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Development Macroeconomics in Latin America and Mexico brings the attention of academics, practitioners, and policy makers to the neglected macroeconomic factors that can account for both the unsatisfactory average growth performance of Latin American and the diversity around this average.




This book has two core themes: the disappointing average growth performance of Latin American economies during the post-market reforms period (since around 1990) and the significant diversity across countries around this average performance. More precisely, the main questions addressed are: (1) What explains that the Latin American subcontinent, which has gone further than other developing regions in the process of economic liberalization, has had such a poor and disappointing growth performance over the past 30 years; (2) What explains the diversity in growth performance across countries ranging from respectable growth rates in Dominican Republic, Chile, or Peru to very low growth rates in countries such as Mexico and Brazil. Why, in other words, do some Latin American economies grow faster than others?

Jaime Ros

1. Institutional and Policy Convergence with Growth Divergence in Latin America

This chapter compares the cross-country growth performance of Latin American countries during the postwar period of state-led industrialization and the economic liberalization period of the last three decades. The chapter describes the major overhaul in economic policies and institutions that Latin America experienced after the debt crisis of the 1980s. At the same time, we look at the growth performance over those two periods. When we compare the rankings in the growth tables for the periods 1950–1980 and 1990–2008, a “reversal of fortune” is apparent: countries, such as Chile, Argentina, Uruguay, that were in the bottom half in the growth table in the period 1950–1980, call them the “losers from LSI”, tend to be in the upper half of the growth table in 1990–2008. And vice versa, countries such as Brazil, Mexico, Ecuador, Guatemala, the “winners from ISI”, tend to be in the bottom half of the table for the same period. The chapter addresses the question of why this reversal of fortune has occurred despite (or perhaps because) the large degree of institutional and policy convergence across the region.

Jaime Ros

2. Productivity and Growth: Stylized Facts and Kaldor’s Laws in Latin America

Output and productivity growth in Latin America, as we have seen in chapter I, have been slow and disappointing during the last three decades, especially when considering the great expectations created by the change in its development policies. At the same time, there is a great variety of performances within the region. Most economies have grown less than the world average, and a majority among them less than in the 1950–1980 period, but about seven (out of 18) countries have recorded a per capita GDP growth rate greater than the world average and in six of them greater than in the three decades that preceded the debt crisis of the 1980s. This chapter examines the causes of the economic growth differences in Latin America with special emphasis on the differential productivity performance.

Jaime Ros

3. The Real Exchange Rate, the Real Wage, and Growth: A Formal Analysis of the “Development Channel”

Traditional macroeconomic analysis suggests that a higher real exchange rate (RER) has a positive effect on the balance of payments constrained level of economic activity provided, of course, that the Marshall-Lerner condition is fulfilled. This is the traditional “macroeconomic channel”: a higher RER enhances competitiveness of exports and raises import prices thus strengthening the competitiveness of import-competing local producers. In so doing it improves the trade balance and the level of output corresponding to a given trade deficit. A recent, mostly empirical, literature suggests the existence of a growth, rather than level, effect on output of a higher RER. Indeed, the relationship between the RER and the rate of economic growth has been receiving a great deal of attention in recent times after the extraordinarily high growth rates achieved by countries that have deliberately undervalued their RERs and the slow growth rates experienced by a large number of countries with overvalued exchange rates. The first case is illustrated with the experience of China (see Razmi, Rapetti, and Skott, 2012) and, in the Latin American context and to a lesser extent, of Argentina, while the second case can be illustrated with the experience of Mexico (see Blecker, 2009; Ibarra, 2010; Moreno-Brid and Ros, 2009).

Jaime Ros

4. The Dutch Disease, the Staple Thesis, and the Recent Natural Resource Boom in South America

This chapter addresses the subject of the adverse developmental effects of the Dutch disease: the theory, the experience of South America over the last decade, and the economic policy management issues concerning what to do about it. The chapter is organized as follows. The first section discusses the mechanisms (not confined to real exchange rate appreciation) through which a natural resource boom can lead to deindustrialization and also the conditions under which such a boom could have favorable developmental effects. I then turn in the second section to review the trends toward real appreciation and falling industrial profitability that have prevailed during most of the last decade in a number of South American economies. The third section discusses what can economic policy do to neutralize the adverse developmental effects of the Dutch disease. A final section concludes.

Jaime Ros

5. Close to the Epicenter: Mexico and Canada during the Great Recession

Canada and Mexico, the two minor partners of the North American Free Trade Agreement (NAFTA), have very different levels of economic development. In spite of this, their economies have a number of common features. First, both economies have traditionally had a privileged link with the United States in foreign trade (that manifests itself in the enormous weight of the United States in exports and imports of the two countries). Second, as a consequence of NAFTA they have tended to converge in their degrees of openness (currently in the two countries foreign trade accounts for around two-thirds of GDP). Third, they have similar export structures dominated by industrial products and a significant share of oil.

Jaime Ros

6. Why Does the Mexican Economy Grow Less Than That of Chile?

Chile and Mexico represent two extreme cases of economic growth performance in the past few decades in Latin America. The first one is considered to be a successful case, if not the most successful, of economic development in the region whereas the second one presents one of the economies that grows at a very slow pace in Latin America leading to all kinds of speculations on what has failed in the transformation of its economic development strategy.

Jaime Ros

7. Mexico—Looking Ahead: Macroeconomic Policy and Development Strategy

As we have seen in chapter 5, the recession of 2008–2009 in Mexico was followed by a vigorous recovery in the third and fourth quarters of 2009. However, in the absence of a number of policy reforms the economy has returned in 2013 and 2014 to the lackluster growth performance that characterized the years 2000 to 2007 (when the growth rate of GDP averaged 2.4% per year).

Jaime Ros


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