The construction of railroads transformed many regions economically. Given the lack of navigable river systems, which had facilitated economic development of the United States, the innovation of railroad construction overcame significant topographical obstacles and high transaction costs.
Where large networks were constructed, they facilitated domestic economic integration as well as linking production zones to ports and borders for regional or international trade. An example is line built from the nitrate zone in northern Chile, seized during the War of the Pacific , to the coast.
British capital facilitated railway construction in Argentina, Brazil, Peru, and Mexico, with significant economic impact. There was investment in improved port facilities to accommodate steamships , relieving a bottleneck in the transportation links, and resulting in ocean shipping costs dropping significantly. Brazil and Argentina showed the greatest growth in merchant steam shipping, with both foreign and domestic ships participating in the commerce. Although improved port facilities affected Latin American economies, it is not a well-studied topic.
Telegraph lines were often built beside railway lines. An early boom and bust export in Peru was guano , bird excrement that contains high amounts of nitrates used for fertilizer. Deposits on islands owned by Peru were mined industrially and exported to Europe. The extraction was facilitated by Peruvian government policy. Sugar remained an important export commodity, but it fell in importance in Brazil, which shifted to coffee cultivation.
Sugar expanded in the last Spanish colonies of Cuba and Puerto Rico with African slave labor, which was still legal in the Spanish empire. Wheat production for export was stimulated in Chile during the California gold rush of the mid-nineteenth century, but ended when transportation infrastructure in the U.
In Argentina, wheat became a major export product to Britain, since transport costs had dropped enough to make such a bulk product profitable. As foreign demand for coffee expanded in the nineteenth century, many areas of Latin America turned to its cultivation, where the climate was conducive. Brazil, Colombia, Guatemala, El Salvador, and Costa Rica became major coffee producers, which disrupted traditional land tenure patterns and necessitated a secure workforce. Brazil became dependent on the single crop of coffee.
Slave labor was redirected to coffee cultivation. A case study of a commodity boom and bust is the Amazon rubber boom. Found wild in Brazil and Peru, rubber trees were tapped by workers who collected the raw sap for later processing. The abuses against indigenous were chronicled by the British consul, Sir Roger Casement. Foreign ownership of oil was an issue in Mexico, with expropriation of foreign companies in Large petroleum deposits were found in Venezuela just after the turn of the twentieth century and has become the country's major export commodity.
Silver declined as a major export, but lesser minerals such as copper and tin became important starting in the late nineteenth century, with foreign investors providing capital. Tin became the main export product of Bolivia, eventually replacing silver, but silver extraction prompted the building of a railway line, which then allowed tin mining to be profitable. It was a significant industry in Mexico as well. Following independence, most Latin American countries tried to attract immigrants, but only after political stability, increased foreign investment, and decreasing transportation costs on steamships, along with their speed and comfort in transit did migrants go in large numbers.
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Immigration from Europe as well as Asia provided a low-wage workforce for agriculture and industry. Many went as single men rather than as part of families, who settled permanently. In Peru, Chinese laborers were brought to work as virtual slaves on coastal sugar plantations, allowing the industry to survive, but when immigration was ended in the s, forced labor was ended in the s, landowners sought domestic laborers who migrated from other areas of Peru and kept in coercive conditions. The labor force also expanded to include women working outside of the domestic sphere, including in coffee cultivation in Guatemala and in the industrial sector, examined in a case study in Antioquia , Colombia.
The outbreak of World War I in disrupted British and other European investment in Latin America, and the international economic order vanished. During the World War I period —18 , few Latin Americans identified with either side of the conflict,  although German attempted to draw Mexico into an alliance with the promise of the return of territories lost to the U.
The only country to enter the conflict was Brazil , which followed the example of the United States and declared war on Germany. Despite the general neutrality, all areas suffered disruption of trade and capital flows, since transatlantic transport was disrupted and European countries were focused on the war rather than investing overseas. The Latin American countries that were most affected were those that developed significant trade relations with Europe.
