Latin America Economic History Notes

Latin America and history

Week 1

Services and goods

The higher the urbanization rate in a country, the higher percentage of services it provides in comparison with products/goods it provides.

Economically active population

People actively searching for work. Effectively it Is the labor factor looking for work. Higher the number generally, higher the quality/effectiveness of work in the country. Exception is Chile/Uruguay. -> Proabably because of level/quality of education.

Human development indicator

The Human Development Report Office releases five indices each year: the Human Development Index (HDI), the Inequality-Adjusted Human Development Index (IHDI), the Gender Development Index (GDI), the Gender Inequality Index (GII), and the Multidimensional Poverty Index (MPI).

Week 2

In Latin America : Macroeconomics of an open economy 

Expenditure approach

Calculating demand in an economy

1. Aggregated demand = Consumption (C) + Investments (I) + Government spending (G) + Trade balance (export (E) – import (M) )

X → export of goods and services

M → import of goods and services

1. Y = C + I + G + [ (X-M) + NY + NCT]

Current account (CA) = ( X-M) +NY +NT

NY: Net income from aboard

NCT: Net current transfers

New Equation

1. Y = C + I + G + CA
2. CA = Y - [ C + I + G ]

CA is the gap between disposable income (Y) and expenditure

CA<0⬄ Y<[C+I+G]

What kind of economic policy should u adopt production is lesser then expenditure in the country?

Change the composition of AG

• Reduce expenditure (Govt spending)
• Increase production

• Kenyes : 2y/2t > [pic 1]

Y – [ C + G ]  = I + CA

S = I + CA

CA is the gap between savings and investments; if there is a deficit u can either increase savings or investments

Solution to current account deficit

Increase savings via interest rate or income

Increase investments

S – I = CA => ( S,public + S,govt) – (I,p +I,g) =CA

CA = (Sp –Ip) + (Sg-Ig)

• CA < 0 public deficit

The current account also equals the country’s net lending to foreigners. Unlike a closed economy, an open economy can save by domestic and foreign investments. National saving therefore equals domestic investment plus the current account balance.  

Balance of payments

the difference in total value between payments into and out of a country over a period.

1. Composition of Current account

1. Trade balance (goods)
2. Services balance

1. When consumer pays for services outside of the country

1. Income balance

1. When taxes paid goes out of the country to the home country

1. Net transfers

1. Capital account (not used in this course)

1. Non market transactions

1. Financial account (The Capital flows registered in this account)

1. Foreign direct investment deal with international company

1. Company takes the decision to make a business in a new environment

1. Portfolio/financial flows

1. Capital inflow or flight

1. Derivatives
2. Other investments

1. International monetary funds

1. Error of omission (not use in this course)

CA + FA + BP

CA <0

What happen if current account is a deficit?

Since Brazil’s CA is dominated in $US.

1. Increase financial accounts

1. Increase interest rates – attractiveness

1. Liquidate international reserves

1. Will cause bleeding out of reserve
2. Lenders to help bleeding, IMF

Balance of payments accounts provide a detailed picture of the composition and financing of the current account. All transactions between a country and the rest of the world are recorded in the country’s balance of payments accounts. The accounts are based on the convention that any transaction resulting in a payment to foreigners is entered as a debit while any transaction resulting in a receipt from foreigners is entered as a credit.  

Week 2: lesson 4

Latin American countries have been the recipients of a large portion of total international capital flows to developing countries, both in the late seventies to early eighties and in the early nineties. These inflows have financed persistent current account imbalances, as well as the accumulation of foreign exchange reserves

Learning goals

Debt crisis in the early 90’s

• International capital flows in XXth Century
• Apply concepts of CA of BP in the imbalances of the 70’s

International context