The Political Economy of Growth in Latin America and East Asia: Some Empirical Evidence

I. INTRODUCTION This article adds insights into research geared toward assessing the political-economic sources of country growth. It investigates determinants of economic betterment from experiences in the 1970s and 1980s of countries in Latin America and East Asia. As such, it builds on a spate of studies that have explored key economic development patterns within the two regions, regarded as prototypes of how to (or how not to) envisage the growth enterprise. Most studies point to the fact that Latin America remained behind East Asia during that time span. This is consistent with data attesting to the much higher per capita growth rates for Asian nations analyzed in this study. In fact, East Asian countries averaged 4.7% a year for the sample period (1972-89), whereas Latin American countries practically stagnated with economies expanding by an average of only 0.7% a year. (1) What caused such a relatively poor performance in Latin America over that period? A profusion of theories have been put forward to explain stylized features of inter-region differences. The scarcity of natural resources in East Asian nations, it has been argued, was in some way an advantage because, contrary to resource-rich countries in Latin America, this spared them the negative impact of Dutch disease. (2) Similarly, it has been noted that during a time of the raging cold war, governments in East Asia were generously provided with foreign aid by friendly anticommunist powers (Krueger, 1979), which could have facilitated their success. These arguments are fairly questionable. The potentially harmful effect of Dutch disease is neither an inevitable occurrence nor an isolated one, unconnected to any policies. When it spreads and lasts, the course of policy making is often to blame. Also, although the resources provided by foreign aid may have contributed to East Asia's results, for them and any country, whether the aid is appropriated through sound policies within a solid institutional apparatus is ultimately more likely to make the difference. Some arguments have gone as far as devoting attention to a so-called cultural heritage basis of the contrast between the two regions. Supposedly, the Confucian heritage of Asian countries promoted principles of group solidarity, a sense of hierarchy, and nationalism that were propitious to these countries' growth enterprise (Onis, 1995). On the contrary, the Hispanic tradition allegedly had a tendency to drift into the "easy way out" (Harberger, 1988, p. 177), to "follow the line of least resistance" (Jenkins, 1991), and to be "anti-democratic, anti-social, anti-progress, anti-entrepreneurial and, at least among the elite, anti-work" (Harrison, 1985, p. 165). Interestingly, in the 1950s, poor economic performance in Taiwan and South Korea and economic decline in China in the past were also blamed on the same Confucian heritage, which was credited afterward for the much-celebrated East Asian miracle (Lim, 1994). Clearly, the idea of an economically crippling cultural curse is inconsistent with the fundamental maximization paradigm of economic theory, whereby agents respond rationally to incentives. People work hard because they are assured of enjoying the fruits of their labor, not necessarily because they are culturally inclined to do so. A more sensible approach would rest on looking at the economic incentives afforded to agents within the two regions. Growth in Latin America came with severe income inequality, which may have served as a disincentive for many, whereas distributive equity was a distinguishing feature of the East Asian success. A number of researchers point to the fact that East Asia adopted an outward- and market-oriented strategy while Latin America opted for an inward-oriented import-substituting strategy as the leading cause for their different records (Dietz, 1992; Jenkins, 1991; Lin, 1988). Others, venturing beyond economic-based specific arguments, look at the political economy and find the institutional landscape crucial to explain East Asia's economic achievements. …