Informal Empire and Divergence: The Making of a Wealthy Nation in Latin America

This paper examines divergent economic trajectories in Latin America between the late nineteenth century and the first half of the twentieth century through the lens of informal empire, fiscal policy, and institutional development. We construct a country–commodity panel covering the period 1850–1950 to assess the impact of foreign corporations on commodity production in seven Latin American countries—Argentina, Chile, Colombia, Cuba, Peru, Uruguay, and Venezuela—that experienced economic take-off under an export-led growth model. We find evidence that foreign corporations promoted key commodity exports, although these results are contingent on the inclusion of Venezuela’s oil industry. We argue that Venezuela’s distinctive outcome reflects the interaction between a capital-intensive staple and a fiscal strategy that avoided debt-led growth during the 1920s, as oil revenues were used to reduce and repay external public debt. This choice allowed Venezuela to sustain informal empire arrangements through the Great Depression, in contrast to other large countries in the region.