George Mason University Colombia Profile Indicators Discussion

Table 1.1
Population
(millions)
2020
Argentina
45
Bolivia
12
Brazil
213
Chile
19
Colombia
51
Costa Rica
5
Cuba
11
Dom Republic
11
Ecuador
18
El Salvador
6.5
Guatemala
18
Haiti
11
Honduras
10
Mexico
129
Nicaragua
6.6
Panama
4.3
Paraguay
7.1
Peru
33
Uruguay
3.5
Venezuela
28
Lat Am & Carib
U.S.
653
331
Land area GDP
(thous sq
$ millions
kilometers) 2019 PPP
922,951
2,767
95,088
1,099
3,524,064
8,512
507,939
757
791,995
1,139
93,600
51
*254,865
111
201,918
49
205,457
248
56,071
21
153,433
109
21,825
28
51,856
112
2,696,454
1,958
36,163
130
121,545
77
101,075
407
487,417
1,285
85,977
177
310,610
912
19,949
10,720,303
GDP/cap
Share of
regional
2019 PPP GDP
20,510
8.6%
7,924
0.9%
16,545
32.9%
26,734
4.7%
15,529
7.4%
18,720
0.9%
23,170
2.4%
18,356
2.4%
11,414
1.9%
8,626
0.5%
8,524
1.4%
1,984
0.2%
5,186
0.5%
20,903
25.2%
5,479
0.3%
28,266
1.1%
14,236
0.9%
14,770
4.5%
24,565
0.8%
11,093
2.9%
0.0%
16,417
100.0%
9,827
Source: GDP is from IMF thru Wikipedia, Pop is from UN thru Worldometers
Land area is from C&H Table 1.1
*2016 estimate
What is Development?
Measures & Theories
Read: Franko Ch 1, and C&H Ch 3
Objectives
?
?
In this section we?ll explore measures of
development so that we can make some
comparisons across countries to better
understand their differences and enhance our
global understanding.
We will also explore various theories of
development in order to understand how
economists and policymakers have thought
about development over the decades.
What is Development?
?
?
?
?
See Box 1.1 Franko ? many definitions ? here are a
couple:
W. Arthur Lewis (1954): ?The central fact of economic
development is rapid capital accumulation, including
knowledge & skills with [using] capital.?
Joseph Stiglitz (1998): “It used to be that development
was seen as simply increasing GDP. Today we have a
broader set of objectives, including democratic
development, egalitarian development, sustainable
development, and higher living standards.”
Economists tend to emphasize technological change,
capital accumulation, and economic growth
What is Development?
?
?
Others emphasize Basic Human Needs
Millennium Development Goals
?
?
?
?
?
?
Eradicate extreme poverty
Universal primary education
Gender equality, empowerment of women
Reduce child mortality
Combat diseases, HIV/AIDS, Malaria
Ensure environmental sustainability
What is Sustainable Development?
?
?
?
Our Common Future, 1987: “development
that meets the needs of the present without
compromising the ability of future generations
to meet their own needs?
Sustainable development considers the
environment, and investing in capital and
human capital.
Sustainable development considers the rights
of the present vs rights of future generations.
How to measure development?
Economic Growth and increasing GDP
?
?
?
?
GDP is measure of economic activity.
GDP — Gross Domestic Product — the sum of
the value of finished goods and services
produced within a nation’s borders during a
given year
Real GDP — adjusted for inflation
Real GDP per capita — adjusted for
population growth
BIG advantages to GDP:
?
?
It encompasses all of a nation’s economic
activity in a few summary statistics ? it?s very
useful.
When GDP is increasing, it usually means
that jobs are also increasing.
Disadvantages
?
?
?
?
?
?
?
?
Not a measure of well being
Formal market only
Bads as well as goods in GDP
No value placed on leisure
Environmental Resources are poorly
accounted for
Not sensitive to income distribution
Poor for international comparisons
Despite the disadvantages, we use it.
Other development indicators
?
Measuring inequality with the Lorenz Curve
and the Gini Coefficient
?
Measuring whether Basic Human Needs are
being met: e.g. literacy, life expectancy,
educational attainment, % of the population
below the poverty line
Lorenz Curve & Gini Coefficient
?
?
?
?
?
