Matt Jewitt
Dr. Packer
International Political Economy
12 December 2009
Development Strategies in Latin America and East Asia
Development, as it may be defined, is a nation’s ability to produce economic wealth in a
way that redirects society from a subsistence economy to an economy where the majority of
wealth is derived through the manufacturing of goods and services (Packer, 2009; 1). Many
developing countries strive to develop and industrialize for reasons including the creation of
higher paying jobs and the acquisition of more advanced technology (Packer, 2009; 4). When it
comes to this development, the Structuralist/dependencia perspective presents the notion that a
nation’s natural development process is subverted by integration into the world capitalist
economy. Juxtaposed to this view is the Liberalist perspective which states that integration into
the world capitalist economy serves as a stimulator of growth (Packer, 2009; 1). Importsubstitution industrialization follows along the lines of the Structuralist/dependencia perspective
because it blocks foreign competition and ensures domestic manufactures earn a profit. However,
consumers are often hurt by the absence of cheap goods, and domestic production often becomes
inefficient, as evident through Latin American States during their pursuit of development
(Packer, 2009; 1). Export-oriented industrialization follows a more Liberal perspective because it
produces efficient industry, than expands into the international market to create demand.
However, if the world economy contracts, there is little that developing countries can do to
create demand. East Asian countries used export-oriented industrialization along their path to
development and gained substantial success with critical aid from the state and government
(Packer, 2009; 1). Thus, as observed through East Asian states that followed a Liberalist
perspective strategy, export-oriented industrialization has proven to be a more effective way for a
country to develop and reap the benefits of industrialization.
As previously mentioned, development is the ability for a nation to produce economic
wealth by moving from an agricultural economy to an economy where wealth is derived by
manufacturing goods and services (Packer, 2009; 1). There are numerous benefits that spur
initiative for countries to develop and industrialize, rather than continuing production of primary
commodities. Industrialization can provide faster technological progress, higher paying jobs,
reduce unemployment, create stable export prices and earnings, and relieve balance of payment
difficulties (Packer, 2009; 4). Poor countries are especially attracted to industrialization “because
their poverty both increases the priority they attach to growth and decreases their capacity to
achieve it without trade” (Moon, 2000; 190). When it comes to this growth however, there are
two different perspectives that offer separate and distinct views on how to pursue development:
the Structuralist/dependencia and Liberal perspectives.
The Structuralist/dependencia perspective does not express optimism in the international
market. This perspective states that a developing country’s natural growth process is subverted
by integration into the world capitalist economy. Because developed countries have first
producer advantages, Structuralists/dependencias argue that they will undersell small local
producers of value added goods, making further development unattainable (Packer, 2009; 1).
They argue that governments should pursue import-substitution industrialization to destroy their
connection to the world capitalist market (Packer, 2009; 2).
Alternatively, Liberals support integration into the world capitalist economy to stimulate
growth. The Liberal economic theory states that poor countries are deficient in capital and that
“trade and integration allow for capital to flow from areas of abundance to areas of scarcity;
therefore trade and integration are a benefit to developing countries” (Packer, 2009; 1). Liberals
believe that the greatest inhibitors of growth come from internal factors. The most effective way,
they argue, to develop is to pursue export-oriented industrialization that focuses on comparative
advantage (Packer, 2009; 1).
Export-oriented industrialization initially produces industrial plants for efficiency, and
then expands into the international market to create demand for domestic products. Exportoriented industrialization supports “access to foreign markets for the export of final goods, the
import of intermediate goods, and the acquisition of capital, technology, and business services”
(Moon, 2000; 193). However, countries that pursue export-oriented industrialization base their
future on factors that are beyond their control. If the international economy expands, exportoriented industrialization will work well. If the economy contracts though, there is little that a
small developing country can do to stimulate demand for their products (Packer, 2009; 1). An
excellent example of export-oriented industrialization is East Asian states during their pathway
to industrialization. Yet the use of ISO also presents several advantages and disadvantages.
Import-substitution industrialization is supported by Structuralists/dependencias and
argues that domestic manufactures are ensured profit by blocking foreign competition. However,
there are multiple drawbacks to ISO. The great protection that occurs under import-substitution
industrialization “distorts prices in the market by removing pressure on domestic producers to
lower their costs to international levels; these distortions introduce greater inefficiencies
throughout the economy” (Packer, 2009; 1). High protection under ISI also harms exports and
domestic agriculture, and often becomes permanent as domestic industry receives little incentive
to increase productivity to international levels (Packer, 2009; 1). Import-substitution
industrialization was utilized by Latin American States during their pathway to development.
During the 1950’s in Latin American states, scholars were increasingly skeptical of
comparative advantage. This critique helped develop an “opposition to dependence on foreign
capital and trade to promote development, which resulted in restrictive trade policies and
stringent regulation and control of foreign investment” (Kukreja, 2001; 338). An inward looking
and nationalistic import-substitution approach was created for countries of Latin America.
