What you see is a combination of state owned heavy industries and then licenses are given to private

What you see is a combination of state owned heavy industries and then licenses are given to private

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What you see is a combination of state owned heavy industries and then licenses are given to private firms, who act as rent-seekers – will lobby to prevent other firms from obtaining a license, insuring that the first firm is able to exert a monopoly over the market. The problem with import substitution is that it is expensive – the government becomes burdened with high costs in order to keep the system going. States have to borrow money in order to finance infrastructure, state industries, and the needs of urban elites (hospitals, universities, etc). By 1986, per capita debt in LA was 3 times higher than in Asia. Furthermore, products do not develop. Since they are only concerned with domestic consumption and can exert monopolies, firms do not innovate or try to make themselves more competitive in the international market, because there is no need to do so. A final problem with import substitution is that it only works (to the degree that it
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Unformatted text preview: does work) in large states where there is a large domestic market for consumer goods. Only in such a situation is production really profitable. Smaller states do not see the same success. While import substitution policies led to significant economic growth in the 1960s, by the 1970s, the Latin American countries faced serious problems. The period from 1973-1987 is known as the lost decade, as LA states faced economic meltdowns due to the failure of import-substitution and then the need to significantly alter economic policies to make up for the loss. During the 1970s, expenditures were high, the governments loosened the money supply, causing inflation, which made LA currencies less attractive to invest in, even domestically led to capital flight, as domestic investors moved their money out of the country (unlike in Asia, where money stayed at home)....
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This note was uploaded on 11/27/2011 for the course POLISCI 1003 taught by Professor Olson during the Fall '11 term at GWU.

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What you see is a combination of state owned heavy industries and then licenses are given to private

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