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Financial Liberalisations in Latin America in the 1990s: A Reassessment

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  • Joshua Aizenman

Abstract

This paper studies the experience of Latin America (LATAM) with financial liberalisation in the 1990s. The rush towards financial liberalisations in the early 1990s was associated with expectations that external financing would alleviate the scarcity of saving in LATAM, thereby increasing investment and growth. Yet, the data and several case studies suggest that the gains from external financing are overrated. The bottleneck inhibiting economic growth is less the scarcity of saving, and more the scarcity of good governance. A possible interpretation for these findings is that in countries where private savings and investments were taxed in an arbitrary and unpredictable way, the credibility of a new regime could not be assumed or imposed. Instead, credibility must be acquired as an outcome of a learning process. Consequently, increasing the saving and investment rates tends to be a time-consuming process. This also suggests that greater political instability and polarisation would induce consumers to be more cautious in increasing their saving and investment rates following a reform. Hence, reaching a sustained take-off in Latin America is a harder task to accomplish than in Asia. Copyright Blackwell Publishing Ltd 2005.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 28 (2005)
Issue (Month): 7 (07)
Pages: 959-983

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Handle: RePEc:bla:worlde:v:28:y:2005:i:7:p:959-983

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Citations

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Cited by:
  1. Joshua Aizenman & Jorge Fernández-Ruiz, 2006. "Signaling Credibility --- Choosing Optimal Debt and International Reserves," NBER Working Papers 12407, National Bureau of Economic Research, Inc.
  2. Busse, Matthias & Hefeker, Carsten & Koopmann, Georg, 2006. "Between two poles: A dual currency board for Mercosur," The North American Journal of Economics and Finance, Elsevier, vol. 17(3), pages 349-362, December.
  3. Aizenman, Joshua & Fernandez-Ruiz, Jorge, 2006. "Signaling credibility – choosing optimal debt and international reserves," Santa Cruz Department of Economics, Working Paper Series qt2v64t0vh, Department of Economics, UC Santa Cruz.
  4. Kaltani, Linda & Loayza, Norman V., 2008. "Initial conditions and the outcome of economic reform," Economics Letters, Elsevier, vol. 101(3), pages 230-233, December.

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