Lorenz curve
separates A&B
Gini= A/(A+B)
If perfect
equality, A=0,
Gini = 0
If one person
has it all, B=0,
Gini=1
The lower the
curve, the more
unequal
Inequality across the globe ? the darker the red, the more unequal.
Gini coefficients range from 0 to 1
?
The higher it is, the more unequal (World Bank data)
?
U.S. .42 (2016)
Australia .35 (2010)
Denmark .28 (2014)
Japan .32 (2008)
Sweden .27 (2014)
?
?
?
?
?
?
?
See Franko, Table 1.1
Argentina
Brazil
Chile
Colombia
Costa Rica
Mexico
Peru
Haiti
.42 (2016)
.51 (2015)
.47 (2015)
.51 (2016)
.49 (2016)
.43 (2016)
.48 (2010)
.61 (2012)
But inequality is incomplete too. . .
mass poverty can coexist with high
degree of equality ? e.g. India
? reductions in absolute poverty are
consistent with increases in inequality
? Basic human needs ?
Physical Quality of Life Index ? includes
?
literacy, infant mortality, life expectancy at
age 1
Human Dev Index (HDI, by UNDP) ?
GDP, life expectancy, literacy
Development Theories ? Overview ?
when these ideas were popular
?
?
?
?
?
Optimism for Foreign Aid (1950s)
Structuralist Theory and Empirical Work
(1960s)
Dependency Theory and Interventionist
thought, Institutionalists (1950-70s)
The Chicago School and Free Market
Economics, Laissez–Faire (1980-90s)
More recently: Institutions again, and the
Role of Education (stumbling blocks for Latin
America)
Early Hope for the Role of Foreign Aid
?
?
?
?
Drew from economic historians who observed
growth in the UK, Europe, & the US ?> savings,
investment, technology, growth in manufacturing.
Drew also from Neoclassical Growth Theory: GDP
= f (K, L) Economic output depends on capital,
labor, and technology. (One-sector growth model)
Post WWII — World Bank & Marshall Plan to
rebuild Europe ? very successful ? foreign aid
worked!
In 1950s high hopes for Foreign Aid in developing
countries.
The peak at left represent Marshall Plan spending
The other peak in the early 1960s was following
the Cuban revolution ? the Alliance for Progress
response
Structuralist Theory and Empirical Work
?
Theory — Lewis Model of the Dual Economy
?
Empirical findings on patterns of development
econometric analyses
The Lewis Model — Sir Arthur Lewis
?
2 sector model as opposed 1-sector growth model
?
?
?
?
?
traditional over populated rural subsistence sector,
MPL = 0 surplus labor
productive modern urban industrial sector MPL = wage
shift the labor into the modern sector where profit
max behavior would turn savings into investment.
Problems:
?
?
Assumed traditional sector was not rational but tradition
bound
Encouraged a bias against agriculture
Empirical Findings based on econometric
analysis look at structure of economy
Structural empirical relationships as
GDP/capita increases :
?
?
?
?
?
?
?
?
?
% Agriculture in GDP falls and % Industry rises
Human and Physical capital increase
Food consumption falls as % of income
Imports and exports rise as % of GDP
Labor shifts into industrial sector
Urbanization increases
Income Distribution worsens (at least initially)
Mortality and then fertility decline.
Conclusion ? development is an identifiable process
Dependency Theory, Institutionalists, and
Interventionism
?
?
?
?
Dependency theorists and institutionalists
believed that institutional rigidities needed to be
overcome by government intervention. e.g. land
reform
popular in all the developing world from late
1950-70s, but particularly in Latin America
essentially neo-Marxist — rests on the theory of
imperialism and monopoly capitalism
Andre Gunder Frank, Raul Prebisch
Dependency Theory divides the world into
the ?Center? & the ?Periphery?
?
?
?
?
?
?
?
Periphery — LDCs — Latin America — the South
Center — Developed countries — the North
Center is busy producing while consuming most of
the world’s resources.
Periphery supplies raw materials and cheap labor
Center gets all the monopoly surplus ? in a
relationship of exploitation.
Periphery experiences a surplus drain so that their
own development is nearly impossible.
Some recommended revolution, others state
intervention
Dependency Theory continued
?
Dependency Theory envisions a zero sum
game
?
?
?
Center wins & Periphery loses
Economists would argue that economic growth
makes the pie bigger and everyone can benefit
Dependency analysis of local LDC elites
?
?
?
?
?
