32 - Centro Argentino de Estudios Internacionales Programa...

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www.caei.com.ar Programa Integración Regional Economic Institutional Change in Latin America by Fabio Fossati The Import-Substitution Industrialization (ISI) economic institutions The economic policies, anchored to ISI protectionist institutions, began to be applied after two exogenous shocks: the crisis of ‘29 and the Second World War. The previous prevailing institution had followed European colonization and was based on laissez faire : the export of primary goods, according to the neo-classic theories of development, and the import of industrial products. In the 30s, ISI policies represented the first relevant economic institutional change. They were based on a combination of two instruments: first, a huge trade protection was granted to local producers, especially through tariff barriers; then, a large variety of public subsidies were targeted towards national (either public or private) industry, while at the same time rural exporters were punished with a variety of economic instruments (exchange rate manipulation, taxes…). Especially in the decades of the 50s and 60s, ISI was applied without either selection or graduality. Scholars of the CEPAL, following the thirdworldist ideology, supported these institutions, as they thought it was the best instrument to break the dependence of the south from the north 1 . The first phase was linked to political movimientismo , in a context of expansive and irresponsible policies: the so-called macro-economic populism (like in Argentina with Peron). Thus, in mid 50s most of Latin American countries were living a deep economic crisis, especially because populism had almost broken its ties with multinational capital, in the typical confrontation attitude of that period. Also the Asian Newly Industrialized Countries (NICs) of east Asia had started with the "state-centered" ISI, but since the end of the 50s they have been progressively promoting exports. This shift in the development theory is essential in order to label their economic institutions as "market-centered". Instead, post- Marxist scholars emphasized the pre-eminent role of the state in the industrial policies. In summary, the market was the instrument that permitted the selection, by banks and governments, of those producers that were entitled to receive subsidies 2 . Latin American governments did not implement the same shift that was occurring in Asia. The only limited change was a more open attitude towards 1 Cfr: B.Geddes Paradigms and Sand Castles in Comparative Politics of Developing Areas , pp. 45-75, in W. Crotty (eds) Political Science. Comparative Politics, Policy and International Relations , Evanston, Northwest University Press, 1991. F.Fossati Mercato e democrazia in America latina , Angeli, Milano 1997. 2
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This note was uploaded on 05/14/2008 for the course ECON 412 taught by Professor Ghandi during the Spring '08 term at Maryland.

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32 - Centro Argentino de Estudios Internacionales Programa...

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