Latin America Economic Growth

Introduction

Rodríguez (2009) refers to the economic growth of Latin America as disappointing because it has been slow compared to other regions in the world. Despite having a good environment to promote economic growth, the region has been characterized by low per capita GDP. The economic growth of Latin America has been below that of the United States and Canada even though the three countries attained their independence around the same time.

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Additionally, Sullivan (2014) states that the Latin American countries did not record significant economic growth per capita throughout the nineteenth century. On the contrary, the economic growth in the United States and Canada grew up to six-fold during the same period. At the beginning of the Great Depression, the Latin American region recorded remarkable economic growth, and economists were optimistic that the trend would continue in the following years.

However, Rodríguez (2009) indicates the countries in the region are currently characterized by a microeconomic crisis and a steady decline in the GDP. Bulmer-Thomas (2006) notes that the history of the region, coupled with the political environment, has played a key role in promoting poor economic growth.

Furthermore, there have been high levels of political and social disorder in different nations since independence (Rodrik, 2011). The aim of the current research is to assess the economic growth of Latin America and to determine the reasons why the region has been unable to attain high levels of economic development. The research also looks at Latin American history and the effect of other countries on its economy.

Latin American history

According to Keen and Haynes (2009), much of the political and economic history of the Latin American region was characterized by instability. Nonetheless, there were some positive trends in politics during the nineteenth century. Most of the countries in the region were under the European powers during the colonial era. Keen and Haynes (2009) also indicate that the Europeans exploited the rich natural resources for their own benefit without fostering development.

They were sponsored by national companies that understood the economic potential of these nations. During this time, the citizens were forced to provide labor in the farms or in the mining fields. The countries were instead characterized by high taxation, poor infrastructure, and a lack of policies to promote economic progress.

Perhaps, the current economic instability could also be attributed to the situation during the colonial period. In reference to Moya (2011), the political situation in the region changed after the end of the First World War. The previous European colonies gained their independence and began forming their own governments. In the 1960s, democratic governments were formed, and more organized political orders established.

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The governments formed after independence attempted to promote political and economic stability. Sullivan (2014) explains that Latin America has gone through various economic transformations that have affected the current monetary situation. In the 1980s, many countries were characterized by high public debt. In the 1990s, the situation changed, and the countries started recording increased economic growth.

Specifically, this decade was characterized by higher exports, privatization, and proper management of government-owned enterprises. In 2002, the region experienced a major crisis in the economy that was partly due to the financial crisis in the United States. Despite this experience, Sullivan (2014) notes that in the years following 2002, Latin America recorded tremendous growth and managed to recover from the crisis.

In 2009, the global economic crisis also affected the region. During this period, countries such as Mexico and Brazil experienced a major economic downturn. Brazil and Mexico were greatly affected due to the fact that they were major trading partners with the United States. Conversely, countries with more diversified trading partners during the period were less hit by the crisis. In the period between 2010 and 2011, the area managed to bounce back to its former economic level.

Sullivan (2014) notes that Venezuela is currently facing a major economic crisis. Specifically, the country is experiencing high inflation and the inability to provide basic food commodities to consumers. In this view, the average growth rates are likely to decrease in the next year. Furthermore, Argentina is planning to hold out various organizations that refuse to take part in the debt restructuring programs, and this is likely to lead to economic instability.

Latin America economy

As aforementioned, the economic growth in Latin America has been characterized by instability over the years. Rodríguez (2009) argues that the region has had one of the most favorable environments to foster economic growth compared to other regions in the world. Moreover, the geographical location places the region in the best position to foster trading activities in contrast to countries in Asia and North America. In comparison to other nations in the world, the region has been less prone to external attacks and invasions.

However, O’Bien (2007) indicates that the region has been one of the most poorly performing with regard to economic growth. Meyer (2014) notes that Brazil has reported very slow economic growth over the past five years. It is currently facing challenges such as high cost of labor, increasing tax rates, and poor infrastructure. The onerous tax system has impacted negatively on international trade.