Conspicuous consumption
Investment in real estate
Risk averse to productive investment
Export savings to foreign banks
Generally not helpful in promoting growth
Dependency Theory also has a negative
view of tourism, MNCs & foreign aid
?
?
?
?
Tourism viewed with scorn — result of
dependence ? creates poor consumption
patterns reliant on foreign goods, disrupts
culture
MNCs (multinational corporations) ? power units
of modern imperialism, foreign investment as the
instrument of exploitation
Foreign Aid ? pretends to help, but designed to
exploit developing countries
Conclude ? the state must intervene
The Chicago School and Free Market
Economics (Laissez-Faire)
?
?
?
?
?
?
?
?
Pinochet in Chile (1973-1990); the “Chicago Boys”
Anti-planning, anti-regulation, and anti-State
intervention
Let prices allocate resources
Free-trade, welcome foreign investment
Promoted by the World Bank and USAID in the
1980s and the 1990s
Success stories — Hong Kong, Singapore
Failure of public intervention in Latin America
Points the finger back to fault the developing world
Institutions again
?
?
?
Now the importance of strong, effective
institutions is stressed again — democratic
institutions, a strong judicial system, good
banking regulation
Also a modern focus on education; human
capital and technology.
Role for public policy in promoting:
?
?
?
Research and Development
Education & Health
Investment
The State and the Market: What is the
proper balance?
?
?
?
?
Dependency Theory is the farthest to the left
? the state should orchestrate growth
Old Institutionalists and Structuralists usually
advocated some role for the state
Chicago School is much more hands off ?
free market reforms in the 1990s
Pendulum subsequently swung back to left
many countries ? Venezuela, Bolivia,
Ecuador
Summary
?
?
?
Now you should have some ideas about what
development is and how we measure
developing countries and make comparisons
between countries.
You should be ready to study some indicators
for your country and write Paper 1.
The policy debates about development will
help you to understand subsequent readings
and lectures in this course.
An Overview of Latin America
as a Region
It?s Role in the Global Economy, and
its Resources and Cultural Diversity
Read C&H Ch 1
Objectives of this overview
?
Identify and introduce the countries of Latin
America
?
Discuss their historical role as commodity
exporters in the global economy

?
Discuss some of their cultural diversity
?
Help you choose ?your? country
What is Latin America?
?
?
?
?
Most of the countries south of the Rio Grande
River that separates Mexico from the U.S.
Spanish or Portuguese speaking ? not most
of small Caribbean islands or Belize,
Guyanas ? that speak English, French or
Dutch
Haiti is usually included because of it?s
shared history with Dominican Republic as
Hispaniola ? 1st headquarters of Spanish
empire in the New World
See the 20 countries in C&H Table 1.1
Latin America in the Global Economy
?
?
?
?
Distinctive as a region culturally, with similar
economic history across countries
Traditionally richer than most of the
Developing World ? but China has grown
much faster in recent decades
Only 1/10th the population of developing
world overall ? but 30% of the land area
So it?s rich in land and natural resources (of
interest to China)
World Population: 7.8 Billion — 2020
?
?
Latin America — .65 Billion — about 10% of
the developing world
4.6 B Asia
?
?
?
1.4 B China
1.8 B India/Pakistan/Bangladesh,
.27 B Indonesia
?
1.3 B Africa
?
.33 B United States
Table 1.1
Think about which country you
will choose. Brazil is by far the
biggest in terms of population,
land area & size of the
economy. Then Mexico.
Panama is the richest in terms
of GDP per capita. Countries
in Central America are smaller,
perhaps harder to find news &
information about. But you can
choose any one of these 20
countries for ?your country.?
Population Land area GDP
(millions)
(thous sq
$ millions
2020 kilometers) 2019 PPP
922,951
Argentina
45
2,767
95,088
Bolivia
12
1,099
3,524,064
Brazil
213
8,512
507,939
Chile
19
757
791,995
Colombia
51
1,139
93,600
Costa Rica
5
51
*254,865
Cuba
11
111
201,918
Dom Republic
11
49
205,457
Ecuador
18
248
56,071
El Salvador
6.5
21
153,433
Guatemala
18
109
21,825
Haiti
11
28
51,856
Honduras
10
112
2,696,454
Mexico
129
1,958
36,163
Nicaragua
6.6
130
121,545
Panama
4.3
77
101,075
Paraguay
7.1
407
487,417
Peru
33
1,285
85,977
Uruguay
3.5
177
310,610
Venezuela
28
912
Lat Am & Carib
U.S.
653
331
19,949
10,720,303
GDP/cap
2019 PPP
20,510
7,924
16,545
26,734
15,529
18,720
23,170
18,356
11,414
8,626
8,524
1,984
5,186
20,903
5,479
28,266
14,236
14,770
24,565
11,093
16,417
Share of
regional
GDP
8.6%
0.9%
32.9%
4.7%
7.4%
0.9%
2.4%
2.4%
1.9%
0.5%
1.4%
0.2%
0.5%
25.2%
0.3%
1.1%
0.9%
4.5%
0.8%
2.9%
0.0%
100.0%
9,827
Source: GDP is from IMF thru Wikipedia, Pop is from UN thru Worldometers
Land area is from C&H Table 1.1
*2016 estimate
Latin America?s population is now
mostly urban
?
?
?
About 80% urban ? similar to the U.S.
Most every country has one megacity ? Brazil
has several
Latin America has some of the world?s largest
cities –>
Sao Paulo
20 million people in
metro area
Mexico City
19.3 million
Rio de Janeiro
12 million
Megacities & their problems
?
?
?
?
?
Air & Water pollution
Waste Disposal
Health Care ? (Coronavirus spreads!)
Difficulties keeping up with urban growth ?
transportation and housing
Life in ?emergency dwellings?
?
?
?
Substandard houses ? cardboard, tin, other
scraps
No access to basic services
Dangerous locations ? alongside rivers
Things that have characterized
Latin America historically
?
?
?
Inequality — income distribution and
distribution of land is very skewed, large gaps
between the rich and the poor — more so
than in Asia
Inflation had a very long history in Latin
America — brought down with the reforms of
the 1990s.
Exporter of primary products (commodities) ?
agricultural products and minerals
Latin America?s mineral wealth
?
?
?
?
?
?
?
?
gold, silver — Mexico, Peru
Copper – Chile (largest producer in the world 2014),
Peru
Iron Ore — Brazil
Tin ? Peru, Bolivia, Brazil,
Lead and Zinc — Mexico and Peru
Oil Exporters — Venezuela, Ecuador (OPEC
Members) Mexico (Non OPEC)
Oil resources: Columbia, Bolivia, Peru, Brazil,
Argentina
Lithium ? Chile, Argentina, Brazil
Crops native to the New World
?
?
?
?
?
?
Corn ? grown by Indians all over North, Central & South
America for thousands of years before Columbus arrived
Potato ? originated in S. America and grown by Incan
Indians of Bolivia, Chile & Peru. Arrived in Europe in
mid-1500s. Staple in Ireland
Tobacco ? American Indians smoked tobacco and
shared the peace pipe with the settlers
Cacao ? Cocoa, Chocolate ? Aztec & Maya Indians of
Central American & Mexico cultivated cacao ?
Europeans added sugar to it.
Tomato ? originated in Mexico ? hard to think of Italian
food without it.
Others ? Pineapple, peanuts, squash, avocado, cassava
root, chili peppers, bell peppers.
Cropland
?
?
?
?
?
?
?
?
Pastures for beef ? Argentina, Uruguay, Brazil
Rich volcanic soils in Central Am, Caribbean,
Colombia, Ecuador
“Banana Republics” — Costa Rica, Panama -Central America
Coffee — Brazil, Colombia are major producers
Mexico & Guatemala too
Cacao ? Brazil, Ecuador, Mexico, DR, Peru
Sugar Cane — Brazil, Cuba, DR, Mexico
Modern crops: Soybeans, Ethanol — Brazil, Fruit -Chile and others, Vegetables — Mexico
organic fruits and vegetables for N markets
From Cardoso &
Helwege, 1992
Table 1.6
Countries in Latin America
have historically relied on a
few commodity exports ?
Some still do
Rich in Hydropower
Sao Simao, Brazil
Itaipu, Brazil/Paraguay
Argentina
LAIF dam,
El Salvador
Rich in Ethanol from
Brazil?s Sugar Cane
Rich in Forest
Resources
Scarlet Macaw, Brazil
Red leaf tree frog, Panama
Amazon rainforest
If Latin America is so rich in natural
resources why the trouble developing?
Many reasons: bad politics? Corruption? The colonial
legacy? Bad policies? Not allowing markets to work?
