Alternating Development Strategies in Latin America

Latin America has experimented with two different development strategies over the last two centuries. During the first hundred years of its independence, Latin America pursued increasing integration into the international trading system via an “outward-oriented” development strategy based on exports of primary commodities, in conditions of open and volatile external capital inflows leading to periodic financial crises. The results were generally positive and, at the beginning of the First World War, per capita income in Argentina (the most advanced Latin American economy) exceeded that of France, Germany, Italy, and Spain; per capita GDP for the region as a whole exceeded that of Japan, and was around three times the average for the rest of East Asia.

However, the policy faltered as the U.S. economy replaced the UK as the motor of global demand and finally became unsustainable in the face of the collapse of primary commodity prices and developed-country trade restrictions during the 1930s depression. As a response to the collapse of external markets for its exports and the subsequent interruptions of transatlantic trade during the Second World War that cut off essential imports of industrial goods from Europe, domestic industrialization from within (desde dentro) was the natural response. This policy emphasized the importance of domestic demand in building domestic industry to replace European imports and eventually came to be called “import substitution industrialization,” as protection of domestic industry from foreign competition was substituted for the natural protection of the war years.