Thursday, April 30, 2015

Understanding Latin American Economic Growth

Go read the latest report by the International Monetary Fund on economic slowdown in Latin America. If you have taken my Latin American Politics class, then you will learn...not much new. Here are the basics, which have remained unchanged for a long time:

1. If you are dependent on commodity exports, you will rise and fall with commodity prices. Right now they're low.

2. Despite what you will read over and over, there is no clear relationship between government ideology and economic growth. What matters much more is what you export. Venezuela is an exception, given its combination of dependence on oil exports and extreme economic policies at home.

3. Latin American economies are not becoming more diversified, even though everyone has been talking about the need for diversification for many years.

I will say, though, that the report at least suggests a new and important angle, though it does so in a pretty superficial manner: demography.

[T]he projected demographic transition in some LAC countries over the next decades or renewed bouts of macroeconomic instability could meaningfully reduce long-term growth.

This relates to a paper I co-authored with my dad for the SECOLAS conference, which we're still working on. The idea is that a country's demographic structure helps us understand how sustainable high spending can be. If you have a large dependent population (i.e. very old and very young) then it's much more difficult to generate economic growth and spending. It's something we spend too little time thinking about.


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