Growth Rates Of 10 Latin American Countries’ Economies: Comparative Essay

In this project I will be comparing the growth rates of 10 Latin American countries’ economies and analysing whether the countries that started poorer had higher or lower growth rates than the initially richer countries. I will also be comparing the growth rates these Latin American countries with that of Western Europe and looking at some scholars’ views on the topic.

The first four graphs I have made are showing the GDP per capita of the Latin American countries in the years 1930, 1960, 1990 and 2010. The data used is sourced from the Maddison Project Database (2018) and the figures I used are the ‘real GDP per capita in 2011US$, 2011 benchmark (suitable for cross-country growth comparisons)’ (Maddison Project Database, 2018). I used this data so that I can then use it to calculate the growth rates of the various countries and compare them.

Below I have calculated the growth rates and the average annual growth for the 10 countries between 1930 and 2010. As above all values are GDP per capita from the Maddison Project Database.

Here are the formulas I have used:

• Growth Rate = (GDP2010 ÷ GDP1930)1/(2010-1930) – 1
• Average annual growth = (GDP2010 – GDP1930) ÷ (2010 – 1930)

Growth Rate Average Annual Growth (US$)

Argentina (19068÷7166)1/80 –1=0.0123=1.23% (19068–7166)÷(2010–1930)=$148.78

Brazil (14392÷1750)1/80 –1=0.0267=2.67% (14392–1750)÷(2010–1930)=$158.03

Chile (18787÷4252)1/80 –1=0.0187=1.87% (18787–4252)÷(2010–1930)=181.69

Columbia (11189÷2338)1/80 – 1=0.0198=1.98% (11189–2338)÷(2010–1930)=$110.64

Costa Rica (12014÷2513)1/80 – 1=0.0197=1.97% (12014-2513)÷(2010–1930)=118.76

Mexico (14820÷2659)1/80 – 1=0.0217=2.17% (14820–2659)÷(2010–1930)=$152.03

Nicaragua (3987÷3258)1/80 – 1=0.00252=0.25% (3987-3258)÷(2010–1930)=$9.11

Peru (9533÷2803)1/80 – 1=0.0154=1.54% (9533-2803)÷(2010–1930)=$84.13

Uruguay (16402÷5848)1/80 – 1=0.0130=1.30% (16402–5848)÷(2010–1930)=$131.93

Venezuela (17204÷3298)1/80 – 1=0.0209=2.09% (17204–3298)÷(2010–1930)=$173.83

I then decided to make a simple table showing ordered lists from smallest to largest of the GDP per capita, growth rates and average annual growth of the countries to help me analyse whether countries that were richer in 1930 have grown faster or slower than those which were poorer.

1930: Real GDP Per Capita – (2011 UD$) Growth Rate (%) Average Annual Growth (US$)

Brazil Nicaragua Nicaragua

Columbia Argentina Peru

Costa Rica Uruguay Columbia

Mexico Peru Costa Rica

Peru Chile Uruguay

Nicaragua Costa Rica Argentina

Venezuela Columbia Mexico

Chile Venezuela Brazil

Uruguay Mexico Venezuela

Argentina Brazil Chile

From the table it is evident that the Latin America countries that were poorer in 1930 have had higher growth rates than those that were richer. Brazil is the most extreme example because as you can see it had the smallest GDP per capita in 1930 ($1750) but it has grown the fastest with a growth rate of 2.67%. The richest country in 1930 was Argentina ($7166) and it has had one of the slowest growth rates of 1.23%.

It is also clear from their average annual growths that the richer countries economies grew slower as a similar pattern can be seen as the growth rates, with only a couple slight differences in the ordering.

This graph shows that there is a negative correlation between the growth rate and the GDP per capita in 1930 of the countries. This shows that generally the higher the GDP per capita in 1930, the lower the growth rate. There is one quite extreme anomaly to this rule however which is Nicaragua which has an exceptionally low growth rate. This graph reiterates the point that the countries that were richer in 1930 had slower growth rates than the poorer ones.

Next, I created a table showing the real GDP per capita of Latin America and Western Europe with figures from each decade from 1920 to 2010 to enable me to calculate and compare growth rates across the regions.

Latin America (GDP Per Capita US$) Western Europe (GDP Per Capita US$)

1920 2543 5520

1930 2910 7271

1940 3266 8180

1950 4222 8163

1960 5442 12478

1970 7209 18404

1980 10167 23867

1990 9525 28874

2000 11009 34934

2010 13436 37651

(Data from Maddison Project Database (2018))

To calculate the growth rate for Latin America and Western Europe the formula I have used is: Growth Rate = (GDP2010 ÷ GDP1920)1/(2010-1920) – 1

• Growth rate of Latin America = (13436 ÷ 2543)1/90 – 1 = 0.0187 = 1.87%
• Growth rate of Western Europe = (37651 ÷ 5520)1/90 – 1 = 0.0222 = 2.22%

From my calculations, you can see that the growth rate of Western Europe as a whole is higher than the growth rate of Latin America. Next, I have calculated the growth rates of the individual countries in Western Europe so I can analyse whether or not they all fit the overall pattern of Western Europe having higher growth rates.

