The Economics of Contemporary Latin America

by Beatriz Armendariz, Felipe Larrain B.

Overview

Analysis of Latin America's economy focusing on development, covering the colonial roots of inequality, boom and bust cycles, labor markets, and fiscal and monetary policy.

Latin America is richly endowed with natural resources, fertile land, and vibrant cultures. Yet the region remains much poorer than its neighbors to the north. Most Latin American countries have not achieved standards of living and stable institutions comparable to those found in developed countries, have experienced repeated boom-bust cycles, and remain heavily reliant on primary commodities.

This book studies the historical roots of Latin America's contemporary economic and social development, focusing on poverty and income inequality dating back to colonial times. It addresses today's legacies of the market-friendly reforms that took hold in the 1980s and 1990s by examining successful stabilizations and homemade monetary and fiscal institutional reforms. It offers a detailed analysis of trade and financial liberalization, twenty–first century-growth, and the decline in poverty and income inequality. Finally, the book offers an overall analysis of inclusive growth policies for development—including gender issues and the informal sector—and the challenges that lie ahead for the region, with special attention to pressing demands by the vibrant and vocal middle class, youth unemployment, and indigenous populations.

Product Details

ISBN-13:	9780262533157
Publisher:	MIT Press
Publication date:	05/12/2017
Series:	The MIT Press , #1987
Edition description:	New Edition
Pages:	464
Product dimensions:	6.90(w) x 8.90(h) x 1.00(d)
Age Range:	18 Years

About the Author

Beatriz Armendáriz is Senior Lecturer in the Department of Economics at University College London and Research Affiliate at Harvard University. She is coauthor of The Economics of Microfinance (MIT Press).

Felipe Larraín B. is Professor of Economics at Pontificia Universidad Católica de Chile (Facultad de Economía y Administración and the Latin American Center of Economics and Social Policies, CLAPES UC). He was  Director of CLAPES UC and was Finance Minister of Chile from 2010 to 2014 and from 2018 to 2019. The coauthor (with Jeffrey D. Sachs) of Macroeconomics in the Global Economy and (with Beatriz Armendáriz) of The Economics of Contemporary Latin America (MIT Press), he has published thirteen books and more than 120 scholarly articles. He has been named Finance Minister of the Year for Latin America and the Americas several times.

