20th Century Latin America

Throughout the 20th century Latin America has been a virtual laboratory of development strategies. The principal objective was to discover the solution for the economic puzzle of the region. When attempting to explain underdevelopment, the interaction between the state and the market has been at the core of several theorists. There have been different economic approaches implemented to tackle this issue. Each of them would differ in the degree of importance of external economic relations in their national economies, as well as, the degree of intervention of the government. In the 1950s, responding to Prebisch’s Dependency Theory Latin American governments implemented Import Substitution Industrialization (ISI). Which was a strategy focused

Indeed, even though import substitution was supposed to reduce reliance on world trade, every nation needed to import something not available locally – raw materials, machinery, spare parts. Hence, countries needed to export in order to be able to buy imports, which ISI did not allow. As a result, trade protection and overvalued exchange rates raised domestic prices and made exports less competitive, and export taxes discourages foreign sales.

Moreover, the faster the economy grew, the more it needed imports. But exports could not keep up with imports, and so the country ran out of foreign currency as a consequence of this deficit on the balance of payments. The government restricted imports to essentials and raised interest rates to bring money into the country. The result was usually a deep recession. Companies under pressure cut wages and laid off workers.

Furthermore, since governments subsidized industrial investment, gave tax breaks to industrial investors, and targeted spending at politically import groups, there was a substantial budget deficits and inflation. These budget deficits were usually covered by monetary policies, where the resulting inflation made domestic goods more expensive, reducing exports still

However, Multinational Corporations (MNCs) brought several contradictions to development in Latin America. For instance, increasing dependency on these companies, preventing domestic entrepreneurship and committing human rights abuses.

Moreover, on their research, Wacziarg and Welch discovered that the GDP ratio on average increased approximately 5% (2003: 28). On the contrary, alternative “development economists noted that economic growth, if left to market forces alone, tends to be accompanied by increased inequality” (Thorbecke and Nissanke 2008: 158). Indeed, around the 2000s – a decade after the implementation of export oriented strategy – the average Gini coefficient in Latin America was 0.54. Compared, with the Gini for 1990, 0.52 (Franko 2007: