Export-Led Growth in Latin America: 1870–1930

Abstract

In 1949 Raúl Prebisch, an Argentine economist, published a study for the United Nations’ Economic Commission for Latin America (ECLA), in which he attributed the failure to reach sustained economic growth in Latin America to the international division of labour. Based on research carried out by ECLA on the terms of trade between manufactures and primary goods, he concluded that – contrary to expectations – they moved against primary products. If prices decline as productivity increases (in competitive markets), industrial goods, where the technological improvements had been more significant, should have declined in price more than agricultural goods. The empirical results of the study showed the opposite.1If the Latin American countries therefore wanted to benefit from technological progress, they should move towards industrialisation. Almost at the same time, based on the same empirical study, Hans Singer not only argued that the gains from trade had not been distributed equally, but also that foreign investments in the export sector were not part of the domestic economy, but represented an enclave belonging to the countries of the centre which received its benefits.2Singer advanced an argument that became popular later on; he noted the existence in the underdeveloped countries of a dual economy with two sectors each with different productivity and segmented markets: a modern sector linked to the central countries and a traditional sector linked to the rest of the economy. Also, from the critics of the classical theory of trade, another argument was put forward: the different income elasticities of demand for manufactures and agricultural goods (Engels’ law) suggested that expenditure on agricultural goods would decline in relative terms as incomes rose, hurting the terms of trade for primary products.3

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