These are questions to think about throughout the
course.
But for now we consider the resource related issues:
Resources can be problematic:
1. Problematic Geography
2. Dutch Disease
3. Price Volatility
4. Resting on riches
1. Problematic
Geography:
mountains & waterfalls,
the Amazon is
not the Mississippi,
Rainforests are Jungles!
Earthquakes & Hurricanes
Mountains & Waterfalls
Iguazu Falls, Brazil/Argentina
Andes Mountains, Peru
Good for hydropower, not for river transportation in
the early colonial years
Itaipu dam, Brazil/Paraguay
Angel Falls, Venezuela
The Amazon
vs
the Mississippi
The Amazon River connects the jungle to the dry northeast. The Mississippi
River basin has connected rich farm land and moved crops to ports.
Natural Disasters ? Hurricanes,
Earthquakes, Volcanoes & Floods
?
?
?
Earthquake in Haiti 2010, 7.0 magnitude near
Port-au-Prince, >100,000 dead, millions
affected
Hurricanes threaten every year especially in
Sept — Oct in C. America & the Caribbean
Natural disasters are compounded by
poverty, crowding in high-risk areas, fragile
infrastructure, lack of preparedness
Hurricane Katrina
In the gulf, 2005
Hurricane Alex 2010, Mexico
Earthquake damage
In Haiti 2010
Resources can be problematic
?
2. Dutch Disease ? the problems of a single large export
?can choke off other potential exports by keeping the
currency strong ? more on this later.
?
3. Price Volatility ? commodity prices can be very
volatile ? they can change rapidly in a matter of weeks or
even days. Consider the graphs on the following page of
commodities important for Latin America.
?
Note: They are created from World Bank Commodity Price Data (the
Pink Sheet) for 1980-2019. (See also Commodity Prices file on
Blackboard)
Iron ore, cfr spot ($/dmtu)
Real 2010 Price
Coffee & Cocoa
Real 2010 Prices
160.00
7.00
140.00
6.00
120.00
5.00
100.00
4.00
80.00
3.00
60.00
2.00
40.00
1.00
20.00
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
0.00
0.00
Cocoa ($/kg)
Energy
Real 2010 Prices
Coffee, Arabica ($/kg)
Copper ($/mt)
Real 2010 Price
200.00
9000.00
150.00
8000.00
7000.00
100.00
6000.00
50.00
5000.00
4000.00
Crude oil, average ($/bbl)
Natural gas index (2010=100)
3000.00
2000.00
1000.00
0.00
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
0.00
Even high commodity prices ?
Can lead to overspending by
Governments and later problems
Resources can be problematic
?
?
?
?
4. ?Resting on riches?
Resource wealth may discourage investment
and growth and improvements in productivity.
Governments may get lazy because they can
count on commodity exports to earn foreign
exchange $ (consider Venezuela and oil).
Resource rich countries in Latin America &
Africa have lagged behind Asia.
Cultural Diversity
?
At the time of Spanish conquest, the population
of Latin America was large — Aztec and Mayan
Empires in Mexico
16 million people
In Mexico at time
of conquest
Aztec / Maya Influence
In Mexico &
Guatemala
Incan Empire in Peru and S. America
Cultural Diversity ? a preface
?
Andean countries — Ecuador, Peru, Bolivia -Indigenous groups speak native languages ? esp
Quechua in Peru
Cultural Diversity ? a preface
?
Waves of migration and slave trade brought
?
?
?
?
?
Spaniards & Portuguese, but also
African populations to DR, Haiti, Cuba, Caribbean
Coast of Central & S. America, e.g. Brazil
Europeans to Chile, Argentina, Uruguay in 1920s
— thru WWI, and WWII
Costa Rica, Colombia — Very Spanish
Argentina, Uruguay, Chile – Mixed European
Haiti / Dominican Republic / Cuba
Brazil
Diversity within a common story
?
Throughout most of the course, we?ll focus on
the common story :
the commodity exports
the shared economic history and policies
?
You will focus on one country and bring that
focus to bear on the common story.
Summary
?
?
?
?
Now you should be somewhat familiar with
the countries of Latin America.
We?ve emphasized their rich natural
resources and historical role as commodity
exporters in the global economy.
We?ve discussed some of their cultural
diversity.
You should be ready to choose ?your?
country.

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