Table of Contents

Preface xiii

List of Acronyms xii

I Historical Origins of the Contemporary Latin American Economy 1

1 Geography and the Colonial Legacy 3

1.1 Geography 5

1.2 Legal Origins 9

1.3 Factor Endowment? 15

1.4 Institutional Legacy 20

1.5 Ethnolinguistic Fragmentation and Culture 28

1.6 Concluding Remarks 29

Summary 32

Review Questions 33

Further Reading 33

2 Export-Led Growth and the Origins of Protectionism 35

2.1 Independence: Economic Consequences 38

2.2 Diversity across Regions under Export-Led Growth 43

2.3 Stellar Performers: Divergent Trends 45

2.4 Two Special Cases: Brazil and Cuba 48

2.5 Nineteenth-Century Export-Led Growth in Contrast with Modern Days 51

2.6 Concluding Remarks 53

Summary 55

Review Questions 56

Further Reading 57

3 Import Substitution Industrialization 59

3.1 Historical Background 60

3.2 Import Substitution Industrialization Policies 66

3.3 ISI Performance Indicators 71

3.3.1 Fall of Stellar Performers, Rise of Brazil and Mexico 72

3.3.2 Criticisms 74

3.3.3 Adjustments to the ISI Strategy 75

3.4 Toward a New Consensus 79

3.5 Concluding Remarks 82

Summary 83

Review Questions 85

Further Reading 85

4 Debt Crises and the Lost Decade 87

4.1 Background 88

4.2 The 1930s Debt Crisis 89

4.3 The 1980s Debt Crisis 91

4.4 Another Wave of Crises 96

4.4.1 Mexico, Brazil, and Argentina in the 1990s 96

4.5 Latin America through the Twenty-First-Century Financial Crises 101

4.6 Concluding Remarks 104

Summary 105

Review Questions 106

Further Reading 107

II The Social and Political Context 109

5 Poverty and Income Inequality 111

5.1 Poverty and Inequality: Recent Trends and Diversity 113

5.2 Poverty: Definition and Consequences 117

5.3 Measurement 119

5.3.1 Unsatisfied Basic Needs Approach 120

5.3.2 Cost of Basic Needs Approach 121

5.4 Main Determinants of Poverty 122

5.4.1 Education 123

5.4.2 Unemployment and Informality 124

5.4.3 Type of Employment 128

5.4.4 Age 128

5.4.5 Gender 129

5.4.6 Inflation 130

5.4.7 Ethnicity and Racial Discrimination 131

5.5 Labor Markets and Poverty 131

5.5.1 Minimum Wage 132

5.5.2 Firing Costs 132

5.5.3 Payroll Taxes 133

5.6 Emergency Job Creation against Poverty 133

5.7 Income Inequalities: Measurement and Recent Trends 134

5.7.1 Income Quintiles and the Gini Coefficient 135

5.7.2 Recent Trends in Inequality 136

5.8 Conditional Cash Transfers 136

5.8.1 Mexico's Progresa/Oportunidades/Prospera Program 138

5.8.2 Brazil's Bolsa Família and Benefício de Prestação Continuada 140

5.8.3 Chile's Ingreso Ético Familiar (Ethical Family Income) 140

5.9 Concluding Remarks 141

Summary 143

Review Questions 144

Further Reading 145

6 The Political Economy of Latin American Development 147

6.1 Populism: Historical Background 148

6.2 Macroeconomic Populism 150

6.3 Reforms and the Downfall of Macroeconomic Populism 154

6.3.1 The Impact of Successful Inflation Stabilization and Growth 155

6.3.2 The Rise of the Middle Class: Social Stability or Unrest? 157

6.3.3 Left Behind in Resource-Abundant Economies 158

6.4 The Rebirth of Populism in the Twenty-First Century 159

6.4.1 Venezuela 160

6.4.2 Argentina 161

6.4.3 Bolivia 163

6.4.4 Ecuador 164

6.5 Regulatory Capture 165

6.6 State-Owned Enterprises 167

6.7 Concluding Remarks 168

Summary 170

Review Questions 170

Further Reading 171

III The Macroeconomics of Latin America in the Twenty-First Century 173

7 Fiscal Policy for Development 175

7.1 The Growth of the Public Sector Prior to the Crisis of the 1980s 176

7.2 Forceful Public Sector Contraction 180

7.3 Redefining the Economic Role of the State 183

7.4 Redistributive Effects of Fiscal Policy 184

7.5 Institutional Changes in Fiscal Policy 191

7.6 Concluding Remarks 195

Summary 201

Review Questions 201

Further Reading 202

8 The Fight against Inflation 203

8.1 Main Roots of Inflation 204

8.2 Costs of Inflation 208

8.3 Orthodox and Heterodox Stabilization Policies 208

8.4 Central Bank Autonomy 212

8.5 Fiscal Institutions and Fiscal Prudence 215

8.6 Inflation and Exchange Rates 216

8.7 Twenty-First-Century Capital Inflows 217

8.8 Concluding Remarks 219

Summary 221

Review Questions 222

Further Reading 222

9 Pegging, Sliding, and Floating: Managing Exchange Rates 223

9.1 Characterization of Different Exchange Rate Regimes 224

9.2 Latin America's Rich Experience with Exchange Rate Regimes 227

9.3 Toward a Consensus on Floating Exchange Rates 229

9.4 Avoiding Twenty-First-Century Currency Crises 235

9.5 Concluding Remarks 238

Summary 239

Review Questions 240

Further Reading 241

IV The Underpinnings of Growth and Development in Twenty-First-Century Latin America 243

