11-4311_trade_lib_05_18 copy-1

11-4311_trade_lib_05_18 copy-1 - ECON 4311: The Economy of...

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ECON 4311: The Economy of Latin America The Opening of Latin America
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References § Edwards’ Chapter 5: The Opening of Latin America . § Inter-American Development Bank (1996), Trade Liber- alization , in Economic and Social Progress in Latin Amer- ica: 1996 Report, pp. 91-122. § Loser and Guerguil (1999), Trade and Trade Reform in Latin America and the Caribbean in the 1990s , Journal of Applied Economics, Vol. II, No. 1, pp. 61-96.
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Introduction § During the late 1980s, the Latin American countries started opening their economies to the rest of the world. § This is probably the most impressive achievement of the reform programs undertaken in Latin America. § Ended four decades of import substitution policies that created a very ine ± cient industrial sector.
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Latin America -- Openness (Exports+Imports)/GDP 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
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§ After the 1982 Debt Crisis, most of the countries in Latin America adopted and reinforced protectionist policies. § Many analysts suggested that the only way to avoid shocks like the Debt Crisis was for Latin America to isolate itself from the world and promote government intervention. § The increase in tari Æ s and trade restrictions were needed to generate a transfer of more than $30 bn for creditors. § In the mid-1980s, Latin America’s external sector was the most distorted in the world.
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Table 5-1 Import Protection in the Developing World, 1985 Total Tari Æ Coverage of Region Protection non-tari Æ barriers Latin America and Caribbean South America 51 60 Central America 66 100 Caribbean 17 23 Africa North 39 85 Other 36 86 Asia West 5 11 Other 25 21
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§ By 1987-1988, the policymakers realized that the long- standing protectionist trade policies were at the heart of Latin America’s problems. § The process of trade liberalization then proceeded at an accelerated pace.
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Classification of Countries According to the Timing of Trade Reforms (Edwards, Chapter 5) Early Reformers Second-phase Reformers Third-phase Non-reformers Chile Mexico Bolivia Costa Rica Uruguay Argentina Brazil Colombia Guatemala Nicaragua Paraguay Peru Venezuela Ecuador
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Early Attempts of Opening § In the 1970s and early 1980s many countries (notably Colombia, Brazil and Mexico) embarked on aggressive export-promotion schemes. § Their motivation was to mimic the success obtained by the South East Asian countries. § These programs relied on heavy and selective subsidies and did not reduce the level of import protection: they failed to transform the export sector into an engine of growth.
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§ Why were these early attempts not successful? - Decades of protectionism had established high real wages that precluded these economies to be compet- itive. - The pro-export drive was not accompanied by a com- petitive real exchange rate. It was very volatile, and this did not encouraged investment.
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This note was uploaded on 01/18/2012 for the course ECON 4311 taught by Professor Staff during the Spring '08 term at Minnesota.

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11-4311_trade_lib_05_18 copy-1 - ECON 4311: The Economy of...

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