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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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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 – 1970 1970-1980 1980-1990

East Asia 1.5 0.9 0.3

Latin America 1.6 1.1 -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
slide8

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
slide11

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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