Globalization in Latin America before 1940

Abstract

How much of the good growth performance in Latin America between 1870 and 1913 can be assigned to the forces of globalization? Why was industrialization so weak? Why was inequality on the rise? This paper offers an answer to these questions. It starts by exploring the disadvantages associated with geographic isolation from world markets and the transport revolutions that helped liberate Latin America from that isolation, a pro-global force. It then asks how independence contributed to massive de-globalization during the decades of "lost growth" between the 1820s and the 1870s. Next, it documents what happened to the external terms of trade in Latin America between 1820 and 1950: from the 1890s onwards the terms of trade deteriorated, but it also underwent spectacular improvement before the 1890s, suggesting that it had something to do with the ""fairly fast"" Latin America growth during so much of the belle époque. While booming relative prices of exports certainly fostered trade, policy suppressed it: tariff rates were higher in Latin America than almost anywhere else in the world between 1820 and 1929, long before the Great Depression. The paper then asks why. The answer is to be found mainly with revenue needs rather than with some precocious import substitution policy. High tariffs still had a powerful protective effect, regardless of motivation. However, protective policy was modified by those powerful and positive terms of trade shocks, yielding on net weak early industrialization. Finally, the paper documents that inequality rose in most of Latin America up to World War I, while it fell thereafter. The correlation between globalization and inequality is likely to have been causal.

Institutions and Development: The Interaction Between Trade Regime and Political System

“…Second, there is overwhelming evidence that -thanks to dramatically falling transport costs and support by trade policy -commodity markets have become highly integrated in the late 19th century. Consistent with our theory, Latin American economies have been major exporters of agricultural goods and mineral resources, in turn importing manufacturing goods from the European industrial core (e.g., O'Rourke, Taylor and Williamson, 1996;Williamson, 1998;Maddison, 2000;Bértola and Williamson, 2003).…”

“…At least for Latin America, there is evidence of a continued struggle between the industrial elite in the cities and landowners where the former gradually gained power during the twentieth century (e.g., Coatsworth and Williamson, 2002;Bértola and Williamson, 2003;Reimers, 2004). Interestingly, this occurred in parallel with signiÞcant increases in protectoral measures in Europe and the U.S. which limited trade with Latin America.…”

“…In contrast, if m S < m W , he gives up his land and works either for a big landlord or in the manufacturing sector, earning wage income w. In this case, he will not be able to sell the land at a positive 12 Thinking about the late 19th century, for instance, skill requirements for manufacturing production have increased substantially during the "second" industrial revolution (the petro-chemical industrial wave), which embodied fairly complex technologies (e.g., Bértola and Williamson, 2003). The assumption that the effectiveness of an increase in G is larger in the manufacturing sector is perhaps more debatable in the case of infrastructure provision like railways, which also promoted agricultural exports.…”

“…In our model, the external terms of trade are represented by 1/p, which rises as p drops from p AU T top after market integration. For a given stage of development, reßected by manufacturing productivity, A Y , this leads to a decrease in the wage rate, de-industrialization fears (of emerging industrialists, lobbying for protection) were entirely absent in 19th century Latin America (e.g., Coatsworth and Williamson, 2002;Bértola and Williamson, 2003). Rather, they document that revenue requirements, which were primarily determined by wars (between independence and 1880, Argentina, Brazil, Chile, Cuba, Mexico, Peru and Uruguay all fought at least two major wars) and internal power struggles, dictated tariff policy in the 19th century.…”

New directions of trade for the agri-food industry: a disaggregated approach for different income countries, 1963–2000

“…The increased specialization of the most developed European countries in manufactured products generated an intense demand for raw materials and foodstuffs; such needs were met both by various lesser-developed European countries and the rest of the world (Aparicio et al 2009). Most other countries were integrated into international trade, principally as exporters of primary products and importers of manufactures (Lewis 1970;Williamson 2006). Among the peripheral countries, some had excellent economic results based on export-led models; this was, for example, the case of Argentina (Bertola and Williamson 2006;Bulmer-Thomas 1987;Cortés Conde 1992;Gerchunoff and Llach 2011).…”