A Lost Generation? Why Latin American Development Depends on Growth

Abstract

The Latin American debt crisis is but one aspect of the growing interdependence between North and South, reflecting the global linking of trade and financial markets in the postwar period. The 1970s brought about a dramatic rise in Latin America’s terms of trade, not only for the energy-producing countries but for most raw materials and primary producers, even those dependent on energy-intensive agricultural products, which make use of fertiliser and irrigation. This may be explained in part by the oil exporting countries’ difficulty in absorbing real resources during the 1970s. It also relates to the desire of the oil-importing countries, as well as a broad range of Latin American commodity export economies, to postpone adjustment by borrowing to sustain domestic growth and increase public expenditure.

I wish to acknowledge the valuable assistance of Wayne Camard and Robert McCleery in the preparation of this paper and the computations, while retaining full responsibility for the ultimate product. Support has been provided by the Americas Program, Stanford University, the William and Flora Hewlett Foundation, and the Inter-American Development Bank (for work on resource rent estimation), as well as the MacArthur Foundation (for political-economic aspects of the analysis).