Government leaders believed that specializing in producing primary commodities was
disadvantageous for countries of the region. Because of this, countries like Mexico and Brazil
decided to move from producing primary commodities to developing an indigenous industrial
base to supply their internal market (Kukreja, 2009; 338). Brazil and Mexico had a large
domestic market, and “countries with larger markets are likely to pursue import substitution over
a longer period of time. Production of consumer durables and intermediate and capital goods will
appear economically viable” (Haggard, 1990; 26). Protectionist policies were used heavily in
countries like Brazil to displace the share of its domestic market in the world economy. Brazil
and Mexico began to expand the manufacturing of labor intensive consumer goods and
diversified into capital intensive goods, which actually lead to dependence on foreign capital.
The presence of the state was also increased through the development of many state run firms
that failed to match the efficiency of private firms. However, Brazil, Mexico and other nations
were able to develop sustained growth. This growth was mostly reflective of the purchasing
power of consumers within the countries since growth was directly dependent on the domestic
market. Government spending, used to support protective measures, was borrowed from foreign
countries causing an unprecedented fiscal crisis in many nations (Kukreja, 2009; 339). Many
countries were buried in debt and saw skyrocketing inflation rates around 2000 percent. These
reactions proved that inefficient government spending to implement ISI were catching up with
Latin American countries. Countries like Brazil began to remove ISI policies and privatize their
economy. However, the move away from ISI policies is slow and continual (Kukreja, 2009;
340). Conversely, export-oriented development, utilized by East Asian states, has proven to be a
much more effective method of development.
The developmental success in East Asia was brought about by the implication of exportoriented industrialization, and significant support from state and governmental policy. The
export-oriented approach in East Asia called for the state to strongly emphasize a country’s
comparative advantage in certain sectors of the economy and to promote exports from these
sectors. Countries like South Korea and Taiwan began to promote manufacturing with an
emphasis on labor intensive consumer goods (Kukreja, 2009; 334). This was accomplished by
the government establishing mercantilist-style restrictions to protect infant industries from
foreign competition. The government also played a critical role in development by providing
strong financial backing and incentives to promote manufacturing. South Korea and Taiwan then
began to increase their international market share by exporting domestically manufactured
durable goods, a direct contrast to Mexico and Brazil who decreased their international market
share. The state played a critical role by maintaining selective barriers on imported goods and
targeting domestic manufacturing with fiscal incentives to increase exports. The state also helped
bring East Asia success by devaluing the currency, which made East Asian exports more
competitive in international markets and imports less attractive to domestic consumers. Another
factor that contributed to substantial growth was high levels of saving and investment, which is
essential to capital investment (Kukreja, 2009; 335). The government in these states helped
establish private banks and financial institutions which allowed greater governmental oversight
of financial stability and savings in the economy (Kukreja, 2009; 336). The government also
heavily invested in education in East Asian states. Focus was developed “not just in terms of
level of education attained, but in terms of the content of the education, with a proportion of the
total in engineering and science” (Wade, 1993; 433). Government expenditures in education
resulted in greater economic development. South Korea and other states in the region like
Taiwan have developed strong central authority to help develop economic policy and manage
growth (Kukreja, 2009; 337). The implementation of EOI, along with the critical and strong
support from the state and government, has caused unprecedented growth in East Asian states.
This significantly supports the notion that EIO is a more effective way to develop than ISI.
Countries across the world develop and industrialize using various means. The
Structuralist/dependencia perspective supports development by disconnecting from the
international market, while the Liberal perspective supports development by integrating into the
international economy. Latin American states developed along the Structuralist perspective by
using import substitution industrialization. East Asian states followed more of a Liberal strategy
by using export-oriented industrialization. With vital support from the state and government,
East Asian states experienced substantial economic growth, supporting the idea that EIO is more
effective than ISI development.
Works Cited
Haggard, Stephen. "The Neoclassical and Dependency Perspectives" and "Explaining
Developmental Strategies," in Pathways From the Periphery: The Politics of Growth in
the Newly Industrializing Countries. Itaca: Cornell University Press, 1990, pp. 9-48.
Kukreja, Sunil. "The Two Faces of Development," in Introduction to International Political
Economy, 2nd edition, edited by David Balaam and Michael Veseth. Upper Saddle River,
NJ: Prentice Hall, 2001, pp. 320-345.
Moon, Bruce E. "Globalization and Outward-Oriented Development," in Dilemmas of
International Trade. Boulder, CO: WestView Press, 2000, pp. 183-217.
Packer, Dr. Robert. “Development Strategies.” 122 Pond. 2009. Lecture Notes.
Packer, Dr. Robert. “International Political Economy- Explaining East Asian Success” 122 Pond.
2009. Lecture Notes.
Wade, Robert. “The visible hand: The state and East Asia's economic growth.”Dec 1993; 92,
578; Research Library