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Import substitution and economic growth

  • Rodrigues, Mauro

Despite Latin America's dismal performance between the 1950s and 1980s, the region experienced strong capital deepening. We suggest that these facts can be explained as a consequence of the restrictive trade regime adopted at that time. Our framework is based on a dynamic Heckscher-Ohlin model, with scale economies in the capital-intensive sector. Initially, the economy is open and produces only the labor-intensive good. The trade regime is modeled as a move to a closed economy. The model produces results consistent with the Latin American experience. Specifically, a sufficiently small country experiences no long-run income growth, but an increase in capital.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 57 (2010)
Issue (Month): 2 (March)
Pages: 175-188

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Handle: RePEc:eee:moneco:v:57:y:2010:i:2:p:175-188
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