In addition, the Horundan economy has been facing challenges related to the lack of sufficient funds to finance the budget and a huge public wage bill (Bulmer-Thomas, 2006). Ecuador is one of the largest exporters of oil and gas to China and other regions in the Asian continent. Despite the high rate of export, Ecuador is still characterized by high levels of inflation and low GDP.

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Guatemala has been facing challenges in the provision of basic commodities to its citizens (Taft-Morales, 2014). The challenges facing the population include lack of access to healthcare, famine, and decreasing food security. The country’s Western highlands have been the most affected and are characterized by high levels of poverty and diseases.

As a result of the poor economic situation, Latin American countries are characterized by poverty and inequality. According to Sullivan (2014), Latin American countries have failed in expanding economic opportunities. As a result, countries are characterized by immense poverty and inequality. Moreover, the gap between rich and poor citizens continues to widen. The majority of the citizens are living below the poverty line. This is worrying considering the economic potential of the region (Huber, Nielsen, Pribble, & Stephens, 2006).

Although the countries have been recording the high export of various resources, the trends in economic growth have been stagnant (Jenkins, 2010). Moreover, most of the rural regions in Latin America are still characterized by poor roads and infrastructure. Sullivan (2014) countries in Latin America have one of the unequal income distributions in the world. An example is Guatemala, which has been known to have the worst income allocation in the American continent.

Taft-Morales (2014) notes that the income distribution in the region is worse than that of the poorest countries in the African continent. In 2012, for example, the richest citizens in the country consumed over 42 percent of the total income. In the same year, poor citizens managed to consume only 1.3 percent of the total income. Rodríguez (2009) argues that unless the high levels of inflation in some of the countries are dealt with, it is unlikely that the region will experience economic stability in the near future.

The low economic growth can be attributed to their weak financial institutions. In reference to the Organization for Economic Cooperation and Development (OECD) (2012), these countries lack the ability to strengthen their microeconomic policies in an effort to deal with future uncertainties in the global economy. One of the major hindrances for the economic growth of the Latin American region is the uncertainty of the current global market.

The region is faced with large capital inflows due to the variation of its interest rates and exchange rates. Moreover, the level of inflation in some countries like Venezuela has hindered economic competition in the global economy.

Setting up strong microeconomic policies would strengthen the response capacity of the Latin American countries in case of a global financial crisis. Guatemala has good microeconomic policies that would assist in stabilizing the economy in times of financial crisis (Taft-Morales, 2014). However, policymakers lack the ability to ensure that the policies benefit the economy.

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This could explain why the annual GDP has been falling since the financial crisis in 2009. Although the economy is ranked as the largest in Latin America, the country is one of the poorest in the region. Specifically, the OECD (2012) recommends the development of credible financial rules and the stabilization of funds as mechanisms to benefit Latin America. Furthermore, the policies should be in line with current economic trends.

Influence of politics on the Latin American economy

Sullivan (2014) indicates that the Latin American region has gone through various political challenges in the past. In the early 1980s, the countries were majorly ruled by authoritarian governments. Some of the authoritative leaders included Che Guevara, Eva Peron, and Hugo Chavez. Currently, all the nations have democratic governments except Cuba. Argentina, for example, underwent harsh military rule in the period prior to 1983. Presently, the region seems to be advancing in terms of political development.

Countries such as Colombia are presently in negotiations with their military in an effort to resolve political conflicts (Huber, Nielsen, Pribble, & Stephens, 2006). Honduras has been politically unstable and ruled by dictators throughout its history. These dictators were elected from the military, took up legislative positions, and controlled the economy (Huber, Nielsen, Pribble, & Stephens, 2006). Nicaragua has also faced political instability and civil wars.

The caudillos were responsible for the authoritative rule and did very little to upgrade the economy. In reference to (Taft-Morales, 2013), Peru has been alternating between democracy and dictatorship. During the Spanish conquest era, the country went into political turmoil, and most of its institutions were paralyzed. The country has never recovered from the crisis, and the turmoil is blamed for the ethnic divisions and political challenges experienced today.

