External Liberalization, Economic Performance, and Distribution in Latin America and Elsewhere

Abstract

Abstract Economic policy in developing and post‐socialist economies during the last 10–15 years of the 20th century had one dominating theme: packages aimed at liberalizing the balance of payments, on both current and capital accounts. Together with large but highly volatile foreign capital movements, this wave of external deregulation was the central feature of globalization for the nonindustrialized world. In two recent research projects, the implications of external liberalization have been investigated through the use of quantified narrative histories for a number of countries, based on a methodology developed by the author to decompose and analyse changes in effective demand, productivity growth, employment, and the sectoral/functional income distribution over time; one of these studies concentrates on countries in Latin America and the Caribbean, while the other includes Argentina, Colombia, Cuba, India, South Korea, Mexico, Russia, Turkey, and Zimbabwe. After a summary of the results of the studies, with possible interpretations, the chapter develops a model of the likely effects of liberalization. The decomposition methodologies are then presented, and used to check the outcomes that the model generates; a substantial overlap is shown between observed phenomena and the model projections, and this discussion leads naturally to policy alternatives and suggestions about the future course of the liberalization process.

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