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Thursday, May 30, 2013

Generating the Wealth of Nations 26: Disruption, Catch-up, and Convergence in Four Latin American Countries

The European and Japanese experience does seem to display catch-up after disruptions and convergence toward the US.  That experience does not seem to be as fully represented int he four largest Latin American economies--Argentina, Brazil, Chile, and Mexico.

 Argentina, which started the 20th century as one of the richest countries in the world (as did Chile, for that matter), has been one of relative stagnation and regress.  There is little evidence of strong periods of catch-up growth following disruptions, and none of convergence.  Had the Argentine economy grown at its pre-World War I trend throughout the 20th century, real GDP per capita there would have reached the equivalent of just over $20,000 per year--roughly on a par with France or Germany.  Instead, it had reached only $7,770 by 2010.  World War I apparently disrupted Argentina's economy more severely than it did the economies of Brazil, Chile, and Mexico, more probably because of Argentina's close economic ties to Germany (and the relatively successful Allied blockade of Germany).  Real Gdp per capita had not returned to its trend growth level by the beginning of the Depression, and, indeed, growth has only rarely reached that per-WW1 trend since.

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Brazil, which was a much poorer country than Argentina, Chile, or Mexico in 1900 (real GDP per capita of only $678--half of Mexico's and a third of that in Argentina or in Chile) experienced little disruption from the Depression or from WWII, and continued to grow at roughly the same trend rate for the entire 1900-1955 period (about 1.8% per year).  By 1955, real GDP per capita had reached only about $2,000--roughly the level in Argentina and Chile in 1900, and only half the US level in 1900.  Since then, real GDP per capita has more than tripled, reaching nearly $7,000 in 2010.  But that does represent remarkable convergence with the US.  Brazil's real GDP per Capita was 17.5% of the US level in 1955 (it had been 16.7% of the US level in 1900); by 2010, it had grown to 22.6% of the US level.  Brazil has avoided any significant disruption to its growth, but it also did not begin to converge toward the level of income in more developed nations until quite recently.

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Chile has also not followed the disruption--catch-up pattern.  Chile was, as I noted above, a more-or-less "rich" country in 1900.  However, its trend growth to 1929 was well below that in the US (1.58% per year compared with 2.02% er year in the US).  Chile was suffered significant disruption from the Great Depression, with real GDP per capita falling about 35% from 1929 to 1933 (for comparison, real GDP per capita fell by 30% in the US, 17% in Argentina, 5% in Brazil, and 15% in Mexico--and actually growing by 5% in Colombia).  Growth returned to its earlier trend rate by about 1936, but Chile did not catch back up to where it would have been in the absence of the disruption of the Depression for a long time.  Indeed, the economy experienced two additional periods of disruption, from 1970 to 1975 (the period during which Salvador Allende was elected president and then deposed in a military coup) and from 1981 to 1983.  In 1983, real GDP per capita in Chile was only 20% above its 1900 level.  But then the economy began to take off, with real GDP per capita growing by 188% in the ensuing 27 years (by contrast, growth in the US was only 60% over that period).  So there was, eventually, the beginning of convergence.

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In Mexico, where real GDP per capita was less than 1/3 of that in the US in 1900 (and about half that in Argentina or Chile--but double that in Brazil), we finally see the same pattern as in Europe--disruption associated with the Great Depression (but not World War II), catch-up from the bottom of the Depression in 1933 until 1965 (when Mexico returned to the level of real GDP per capita it would have attained had it remained on its pre-Depression path) and convergence until 1981.  Since then, however, the Mexican economy has grown somewhat fitfully, with one major (1981-1988) and three minor (1994-1995; 2000-2003; 2007-2009) downturns.  By 2010, real GDP per capita in Mexico was just about where it would have been had the Mexican economy grown at its pre-Depression rate steadily since 1900.  As a result, real GDP per capita in Mexico, what had been about 1/3 that in the US in 1900, is now only about 1/4 of the US level (the ratio of Mexican real GDP per capita to US real GDP per capita peaked in 1981 at about 36%); real GDP per capita in Mexico has grown by only 15% in the 1981-2010 period.

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All data from the Maddison Project.


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