Country Growth Rate

Austria (40450÷4183)1/90 – 1=0.0255=2.55%

United Kingdom (34722÷6881)1/90 – 1=0.0181=1.81%

Germany (41576÷5647)1/90 – 1=0.0224=2.24%

Portugal (25563÷2127)1/90 – 1=0.0280=2.80%

France (36141÷5309)1/90 – 1=0.0215=2.15%

Netherlands (44066÷7593)1/90 – 1=0.0197=1.97%

Belgium (37791÷7593)1/90 – 1=0.0180=1.80%

Switzerland (58267÷15324)1/90 –1=0.0150=1.50%

Italy (35010÷4388)1/90 – 1=0.0233=2.33%

Spain (32040÷3837)1/90 – 1=0.0239=2.39%

Norway (80892÷8958)1/90 – 1=0.0248=2.48%

Sweden (42753÷5075)1/90 – 1=0.0240=2.40%

My calculations show that most of them do fit the overall trend. However, there are a few that break this pattern. The first example of this is Brazil which has a growth rate of 2.67%, this is particularly high for Latin America and is even higher than the average for Western Europe (2.22%). This shows that for some reason its economy has developed much more rapidly over the 90 years that expected. As previously discussed it had the lowest GDP out of all the Latin American countries in 1930 which again makes us question why historically poorer countries tend to have higher growth rates. A Western European country that doesn’t fit the pattern is Switzerland with the lowest growth rate of 1.50% which is even lower than a lot of the Latin American countries.

After all of this data analysis I have found many patterns about the growth rates of Latin American countries and so in this final section I will be looking into some of the questions that have arisen and giving some scholars reasoning for this. The main focus will be why Latin America generally has lower growth rates than Western Europe.

In an article about economic history Moses Abramovitz discusses the idea of catching up to explain growth of countries’ economies. The simple catch-up hypothesis itself is the concept of countries either being followers or leaders with the followers always striving to catch up to the leaders. They do this by learning from them and developing their technology to increase their productivity and hence improve their economies. There is a natural convergence of productivity levels between the leader and their followers. This process generally leads the followers (countries with lower initial productivity) to have much more rapid growth than the leaders as they have more opportunity to grow whereas the leaders will be growing slower as they have to be more innovative and make technological advances by themselves. The speed at which the followers catch up generally correlates to how big the initial productivity gap was between the countries. ‘‘Followers tend to catch up faster if they are initially more backward’’ (Abramovitz, 1986).

There was a major increase in productivity growth post World War II and the catch-up hypothesis is one of the main explanations for this. It occurred because there was a ‘‘large backlog of unexploited technology’’ (Abramovitz, 1986). The United States had already started using these ideas but many other countries in the West hadn’t which enabled them to catch up (Abramovitz,1986). This in turn leads to high growth rates. This is one of the reasons for the high growth rates in Western Europe.

From what we know so far it would seem as though Latin American countries should have also had very high growth rates considering their low values of GDP per capita in 1920. This leads us to question why they weren’t successful like the Western European countries in following technologically forward countries such as the United

States. Abramovitz goes on to explain how there are other factors that decide how successful the catch-up process is. Although some countries may be very technologically backward and therefore expected to develop rapidly, this is often not the case. The main explanation for this is that there is usually a reason that they are so behind in the first place which then goes onto prevent them from catching up. Abramovitz uses the term ‘social capability’ to justify this, and says that ‘a country’s potential for rapid growth is strong (…) when it is technologically backward but socially advanced’ (Abramovitz, 1986).

A country’s social capability depends on various things and can be hard to measure. To put it briefly, it entails all of the things that give a country its ability to ‘exploit (…) an existing technology’ (Abramovitz, 1986). The social capability of a country becomes even more important as you look at what happens as the follower catches up. A low social capability will simply cause the growth to slow as the two countries GDP per capita converge, whereas a country with a high social capability can have the power to overtake the leader (Abramovitz, 1986).

Abramovitz summarizes the factors affecting the speed at which a country achieves its potentiality for growth as ‘factors limiting the diffusion of knowledge, the rate of structural change, the accumulation of capital, and the expansion of demand’ (Abramovitz, 1986). As previously mentioned, after World War II there was a peak in growth rates across the West and it was caused by increased technological gaps and a mixture of these factors working together. However, this opportunity was missed by Latin America (Abramovitz, 1986).

Finish writing about this article and link together.

Sokoloff and Engerman discuss the reasons that the Latin American countries growth was slower than that of North America despite the Europeans of the colonial times expecting a contrasting outcome. Based on the data they found they suggested that the origin of the colonizer had little affect on the GDP per capita of the country. This opposed opinions of others such as Douglass North who believed that the United States and Canada were more successful because of the ‘ institutions being more conducive to growth than those of Spain and other European colonizers’ (Sokoloff and Engerman, 2000 cites the work of Douglass North, 1998).

Bibliography

1. Sokoloff, K. and Engerman, S. (2000). History Lessons: Institutions, Factor Endowments, and Paths of Development in the New World. Journal of Economic Perspectives, 14(3), pp.217-232.
2. Abramovitz, M. (1986). Catching Up, Forging Ahead, and Falling Behind. The Journal of Economic History, 46(02), pp.385-406.
3. Williamson, J. (2010). ‘Latin American Growth-Inequality Trade-Offs: The Impact of Insurgence and Independence,’ NBER Working Papers 15680, National Bureau of Economic Research, Inc. [online] Available at: http://scholar.harvard.edu/files/jwilliamson/files/cepal-paper.pdf [Accessed 27 Oct. 2018].
4. Maddison Project Database, version 2018. Bolt, Jutta, Robert Inklaar, Herman de Jong and Jan Luiten van Zanden (2018), “Rebasing ‘Maddison’: new income comparisons and the shape of long-run economic development”, Maddison Project Working paper 10 [online] Available at: https://www.rug.nl/ggdc/historicaldevelopment/maddison/releases/maddison-project-database-2018 [Accessed 17 Oct. 2018].