Isleide Zissimos

1
Economic Development of Latin America

• Isleide Zissimos
• Vanderbilt University

Based on the presentation by Daron Acemoglu
titled Understanding Institutions at Lionel
Robbins Lectures, London School Economics,
2004. Available at http//cep.lse.ac.uk/events/lio
nel_robbins.asp
2
Outline

• Sources of prosperity
• Institutions brief discussion, definition, and
  types
• Institutions and economic performance
• Natural experiment South and North Korea
• Reversal of Fortune in Latin America
• Some questions

3
Sources of prosperity

• Why are some countries poorer than others?

GDP per capita (1990 International Geary Dhamis
dollars)
Source The World Economy Historical Statistics
4
Sources of prosperity

• Traditional neoclassical growth models
• ?
• Differences in income per capita in terms of
  different paths of factor accumulation
• Solow (1956) saving rates
• Romer (1986) Lucas (1988) technical progress

5
Sources of prosperity

• These models provide many insights about the
  mechanics of economic growth.
• What is the fundamental explanation for economic
  growth?

Institutions the rules of the game in economic,
political and social interactions.
6
institutions

• Formally,
• "Institutions are the rules of the game in a
  society or, more formally, are the humanly
  devised constraints that shape human
  interaction. North (1990, p. 3).
• ?
• Key point institutions
• are humanly devised
• set constraints
• shape incentives

7
institutions

• Economic institutions
• Eg Central Bank Capital, land and labor
  markets Redistributive agents Property rights,
  etc.
• shape economic incentives, contracting
  possibilities, distribution
• Political institutions
• Eg Form of Government Constraints on
  politicians and elites, Separation of powers,
  etc.
• shape political incentives and distribution of
  political power.

8
Types of Institutions
INSTITUTIONS
Formal E.g. constitution contracts
Informal E.g. customs, moral codes
endogenously generated
self-enforcing through strategic interaction of
the agents
9
Institutional variation

• Big differences in economic and political
  institutions across countries.
• Enforcement of property rights.
• Legal systems.
• Corruption.
• Entry barriers.
• Democracy vs. dictatorship.
• Constraints on politicians and political elites.
• Electoral rules in democracy.

10
Economic performance
Source Acemoglu et al. (2005)
11
Economic performance
Source Acemoglu et al. (2005)
12
The korean experiment

• Korea economically, culturally and ethnically
  homogeneous at the end of WWII.
• If anything, the North more industrialized.
• Exogenous separation of North and South, with
  radically different political and economic
  institutions.
• Exogenous in the sense that institutional
  outcomes not related to the economic, cultural or
  geographic conditions in North and South.
• Approximating an experiment where similar
  subjects are treated differently.
• Big differences in economic and political
  institutions.
• Communism (planned economy) in the North.
• Capitalism, albeit with government intervention
  and early on without democracy, in the South.

13
North and south korea
14
The puzzle in latin america
15
Urbanization and income today
Source Acemoglu et al. (2005)
16
Reversal since 1500
Source Acemoglu et al. (2005)
17
Some questions

• How can we explain the reversal?
• What did Latin America do in order to stop the
  reversal process?
• Can economic institutions be inefficient?
• What determines whether a country is a democracy?
  
• Why, once created, did democracy persist in some
  countries and not in others?

18
Economic Development of Latin America

• ECON 222
• M/W/F - 410-500pm
• 109 Calhoun Hall
• Prof. Isleide R. Zissimos