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Switching from import substitution to the ‘New Economic Model’ in Latin America: A case of not learning from Asia

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  • Narula,Rajneesh

    (MERIT)

Abstract

This paper argues that the East Asian success stories do not owe their growth toliberalised markets and laissez faire industrial policies, but to industrial developmentstrategies that share several similarities to the import-substitution industrialisation (ISI)approach. There are, needless to say, some important fundamental differences whichdetermine why Latin America and East Asia demonstrated such different outcomes, but thesehave become obvious only with hindsight. Nonetheless, the switch from ISI to theWashington Consensus-derived, neo-liberal ‘New Economic Model’ (NEM) has not in anyway minimised these differences. I argue that the NEM – as currently formulated – cannotsustain long-term industrial development, and is likely to erode the gains made from ISIprogrammes for the sake of efficiency and export growth. The ISI-to-NEM shift has not re-orientedLatin America towards the East Asian model but away from it. I identify fiveimportant problems with the ISI restructuring model which have reduced the opportunities forduplicating the east Asian success story, 1.The attenuation of the role of government; 2.unreasonable expectations from the liberalisation of FDI for industrial development; 3. thefailure to sustain absorptive capacity; 4. The failure to sequence FDI and domestic capacity intandem; and 5. The failure to recognise the inertia of transition, and coordination failures.

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Bibliographic Info

Paper provided by Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology in its series Research Memoranda with number 042.

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Date of creation: 2002
Date of revision:
Handle: RePEc:dgr:umamer:2002042

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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm

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Keywords: economic development an growth ;

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References

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  1. Narula,Rajneesh, 2002. "The implications of growing cross-border interdependence for systems of innovation," Research Memoranda 019, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology.
  2. Paola Criscuolo & Rajneesh Narula, 2008. "A novel approach to national technological accumulation and absorptive capacity: aggregating Cohen and Levinthal," European Journal of Development Research, Taylor and Francis Journals, vol. 20(1), pages 56-73.
  3. Reinhardt, Nola & Peres, Wilson, 2000. "Latin America's New Economic Model: Micro Responses and Economic Restructuring," World Development, Elsevier, vol. 28(9), pages 1543-1566, September.
  4. Mortimore, Michael, 2000. "Corporate Strategies for FDI in the Context of Latin America's New Economic Model," World Development, Elsevier, vol. 28(9), pages 1611-1626, September.
  5. Pack, Howard, 2001. "The Role of Acquisition of Foreign Technology in Taiwanese Growth," Industrial and Corporate Change, Oxford University Press, vol. 10(3), pages 713-34, September.
  6. Rajneesh Narula & John Dunning, 2000. "Industrial Development, Globalization and Multinational Enterprises: New Realities for Developing Countries," Oxford Development Studies, Taylor and Francis Journals, vol. 28(2), pages 141-167.
  7. G R G Benito & B Gr�gaard & R Narula, 2003. "Environmental influences on MNE subsidiary roles: economic integration and the Nordic countries," Journal of International Business Studies, Palgrave Macmillan, vol. 34(5), pages 443-456, September.
  8. Sanjaya Lall, . "FDI and Development: Policy and Research Issues in the Emerging Context," QEH Working Papers qehwps43, Queen Elizabeth House, University of Oxford.
  9. Ramos, Joseph, 2000. "Policy Directions for the New Economic Model in Latin America," World Development, Elsevier, vol. 28(9), pages 1703-1717, September.
  10. Richard B. Freeman & David L. Lindauer, 1999. "Why Not Africa?," NBER Working Papers 6942, National Bureau of Economic Research, Inc.
  11. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to Cross-National Evidence," NBER Working Papers 7081, National Bureau of Economic Research, Inc.
  12. Narula, Rajneesh, 2002. "Innovation systems and 'inertia' in R&D location: Norwegian firms and the role of systemic lock-in," Research Policy, Elsevier, vol. 31(5), pages 795-816, July.
  13. Lall, Sanjaya, 1992. "Technological capabilities and industrialization," World Development, Elsevier, vol. 20(2), pages 165-186, February.
  14. Henry J. Bruton, 1998. "A Reconsideration of Import Substitution," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 903-936, June.
  15. Hoekman, Bernard, 2002. "Economic Development and the WTO After Doha," CEPR Discussion Papers 3374, C.E.P.R. Discussion Papers.
  16. Bruton, H.J., 1998. "A Reconsideration of Import Substitution," Center for Development Economics 156, Department of Economics, Williams College.
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Cited by:
  1. Rozenwurcel, Guillermo, 2006. "Why Have All Development Strategies Failed in Latin America?," Working Papers RP2006/12, World Institute for Development Economic Research (UNU-WIDER).
  2. Figueiredo, Paulo N., 2008. "Industrial Policy Changes and Firm-Level Technological Capability Development: Evidence from Northern Brazil," World Development, Elsevier, vol. 36(1), pages 55-88, January.
  3. Narula ,Rajneesh & Marin ,Anabel, 2005. "Exploring the relationship between direct and indirect spillovers from FDI in Argentina," Research Memoranda 024, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology.
  4. Narula,Rajneesh & Marin,Anabel, 2003. "FDI spillovers, absorptive capacities and human capital development: evidence from Argentina," Research Memoranda 018, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology.

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