10 Trade and Financial Liberalization 245

10.1 The Unilateral Trade Liberalization Wave 246

10.2 Bilateral Trade Agreements and Trade Blocs 252

10.2.1 MERCOSUR 253

10.2.2 The Community of Andean Nations 256

10.2.3 NAFTA and CAFTA 257

10.3 The Pacific Alliance and Trans-Pacific Partnership 263

10.4 Financial Liberalization 266

10.4.1 Financial Supervision, Liability Dollarization, and Banking Crises 268

10.4.2 Worker Remittances 269

10.4.3 Managing Capital Inflows in the Twenty-First Century 271

10.5 Concluding Remarks 272

Summary 274

Review Questions 275

Further Reading 276

11 Labor Markets, Informality, and Labor Protection Systems 277

11.1 Background 278

11.2 Labor Market Deregulation and Deunionization 283

11.3 A Labor Market Turning Point 287

11.4 The Informal Sector and Job Quality 296

11.5 Age Structure and Women in the Labor Force 302

11.6 Concluding Remarks 303

Summary 306

Review Questions 307

Further Reading 307

12 Growth and Development in Latin America 309

12.1 Development in Latin America: A Tale of Frustrated Expectations 310

12.2 Growth and Development: A Quest for Answers 313

12.2.1 Savings 313

12.2.2 Initial Per Capita Income Level 316

12.3 Structural Factors 317

12.3.1 Country Size 318

12.3.2 Geography 320

12.3.3 Natural Resource Abundance 321

12.4 Economic Policies and Institutions 323

12.4.1 Trade Openness 323

12.4.2 Terms of Trade 326

12.4.3 Education 327

12.4.4 Fiscal Policy 331

12.4.5 Financial Development 333

12.4.6 Inflation 336

12.4.7 Institutions 337

12.5 Productivity and Innovation 339

12.6 Concluding Remarks 342

Summary 347

Review Questions 348

Further Reading 349

Notes 351

References 371

Index 405

What People are Saying About This

Barry Eichengreen

Beatriz Armendáriz and Felipe Larraín provide us at last what we have long needed, the definitive economic introduction to Latin America. That introduction could not be more timely. While other parts of the world are succumbing to economic populism, Latin America has been there and back. Armendáriz and Larraín offer invaluable hints about how other regions might, just might, achieve economic salvation and, along the way, avoid the worst.

Endorsement

This terrific book by Beatriz Armendáriz and Felipe Larraín provides an engaging and convincing story of the historical forces that have shaped current Latin American economic policies.Debt crises happened as Latin American countries battled inflation and each other, interwoven with commodity booms and busts and populist responses to severe income inequality, including protectionism.All these factors remain influential today. This book provides a deep understanding of the current complex economics of Latin America.

—Robert Engle, Director of the NYU Stern Volatility Institute; 2003 Nobel Laureate, Economics

From the Publisher

The Economics of Contemporary Latin America is a superb contribution to our understanding of the region's economic and social transformation. The authors thoroughly dissect the main forces driving economic changes since the independence movements in the region, cover a lot of the scholarly research, and distill policy lessons to address continuing challenges. The result is a unique and valuable resource for understanding the economics of Latin America.

— Christine Lagarde , Managing Director for the IMFA brilliant synthesis of the roots and causes of Latin America's development challenges; highly suitable as a text for a course on economic growth or the Latin American economy.

— Kenneth Rogoff , Thomas D. Cabot Professor of Public Policy, Harvard UniversityBeatriz Armendáriz and Felipe Larraín provide us at last what we have long needed, the definitive economic introduction to Latin America. That introduction could not be more timely. While other parts of the world are succumbing to economic populism, Latin America has been there and back. Armendáriz and Larraín offer invaluable hints about how other regions might, just might, achieve economic salvation and, along the way, avoid the worst.

— Barry Eichengreen , George C. Pardee and Helen H. Pardee Professor of Economics and Political Science, University of California, BerkeleyThis terrific book by Beatriz Armendáriz and Felipe Larraín provides an engaging and convincing story of the historical forces that have shaped current Latin American economic policies. Debt crises happened as Latin American countries battled inflation and each other, interwoven with commodity booms and busts and populist responses to severe income inequality, including protectionism. All these factors remain influential today. This book provides a deep understanding of the current complex economics of Latin America.

— Robert Engle , Director of the NYU Stern Volatility Institute; 2003 Nobel Laureate, Economics

Robert Engle

This terrific book by Beatriz Armendáriz and Felipe Larraín provides an engaging and convincing story of the historical forces that have shaped current Latin American economic policies.Debt crises happened as Latin American countries battled inflation and each other, interwoven with commodity booms and busts and populist responses to severe income inequality, including protectionism.All these factors remain influential today. This book provides a deep understanding of the current complex economics of Latin America.

Kenneth Rogoff

A brilliant synthesis of the roots and causes of Latin America's development challenges; highly suitable as a text for a course on economic growth or the Latin American economy.

Christine Lagarde

The Economics of Contemporary Latin America is a superb contribution to our understanding of the region's economic and social transformation. The authors thoroughly dissect the main forces driving economic changes since the independence movements in the region, cover a lot of the scholarly research, and distill policy lessons to address continuing challenges.The result is a unique and valuable resource for understanding the economics of Latin America.