Growth and Stagnation in Developing Economies: a Structural Approach

During the 2000s, after almost two decades of poor growth performance, Latin American countries have experienced a period of growth acceleration. Even though it has been led mainly by a faster growth of external demand for natural resources, this demand has increased national income, and, by increasing wages and investment, it has recovered domestic markets. Nonetheless, even in face of a more diversified demand, Latin American countries have specialised in the production and exports of less technologically advanced goods, increasing the asymmetry between the structures of demand and supply. This dynamics contrasted with the pattern followed by East Asian developing economies, where the strategy of development for production and trade has focused on technological upgrading. As the demand for high-tech manufacturing has increased, these countries have sophisticated their structure of production and promoted exports of high-tech goods. With the aim of analysing the long-term consequences of these different patterns of production and trade specialisation, this study considers a Kaldorian approach, in which growth is demand driven and strictly related to sectoral specifities. Based on this perspective, it seeks to identify which sectors are capable of promoting higher longterm growth rates and the mechanisms through by this process take place. The study shows that specialisation in sectors with both high dynamic increasing returns and high income elasticities can trigger a cumulative causation growth process. Additionally, countries' structures of production and trade are analysed through input-output methods to assess to what extent the Latin American growth pattern is sustainable in the long run. The impacts of countries' trade liberalisation and the effects of their integration into global supply chains is compared across countries with the aim of evaluating which ones that are benefiting the most from these changes in commercial structure and which are losing sectors crucial to promote high and sustained growth rates.CAPES-Cambridge Overseas Trus