Import Substituting Industrialization In The Latin American Economy

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Latin American economies have had their ups and downs in the past. Different policies and ways to improve the economy have flourished and some have failed miserably. Some simply did not last as long as they thought it would. Things like import substituting industrialization had a huge impact on Latin Americas economy. World War 2 opened a lot of doors for Latin America in terms of trade and industrialization. They gained access to imports from Europe, Japan and the US. The US wanted to acquire raw materials from Latin America. With all these opportunities popping up, Latin people got a chance to really start industrializing. The idea of a newer economic philosophy called import-substituting industrialization. “Import- Substituting Industrialization …show more content…

The Latin countries changed their economic philosophy because of the uneven distribution of land and wealth and income equality were running rampant. Import-Substituting Industrialization in these countries started a self-sustaining process of economic growth. In between the 1950’s and the 1970’s, Import-Substituting Industrialization was very successful. “Industrial Production grew at the rates of 5.2 percent, 6.3 percent, and 5.8 percent annually for the periods 1960-1965, 1965-1970, and 1907-1977, respectfully.” (Hillman 152). everything must come to an end, import-substituting industrialization met that end for a couple reasons. It turns out, import- substituting industrialization provided few high-paying jobs which means the economic and industrial growth that they strived for wasn’t achieved. Also, it made an inefficient industrial sector. Import-Substituting Industrialization was protected by the taxes, the allocation of resources wasn’t done in the right way because the industries were separate and divides Latin America into “small markets where the cost advantages of large scale production could not be achieved.” (Hillman 164). Another big economic impact was …show more content…

A couple of countries decided to fall back on restrictions on their inter-trades and it also allowed companies to accomplish economies of scales by setting up a bigger market. With ore output, the products are cheaper resulting in economies of scales. There were also free trade agreements with Mexico, Canada, and the United States in the North American Free Trade Agreement. They wanted to make the Free Trade Area of the Americas but some Latin American countries didn’t want to individually talk with the US. They wanted to talk as a united front. They thought that if they worked together they wouldn’t get screwed over by the US because of strength in numbers. Neo-liberalism got really big in the 1990s’ when the US saw that investing in Latin America is cheaper and makes them more money. Because of the “peso effect” that occurred in Mexico, the economy took a huge hit and then negatively impacted the rest of Latin America. A peso was equivalent to one American dollar so the peso money supply depended on the quantity of dollars that the currency board possessed so that the government could not print any more to pay for its deficits. The problem was that dollars flowing outwards would decrease the money supply and the government could not pay for its budget deficits since they could no longer print any money. In 1994, the Mexican government lessened the value of a peso. Because of this, they lost a

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