Argentina , for example, experienced a sharp decline in trade as the Allied Powers diverted their products elsewhere, and Germany became inaccessible. With the suspension of the gold standard for currencies, movement of capital was interrupted and European banks called in loans to Latin America, provoking domestic crises. Direct foreign investment from Great Britain, the dominant European power, ended. Commodities useful for the war, such as metals, petroleum, and nitrates, increased in value, and source countries Mexico, Peru, Bolivia, and Chile were favored.
The United States was in an advantageous position to expand trade with Latin America, with already strong ties with Mexico, Central America, and the Caribbean. With the opening of the Panama Canal in and the disruption of the transatlantic trade, U. An important development in this period was the creation and expansion of the banking system, especially the establishment central banks in most Latin American countries, to regulate the money supply and implement monetary policy.
In addition, a number of countries created more specialized state banks for development industrial, agricultural, and foreign trade in the s and s. The U. Kemmerer "the money doctor" to advise them on financial matters. The s saw the establishment of central banks in the s in the Andean region Chile, Peru, Bolivia, Ecuador, and Colombia as a direct result of the Kemmerer missions.
As industrialization, agricultural reform, and regulated foreign commercial ties became important in Mexico, the state established a number of specialized state banks. Changes in U. A number of Latin American countries became not only linked to the U.
Since most Latin American countries had been dependent of the commodity export sector for their economic well-being, the fall in commodity prices and the lack of increase in the non-export sector left them in a weak position. Manufacturing for either a domestic or export market had not been a major feature of Latin American economies, but some steps had been taken in the late nineteenth and early twentieth centuries, including in Argentina, often seen as the key example of an export-dependent economy, one based on beef, wool, and wheat exports to Britain.
Argentina experienced growth of domestic industry in the period —, which responded to domestic demand for goods generally not imported beer, biscuits, cigarettes, glass, paper, shoes. Improvements in beer production that kept the product stable for longer and the development of transportation networks meant that beer reached a mass market.
The external shock of the Great Depression had uneven impacts on Latin American economies. The values of exports generally decreased, but in some cases, such as Brazilian coffee, the volume of exports increased. Credit from Britain evaporated. Although the so-called money doctors from the U.
Latin American governments abandoned the gold standard, devalued their currencies, introduced foreign currency controls, and attempted to adjust payments for foreign debt servicing, or defaulted, including Mexico and Colombia. There was a sharp decline in imports, resulting also in the decline of revenues from import duties. In Brazil, the central government destroyed three years' worth of coffee production to keep coffee prices high. Latin America recovered relatively quickly from the worst of the Depression, but exports did not reach the levels of the late s.
Britain attempted to reimpose policies of preferential treatment from Argentina in the Roca-Runciman Treaty. Nazi Germany's policies dramatically expanded its bilateral trade with various Latin American countries. There was a huge increase in Brazilian cotton exports to Germany. The recession in the U. With the outbreak of World War II in , Latin American trade with Germany ceased due to the insecurity of the sea lanes from German submarine activity and the British economic blockade.
For Latin American countries not trading significantly with the U. For Latin America, the war had economic benefits as they became suppliers of products useful to the Allied war effort and they accumulated balances in hard currency as imports dwindled and the prices for war-related commodities increased.
These improved Latin American governments' ability to implement programs of import substitution industrialization , which expanded substantially in the post-war period. Increasing birth rates, falling death rates, migration of rural dwellers to urban centers, and the growth of the industrial sector began to change the profile of many Latin American countries. Population pressure in rural areas and the general lack of land reform Mexico and Bolivia excepted produced tension in rural areas, sometimes leading to violence in Colombia and Peru in the s.
