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Terms in this set (4)

Between 1948 and 2008, the avg GDP pc growth rate in LAC was ~3% x year.

PERFORMANCE OF ISI
Between 1940-1979, mass production measured as GDP annual growth
rates and per-capita GDP annual growth rates,
ISI promoted economic growth

Avg annual growth 1960-1980
USA 3.85%
OECD 4.41%
LAC 5.81%

Avg GDP pc annual growth 1960-1980
USA 2.67%
OECD 3.24%
LAC 3.18%

From 1960-1980 average GDP annual growth rates
were 5.81% (faster rate than Western economies).
• From 1945 to 1980 LAC population doubled
• From 1950 to 1970 LAC production surpassed population
growth GNI tripled.

Performance varied by country: Brazil, Mexico,
and Ecuador showed the strongest growth rates 1950-1980

• Production of basic consumption goods was widespread in
the region
• Some countries initiated heavy machine goods industries as well.
• Did ISI made possible to reduce Imports?

IMPORTS INCREASED BUT
COMPOSITION OF IMPORTS CHANGE
Rate of imports drop as share % total production but the region
remained dependent on essential goods such as capital goods.
(Drops from 1928-1958 and increases from 1958-1988)

BRAZIL AND MEXICO DID BETTER
SUBSTITUTING IMPORTED CONSUMER
GOODS
• Brazil and Mexico succeeded in getting
capital goods and intermediate input
industries off the ground.
• Larger domestic markets explain some of
their success.

Infant Mortality LAC (1,000 Births)
1960: 121
1980: 64
2000: 27

WHAT ABOUT STRUCTURAL CHANGE?
Higher pct labor force
employed in
manufacturing & gov
away from traditional
agriculture sector.
Reveals increasing
importance of
manufacturing and
government as
employer.
Critique Of ISI
Long term protection to industry from intl competition PLUS
overvalued exchange rates slowed down export
growth: making M cheaper but Xs more expensive to
rest of countries.
ISI resulted industrial growth but at the expense of
agriculture Agriculture was neglected.

ISI increased LAC's dependency on imports of
intermediate and capital goods, placing
power in the hands of local industrialists and
multinational companies (MNCs), perpetuating
LAC international dependency.

The ISI model downplayed the
market forces and excessive policies
created great market distortions.
Difficult & painful to correct.

ISI - LIMITATIONS
• ISI promoted
• Capital-intensive industries
• Industries located in the urban cities
failed at absorbing increasing labor force in the cities
(natural growing population plus rural migrants).
Increasing informality and poverty in urban areas
During this time, the SOEs and public sector served
as employers of last resort.

CONSEQUENCES OF ISI
• Gov role during ISI via public deficit financed:
• SOEs: existence and enlargement to provide long list of
industrial subsidies,
• Tax credits, Soft credits,
• Employer of last resort
• Coupled w/an inefficient tax systems
accentuated large public fiscal
imbalances.

• Financial gaps were met through
external borrowing, increasing
debt obligation.

Industrial process reinforced wealth concentration
in hands of local elite:
• It created urban middle class but
• Fail at creating a large new business class.
ISI exacerbated inequality in the region

Large unskilled population remained
in the rural area
Since agriculture was neglected
people in the country side did not
improve their way of living (reason
explaining larger inequality).

Large unskilled population remained
in the rural area
Since agriculture was neglected
people in the country side did not
improve their way of living (reason
explaining larger inequality).

Powerful industrialists (part of local elites)
managing ISI got large profitable rents:
They benefited from all gov subsidies, purchased
technology and intermediate goods cheaper
(ER), soft credits, import licenses investment
permits, governmental contracts......
Corruption became expedient under ISI

Boer's article:
• "....given LAC's limited capital accumulation and
limited human resources and very narrow markets,
industrialization was carried out on too wide
spectrum."
• The promotion of the ISI was indiscriminate. There
were no attempts to develop industries which might
have had a potential comparative advantage in the
region.

Boer's article:
• ISI fostered the creation of inefficient
economic institutions incapable of
competing in the international markets.
Cln: ISI was unsustainable over time
producing high economic and social costs