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Latin America & East Asia Compared. Lecture # 12 Week 6. Structure of this lecture. Development model adopted by Asian NICs How does it compare to ISI in Latin America Economic performance compared Case Study: Brazil Automobile Industry With hindsight: ISI in Brazil?.

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Latin america east asia compared

Latin America & East Asia Compared

Lecture # 12

Week 6


Structure of this lecture

Structure of this lecture

  • Development model adopted by Asian NICs

  • How does it compare to ISI in Latin America

  • Economic performance compared

  • Case Study: Brazil Automobile Industry

  • With hindsight: ISI in Brazil?


Development model adopted by asian nics

Development model adopted by Asian NICs

In a nutshell:

  • high tariff barriers

  • Focus subsidies and investment  industries which would make goods for export

  • Not to attempt to undervalue the local currency

  • Boost competitiveness, particularly in the 1970s

    E.g., South Korea made large investments into heavy and chemical industries, such as shipbuilding, steel and petrochemicals.

  • This focus on export markets allowed them to create competitive industries.


Main difference according to several economists e g rodrik

Main difference according to several economists (e.g., Rodrik)

Twofold:

  • Budget deficits were low relative to those of Latin America, and

  • Exchange rates were not overvalued

    Total Factor productivity : 1960 – 19701970-1980 1980-1990

    East Asia1.50.9 0.3

    Latin America1.61.1-2.3


Economic performance compared

Economic performance compared

Source:

World Bank

Statistics


Case study brazil

Case study: Brazil

Largest country in Latin America

Fifth largest in the world

About 160 million inhabitants

Highest income inequality

Primary commodities:

-Sugar (16th C)

-Minerals (18th C)

-Coffee (mid-19th C)

-Rubber (19th C to 20thC)

ISI Policies

1945 – 1980: One of the fastest growing economies

Diversified industrial base under ISI


The automobile industry

The automobile industry

  • Dates back to 1916 assembly plants created by Ford

  • Propelled by the expansion of roads in the region

  • World War II: Propelled locally produced parts

  • 1950s: ISI policies impose restrictions on imports of finished cars, and local production by foreign firms has to meet a required 90% local manufacturing content

  • Attraction of foreign capital to foreign manufactures: 89 cents subsidies for every dollar invested in industry

  • Production increased from 110,000 in 1951 to 191,194 in 1962, but domestic content was far greater


Latin america east asia compared

  • 1970s: Export promotion prompted with fiscal benefits to those firms that met “targets”

  • Exports increased from 2.2% in 1979 to 27.3% in 1981

  • As of 1981 production fell drastically due to declining domestic demand (debt crisis- lost decade)

  • Brighter prospects with trade integration (MERCOSUR) and decreasing tariffs under trade integration trends


Contributing to sophisticated exports stage ii industrialization

Contributing to “sophisticated” exports (Stage II Industrialization)

Source: UN Statistics


South korea

South Korea

  • Small domestic demand

  • Production for export market

  • Imported technology (avoided R&D investments)

  • Like Brazil, imports of finished cars was banned

  • Unlike Brazil, South Korea limited production to domestic ownership

  • Sales to the US increased rapidly in the 1970s, but have recently declined


Latin america east asia compared

Comparable performance

Automobile production 2005

#1 Japan:8,618,730

#2 Germany:5,123,240

#3 United States:5,016,310

#4 France:3,283,780

#5 Korea, South:2,651,270

#6 Spain:2,266,900

#7 United Kingdom:1,628,020

#8 Brazil:1,521,430

#9 Canada:1,369,000

#10 Italy:1,125,770

#11 China:1,090,820

#12 Russia:980,736

#13 Mexico:960,896

Main differences: a) S. Korea continues to compete in the world markets, and b) Car industry in Brazil financed with FDI

---- Next Class: Topic 13, Stabilization and Adjustment. Have a nice weekend -


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