NATURAL RESOURCE CURSE, EXPORT DIVERSIFICATION, PARADOX OF PLENTY, NATURAL RESOURCE WEALTH, |
| Online Access: | http://documents.worldbank.org/curated/en/099546311082288505/IDU068d946b1072ad0489c0a6e20b03936c7dc30 http://hdl.handle.net/10986/38286 |
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| Summary: | This paper revisits the historical
roots of Latin America’s disappointing growth using a novel
macro and trade-based growth decomposition and a simple
model of industrialization in a commodities-exporting
country with a large informal sector. The approach suggests
the need to better qualify two opposite narratives: that the
post-1982 (“neoliberal”) reforms have failed, and it is time
to look back to the import substitution industrialization
era for policy inspiration; and that the post-1982 reforms
went in the right direction but must be completed to unleash
significant productivity gains. Both can be misleading
because they downplay the role of demand. The apparent
“miracle” of import substitution industrialization does not
provide a realistic point of comparison because it reflected
an unsustainable, demand-induced boost in productivity. And
the gains expected from Washington Consensus-style reforms
alone can be overstated because they are derived from overly
restrictive assumptions on demand. By allowing demand to
play a more central role, the paper finds a close and
revealing relationship between the growth patterns followed
by Latin American countries, the quality of their
macroeconomic policies, the nature of their trade, and the
segmentation of their labor markets. Going forward, the
policy agenda calls for an outwardly oriented growth
strategy, supported by a more proactive role for the state
that promotes not only efficiency in supply, but also the
appeal to demand. |
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