Schools shifted their focus over time from creating citizens of a democracy to training workers for the expanding industrial sector. Many Latin American governments began to actively take a role in economic development in the post-World War II era, creating state-owned companies for infrastructure projects or other enterprises, which created a new type of Latin American entrepreneur. Mexico nationalized its petroleum industry in from the British and U. The Mexican government did that with full legal authority, since the revolutionary-era Mexican Constitution gave the state authority to take control over natural resources, reversing the liberal legislation of the late nineteenth century granting inalienable property rights to private citizens and companies.
Brazil established the state monopoly oil company Petrobras in In Bolivia, the revolution under Victor Paz Estenssoro overturned the small group of businessmen controlling tin, the country's main export, and nationalized the industry, and decreed a sweeping land reform and universal suffrage to adult Bolivians. Many Latin American countries benefited from their participation in World War II and accumulated financial reserves that could be mobilized for the expansion of industry through import substitution industrialization.
In the post-World War II era, a new framework to structure the international system emerged with the U. In , a multi-nation group forged formal institutions to structure the post-war international economy. The Bretton Woods agreements created the International Monetary Fund , to stabilize the financial system and exchange raters, and the World Bank , to supply capital for infrastructure projects. It includes members from Latin America as well as industrialized countries elsewhere.
Poverty and progress in the Caribbean, 1800-1960
Earlier ideas for creating such a bank date to the s, but did not come to fruition. However, in the post-World War II era, there was a renewed push, particularly since the newly established World Bank was more focused on rebuilding Europe. In Brazil, President Juscelino Kubitschek endorsed the plan to create such a bank, and the Eisenhower administration in the U.
Most funded projects are economic and social infrastructure, including "agriculture, energy, industry, transportation, public health, the environment, education, science and technology, and urban development. The number of partner nations has increased over the years, with an expansion of non-borrowing nations to Western Europe, Canada, and China, providing credit to the bank. Latin America developed a tourism industry aimed at attracting foreign and domestic travelers.
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In Mexico, the government developed infrastructure in Acapulco in the s and Cancun , beginning in , to create beach resorts. Indigenous areas that had been economic backwaters in the industrial economy became destinations for tourism, often resulting in commodification of culture. A major shock to the new order of U. It shifted quickly from reform within existing norms to the declaration that Cuba was a socialist nation.
Cuba expropriated holdings by foreigners, including large numbers of sugar plantations owned by U. For the United States, the threat that revolution could spread elsewhere in Latin America prompted U. President John F. Kennedy to proclaim the Alliance for Progress in , designed to aid other Latin American governments with implementing programs to alleviate poverty and promote development.
A critique of the developmentalist strategy emerged in the s as dependency theory , articulated by scholars who saw Latin American countries' economic underdevelopment as resulting from the penetration of capitalism that trapped countries in a dependent position supplying commodities to the developed countries. It has been superseded by other approaches including post-imperialism. Although the Cuban Revolution had come to power by violence, a "peaceful road to socialism" appeared for a time to be possible. In , Chile elected as president socialist Salvador Allende , in a plurality.
This was seen as a "peaceful road to socialism," rather than armed revolution of the Cuban model. Allende attempted to implement a number of significant reforms, some of which had already been approved but not implemented by the previous administration of Christian Democrat Eduardo Frei. Frei had defeated Allende in the previous presidential election in good part because he promised significant reform without serious structural change to Chile, while maintaining rule of law.
He promised agrarian reform, tax reform, and the nationalization of the copper industry. There was rising polarization and violence in Chile and increasing hostility of the administration of U. President Richard Nixon. A military coup against Allende on September 11, , during which he committed suicide. This marked the end of the transition to socialism and ushered in an era of political repression and economic course changes. Leftist revolutions in Nicaragua and the protracted warfare in El Salvador saw the U. By the s, the world economy had undergone significant changes and Latin American countries were seeing the limits of inward turning development, which had been based on pessimism about the potential of export-led growth.
