Latin America’s Economy Overview

Puyana’s Assessment and Prebisch

The author explained that the benefits could be gained by transferring goods from the periphery to the Center in the context of an expanding global economy. The income elasticity is considered low in the Center but typically exceeds the one in the underdeveloped states. The reason for this is simple: they receive food and other necessary products from the periphery. Moreover, their technological advancements are not of decent quality to produce better goods and export them. Meanwhile, the high elasticity of import demand presumes keeping prices at the same level or raising them if the monopolistic companies restrict the supply at the Center (Werner). Having considered productivity considerations, it is comprehensible that supply is also dependent on it.

Prebisch’s Arguments

Latin America has undergone import-substituting industrialization, which has caused profound structural changes in manufacturing. Since the beginning of the 20th century, Latin America has had severe economic issues, which it tried to overcome later by exporting goods to developed countries and improving domestic industrial activities. Therefore, since the 1950s, industrial production’s growth was exponentially growing; however, trade was in decline. The result of the fall may pose an enormous threat to the development of peripheral countries. Both Puyana and Prebisch claim that all the complications arise from increased productivity, which is likely to leave wages on the same level (Werner).

Import Substitution Industrialization (ISI)

This program aims to replace foreign goods with domestic industrial production. It proclaims that a country should be less dependent on other countries’ economies and focus on producing locally industrialized products. Prebisch argued that this division of labor would ensure permanent poverty for producers of primary products. He and other economists claimed that states should develop their own industries to ensure stable provision for themselves. Free trade advocates have denounced the ISI’s protective measures, arguing that they create distortions in the allocation of capital. Moreover, they attempt to prevent third-world countries from using their comparative advantages in global trade.

Impact of China

China’s rapid growth and growing integration into the global economy have positive and negative implications for Latin America. Exports from Latin America to China have increased drastically since the 1990s, rising over the five years seven times. Moreover, imports from China have increased significantly as well (Prebisch and Pollock). Furthermore, China impacted Latin America through investment flows in the manufacturing sphere. Another important effect of China’s growth has been the recent advancements in commodity terms of trade. Together, this has had a positive influence on the economy of Latin America. However, there were ups and downs at the individual country level. They primarily were dependent on whether the economy poses a threat to or complements China. The general effect of these countries’ interactions has boosted Latin America’s economy.

Impact of ISI

China has reached a more mature export development level and expressed the necessity to acquire goods such as copper, oil, fishmeal, iron ore, and others. These products were abundant in Latin America; thus, their prices increased quickly. The region has undergone the ISI reversal program, and the policies of which remain intact in today’s industries. As a result of these manipulations, Latin America’s grown by 5-7% annually since 2012. 10% of their goods are exported to China, while Chinese investments make up 80% of all the natural assets (Lopez and Sanborn). Since China is a rich country, it can contribute more to the development of Latin America. Therefore, economic performance is growing more stable than ever.

Works Cited

China and Sustainable Development in Latin America. Anthem Press, 2017.

Prebisch, Raúl and David Pollock. Raúl Prebisch: Power, Principle, and the Ethics of Development. Institute for the Integration for Latin America and the Carribean, 2006.

Werner Baer. “The Economics of Prebisch and ECLA.” Economic Development and Cultural Change, vol. 10, no. 2, 1962, pp. 203-218.

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