Diversity in Economic Growth
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Diversity in Economic Growth

Global Insights and Explanations

Edited by Gary McMahon, Hadi Salehi Esfahani and Lyn Squire

Economists have long relied on cross-country regression analysis to identify the determinants of continued growth, but with only limited success. This book demonstrates the value of a different approach.
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Chapter 4: Economic Growth in Latin America in the Twentieth Century

Gary McMahon


Gary McMahon This chapter focuses on the long-run growth experience of the Latin countries of South America and the reasons behind the disappointing performance of most countries in this region in the second half of the twentieth century. It takes as its starting point the case studies in the region undertaken for the GDN sponsored long-run growth project – Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, that will be referred to as the ‘sample’.1 In addition, reference is made to the important experiences in Bolivia, Mexico and Venezuela which, when added to the sample, will be referred to as the ‘extended sample’. Most of the Latin countries of South America and Mexico had very similar economic histories in the twentieth century. They were mostly market economies with an orientation toward external trade, often with a heavy dependence on exports of primary products. However, when the markets of their richer trading partners both dried up and turned protectionist in the 1930s, most went into an unstructured type of import-substituting industrialization (ISI). This quasiISI was more the result of using exchange controls and tariff protection for balance of payments reasons and not a well thought-out, coherent plan to change the direction of the economy. There was little strategic intervention by the governments and few state-owned enterprises (SOEs). Nevertheless, in all of the countries discussed in this chapter – and many others in Latin America – except Paraguay – the unstructured ISI turned into a structured or planned economic strategy in either the first or second decade...

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