In the developed world, rising wages made seeking lower-wage locations to build factories more attractive. Multinational corporations MNCs had movable capital to invest in developing countries, particularly in Asia. Latin American countries took note as these newly industrializing countries experienced significant growth in GDP.
In , the U. With the rise in oil prices, oil producing countries had considerable capital to invest and international banks based in the U. Latin American countries took on debt to fuel the economic growth and integration into a globalizing market. The promise of export earnings using borrowed money enticed many Latin American countries to take on loans, valued in U. Creditors were eager to invest in Latin America, since in the mids real interest rates were low and optimistic commodity forecasts made lending a rational economic decision.
Foreign capital poured into Latin America, linking developed and developing countries financially. The vulnerabilities in the arrangement were initially ignored. Mexico in the early s saw economic stagnation. With the discovery of huge oil reserves in the Gulf of Mexico in the mids, Mexico appeared to be able to take advantage of high oil prices to spend on industrialization as well as fund social programs. Foreign banks were eager to lend to Mexico, since it seemed to be stable, had effectively a one-party political system that had kept social unrest to a minimum.
Also reassuring to international lenders was that Mexico had maintained a fixed exchange rate with the U. With the subsequent crash of the price of oil in —82, Mexico's economy was in shambles and unable to make payments on the loans. Some Latin American countries did not take part in this trend toward heavy borrowing from international banks.
Cuba remained dependent on the Soviet Union to prop up its economy, until the collapse of that state in the s cut Cuba off, sending it into a severe economic crisis known as the Special Period. Colombia limited its borrowing and instead instituted tax reform, which raised government revenues significantly. Latin American countries' borrowing from U. Capital flows to Latin America reversed, with capital flight from Latin America immediately preceding the shock.
The rise in interest rates affected borrowing countries, since servicing the debt directly affected national budgets. In many cases, the national currency was devalued, which cut demand for imports that now cost more. Inflation hit new levels, with the poor acutely affected. Governments cut social spending, and overall, poverty grew, and income distribution worsened. The economic crisis in Latin America was addressed by what came to be known as the Washington Consensus , which was articulated by John Williamson in These principles focused on liberalization of trade policy, reduction of the role of the state, and fiscal orthodoxy.
The term "Washington Consensus" implies that "the consensus comes or is imposed from Washington.
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Latin American governments undertook a series of structural reforms in the s and 90s, including trade liberalization for must of Latin America and privatization. Chile, which had experienced the military coup and then years of dictatorial rule, implemented sweeping economic changes in the s: stabilization ; privatization —78 ; financial reform ; labor reform ; pension reform Mexico's economy had crashed in , and it began shifting its long-term economic policies to reform finances in , but even more significant change came under the government of Carlos Salinas de Gortari — Salinas sought Mexico's entry into the Canada-U.
Changes in the Mexican Constitution were passed in that shifted the role of the Mexican state. Canada and the U. Growth of rural population in this period resulted in migrations to cities, where job opportunities were better, and movement to other rural areas opened up by road construction. With the formation in of the General Agreement of Tariffs and Trade GATT , a framework was established to lower tariffs and increase trade between member countries.
It eliminated differential treatment between individual nations, such as most favored nation status, and treated all member states equally. Although trade barriers fell with GATT and the WTO, the requirement that all member states be treated equally and the need for all to agree on terms meant that there were several rounds of negotiations. The Doha round most recent talks, have stalled. Many countries have established bi-lateral trade agreements and there has been a proliferation of them, dubbed the Spaghetti bowl effect.
Free trade agreementss in Latin American and countries outside the region were established in the twentieth century. Some were short-lived, such as Caribbean Free Trade Association — , which was later expanded into the Caribbean Community. Following the election of Donald Trump in the United States, there have been negotiations on NAFTA, which will likely take into account changes in the economic situation since it came into effect in The migration of Latin Americans to areas with more prosperous economies has resulted meant the loss population across international borders, particularly the U.