Although the majority of the countries in the region have transitioned from authoritative to democratic regimes of governance, political instability still prevails. There have been changes in the political order, and many countries are experiencing democracy through free and fair elections. Countries such as Panama, Colombia, El Salvador, Antigua and Barbuda, and Costa Rica have managed to elect their presidents in a democratic manner.

Despite democracy, most of the countries have been characterized by the inability of the respective governments to deliver public services and promote security (Sullivan, 2014). Likewise, there have been claims of corruption and lack of transparency among political leaders. In 2013, for example, Brazilians took to the streets to demand better services from the government. Demonstrations have also been reported in Chile due to the high level of dissatisfaction with the leaders (O’Bien, 2007).

This is seen as counterintuitive as the country has one of the best democracies in the region. Even with a democratic government in Guatemala, political stability remains fragile (Taft-Morales, 2014). The political leaders are corrupt and lack the ability to eliminate the effect of the 1996 civil war on the economy. There are two main factors that have affected democracy and political stability in the region, and they include the increase of organized crime and executive abuse of power.

The previous political situations in Latin America are partly to blame for the current economic instability. Sullivan (2014) explains that political instability acts as a form of short-term incentive for any political leadership. In such situations, political actors focus more on short-term economic growth. These actions are often disastrous and result in budget deficits and inflation. Moreover, O’Bien (2007) argues that political instability leads to a lack of institutional capacity to promote stable economic growth.

As a result of the level of influence of these political leaders in the 1980s, there was an accumulation of Latin American’s assets in the hands of the wealthy citizens. In the wake of economic liberalization In the 1990s, economists were hopeful that stability would ensue in the region.

However, Moya (2011) indicates that the economy continued to dilapidate regardless of the economic reforms introduced by the newly elected rulers. In Brazil, Mexico, Peru, Ecuador, and Cuba, the levels of unemployment were high, and budget deficits were dangerously elevated. Perhaps more comprehensive policies needed to be introduced to stabilize the economic environment as the political sector seemed to be stable.

Latin America has intensified trade with China since the year 2002 to enhance its economic recovery. Nevertheless, the region is likely to be affected by the current slowdown in China. As a result, there is likely to be a low demand for natural resources and increased prices of commodities in the region — consequently, the financial accounts of the countries that trade with China are likely to be affected. Look, and Tan (2010) note that the presence of China in Brazil and Argentina has brought about trade specialization.

In this view, the countries are forced to produce commodities that have strong price volatility. In monetary terms, this is likely to increase the volatility of the commodities exported from China. Additionally, the countries are becoming predisposed to the Asian economy due to the influx of Chinese nationalities in trade. Look and Tan (2010) explain that the exposure will do more harm than good to the Latin American countries.

Although there is high demand for natural resources from Latin American, the Asian economy is prone to recession and this may cause a ficsal crisis in the region (Yergin & Stanislaw, 1998). China has also built more than 300 companies in various countries across the region. This has led to overdependence on Chinese manufactured commodities as they are much cheaper than local products. Consequently, it has led to the slow growth of the domestic manufacturing industries.

Jenkins (2010) indicates that the relation between China and Latin America has had both negative and positive impacts. On the one hand, Latin America seems to benefit from infrastructural development and low-interest rates on foreign trade. An example is the advancement of the oil and gas sector in Ecuador through the introduction of modern technology.

On the other hand, there has been an influx of Chinese nationalities in Latin American countries, and this has contributed to overpopulation and hence, more competition for the available resources. The high population is also attributed to the high levels of unemployment in the region. Look, and Tan (2010) also emphasize that the presence of China in Latin America promotes import commodity dependency, which contributes to economic instability.