But the remittances of money to their non-migrating families represent an important infusion to the countries' economies. Corruption is a major problem for Latin American countries and affects their economies. Money laundering of these black market funds is one result, often with the complicity of financial institutions and government officials. Violence from narcotrafficking has been significant in Colombia and Mexico. Agriculture is a sector of most Latin American economies, but in general those countries depending on agriculture as a major component of GDP are less developed than those with a robust industrial sector.
There is an unequal distribution of landholders, dating to the colonial era. In many countries a disproportionate number of small cultivators who are not entirely self-sufficient, subsistence farmers, but are not part of the export economy. Brazil and Argentina lead the region in terms of net export due to high grain, oilseed, and animal protein exports.
In Brazil and Argentina large farms account for most of the commercial agriculture, but in much of Latin America, agriculture production comes from the region's small farms. Global demand for agricultural products is rising due to the world's growing population and income levels. Rabobank reports that Latin American has achieved rates of agricultural productivity that are above the global average, however, there is a lot of variation in the performance of the individual countries. Mining for precious metals dates to the prehispanic period in Latin America and was the economic driver for the throughout the colonial period in Spanish America and in the eighteenth century in Brazil.
Extraction of minerals and petroleum dominate certain countries' economies rather than agriculture, especially Venezuela, Mexico, Chile, and Bolivia. These enterprises are large scale industrial enterprises requiring considerable capital investment. An exception to this model is gold mining in river systems, especially the Amazon, where poor miners extract gold from auriferous sands, and somewhat larger scale enterprises dredge the sands. Toxic chemicals are used in mine processing, including mercury and arsenic.
Discharge of chemical waste into water systems contaminate them. Current mining practices create problems in all stages of production, from extraction to finished product. Recent mining of lithium in the Northwest of Argentina and Bolivia, as well as the discovery of new deposits are important since lithium is a key component in batteries to power electronics, such as mobile phones, electric cars, and electricity grids.
Argentina's resources are now being mined by a joint Australian-Japanese-Argentina venture. Chile has been a major producer for decades, from the Atacama salt flat. Half of the participants in a BNAmerica's mining survey believe that political and legal uncertainty will slow mining investment in Latin America in Costs related to labor, energy, and supplies have increased for Latin American mining companies.
Some companies are looking towards consolidation, automation, and owner-operated mines to lessen the impacts of rising costs. Although a significant proportion of production is in the mining and agricultural sectors, various countries of Latin America have significant manufacturing sectors as well. Latin American countries have had functioning banks and stock exchanges since the nineteenth century. Central banks have been established in most countries of Latin America to issue currency, manage flows, and implement monetary policy.
In countries where there was significant commodity export activity and foreign capital presence, stock exchanges were established in the nineteenth century: Rio de Janeiro, Brazil ; Buenos Aires, Argentina ; Peru ; Rosario, Argentina ; Mexico ; Uruguay Most other Latin American countries that created stock exchanges did so in the late twentieth century. In the late twentieth century, narcotrafficking , particularly cocaine in parts of Latin America infused some economies with large amounts of cash.
In Latin America, the level of infrastructure is described as inadequate and is one of the region's main barriers to economic growth and development. This causes a loss of competitiveness due to the quality of physical infrastructure has been a significant drag on economic growth. Governments play an important role in encouraging infrastructure investment. In Latin America, there are sectoral planning institutions in place across the region, but many key attributes can be improved. The International Monetary Fund found that Latin America performs poorly in the availability of funding for infrastructure and the availability of multiyear budgeting frameworks.
The Private sector also plays an active role in supplying infrastructure. Governments in Latin America do a poor job of encouraging private sector participation. While infrastructure in Latin America still has room to grow, there are encouraging signs for investment in Latin American infrastructure. Your reading intentions are also stored in your profile for future reference. To set a reading intention, click through to any list item, and look for the panel on the left hand side:.
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