Moreover, such dependency has led to the collapse of the manufacturing sector in countries such as Brazil. O’Bien (2007) argues that the relations between Latin America and the United States have led to the rising GDP in Brazil and Mexico. The economic performance of the two nations is highly reliant on the economic conditions in the United States (Villarreal, 2010). Seelke (2008) states that Nicaragua has also been overdependent on foreign aid from the United States.

As a result of the reliance, the proportion of properties owned by the United States is very high. According to O’Bien (2007), the United States has set up various multinational companies throughout Latin America. Although these companies are beneficial in the provision of employment to the locals, they end up benefiting the United States more than the region. Latin American leaders should ensure that they promote their own companies to enable more positive growth in the economy.

Conclusion

The current research provides evidence that economic growth in Latin America has been affected by the self-interest of its leaders and that of other nations. Moreover, most of the countries in Latin America have been characterized by economic and political crises in recent years. The presence of European nations during the colonial period did not foster massive economic development (Bulmer-Thomas, 2006). The colonialists only took advantage of the rich natural resources for their own interests.

The presence of China in the region has been characterized by varying impacts. While the Latin America region is benefiting from the export of natural resources, Chinese nationalities continue to immigrate into the region. The United States has also been benefiting through trade and import of oil and gas from the region. Additionally, countries such as Mexico have recorded high economic growth in the past due to influence from North America.

However, the presence of the United States has also resulted in the influx of multinational enterprises in the area. Although these companies have been valuable to the Latin American economy, they have prevented the proliferation of Latin American-owned companies.

The politics in the regions have also hindered economic development, and leaders seem to be more interested in benefiting the rich and leaving out the poor citizens. This explains why the majority of countries are characterized by poverty and inequality. In summary, the Latin American political leaders and countries such as the United States and China are to blame for the poor economic performance of the region.

Works Cited

Bulmer-Thomas, V. (2006). The Cambridge economic history of Latin America. Cambridge: Cambridge University Press.

Huber, E., Nielsen, F., Pribble, J., & Stephens, J. D. (2006). Politics and Inequality in Latin America and the Caribbean. American Sociological Review , 71 (15), 943–963.

Jenkins, R. (2010). China’s Global Expansion and Latin America. Journal of Latin American studies , 42 (4), 809-837.

Keen, B., & Haynes, K. (2009). A history of Latin America. Boston, MA: Cengage Learning.

Look, L. W., & Tan, C. B. (2010). The Chinese in Latin America and the Caribbean. Leiden, The Netherlands: Brill.

Meyer, P. J. (2014). Brazil: Political and Economic Situation and U.S. Relations. Washington, DC: Congressional Research Service.

Moya, J. C. (2011). The Oxford handbook of Latin American history. New York: Oxford University Press.

O’Bien, T. F. (2007). Making the Americas: The United States and Latin America from the age of revolutions to the age of globalization. Albuquerque: University of New Mexico Press.

Organization for Economic Cooperation and Development. (2012). Latin American Economic Outlook 2012: Transforming the State for Development. Organization for Economic Cooperation and Development.

Rodríguez, F. (2009). The Political Economy of Latin American Economic Growth. College Park, MD: University of Maryland.

Rodrik, D. (2011). The globalization paradox: Democracy and the future of the world economy. New York: W. W. Norton.

Seelke, C. R. (2008). Nicaragua: Political Situation and U.S.relations. Washington, DC: Congressional Research Service.

Sullivan, M. P. (2014). Latin America and the Caribbean: Key Issues for the 113th Congress. Washington, DC: Congressional Research Service.

Taft-Morales, M. (2014). Guatemala: Political, Security, and Socio-Economic Conditions and U.S. Relations. Washington, DC: Congressional Research Service.

Taft-Morales, M. (2013). Peru in Brief: Political and Economic Conditions and Relations with the United States. Washington, DC: Congressional Research Service.

Villarreal, M. A. (2010). NAFTA and the Mexican Economy. Washington, DC: Congressional Research Service.

Yergin, D., & Stanislaw, J. (1998). The Commanding Heights: The Battle for the World Economy. New York: Touchstone.

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