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Lost Decades? Economic Performance in Post-Independence Latin America*

Published online by Cambridge University Press:  23 June 2009

LEANDRO PRADOS DE LA ESCOSURA
LEANDRO PRADOS DE LA ESCOSURA
Affiliation:
Leandro Prados de la Escosura is Professor of Economic History and Researcher at Instituto Figuerola, Universidad Carlos III de Madrid. Email: leandro.prados.delaescosura@uc3m.es
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Abstract

In this paper the economic performance of post-independence Latin America is assessed in comparative perspective. The release from the colonial fiscal burden was partly offset by higher costs of self-government, while the opening of independent Latin American countries to the international economy represented a handmaiden of growth. Regional disparities increased after independence, so generalisations about the region's long-run behaviour are not straightforward. However, on average, per capita income grew in Latin America, and although the region fell behind compared with the United States and Western Europe, it improved or maintained its position relative to the rest of the world. Thus the term ‘lost decades’ appears an unwarranted depiction of the period between 1820 and 1870.

Abstract

En este artículo es evaluado desde una perspectiva comparativa el desempeño económico de América Latina post-independencia. La liberación de la carga fiscal colonial fue en parte igualado por el alto costo de mantener gobiernos propios, mientras que la apertura de los países latinoamericanos independientes a la economía internacional representó un eje de crecimiento. Las desigualdades regionales se incrementaron después de la independencia, así que las generalizaciones acerca del comportamiento de largo plazo de la región no son fáciles de hacer. Sin embargo, como promedio, el ingreso por cabeza creció en Latinoamérica y aunque la región quedó atrás en comparación con los Estados Unidos y Europa Occidental, ésta mejoró o mantuvo su posición relativa con respecto al resto del mundo. Así que el término “décadas perdidas” parece ser más bien una descripción injustificada del periodo entre 1820 y 1870.

Abstract

Neste artigo o desempenho econômico da América Latina pós-independência é avaliado em uma perspectiva comparativa. A libertação do encargo tributário colonial foi parcialmente compensada por custos maiores decorrentes da nova condição de governo autônomo, enquanto a abertura de países latino-americanos independentes à economia internacional representou um auxílio secundário ao crescimento. Disparidades regionais aumentaram após as independências, consequentemente generalizações a respeito do comportamento da região a longo prazo não são simples. Entretanto a renda per capita aumentou, em média, na América Latina e, embora a região tenha ficado para trás em comparação com os Estados Unidos e a Europa ocidental, ela melhorou ou preservou sua posição em relação ao resto do mundo. Portanto a expressão “décadas perdidas” seria uma retratação injusta do período entre 1820 e 1870.

Keywords

Latin Americalost decadespost-independencenineteenth centurytradeeconomic growthLatinoaméricadécadas perdidaspost-independenciasiglo XIXcomerciocrecimiento económicoAmérica Latinadécadas perdidaspós-independênciaséculo dezenovecomérciocrescimento econômico
Type
Research Article
Information
Journal of Latin American Studies , Volume 41 , Issue 2 , May 2009 , pp. 279 - 307
Copyright
Copyright © Cambridge University Press 2009

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References

1 Cuba and Puerto Rico remained Spanish colonies until 1898. On the significance of independence, see Victor Bulmer-Thomas, The Economic History of Latin America since Independence (Cambridge, 2003), p. 410; John H. Coatsworth, ‘Notes on the Comparative Economic History of Latin America and the United States’, in Walther L. Bernecker and Hans W. Tobler (eds.), Development and Underdevelopment in America: Contrasts in Economic Growth in North America and Latin America in Historical Perspective (New York, 1993), pp. 10–30.

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8 Carlos Marichal, ‘Money, Taxes, and Finance’, in Bulmer-Thomas, Coatsworth and Cortés Conde (eds.), Cambridge Economic History of Latin America, vol. I, pp. 423–60.

9 Gallo, Andrés and Newland, Carlos, ‘Globalización y convergencia de precios en el Imperio español 1660–1810’, Revista de Historia Económica, vol. 22, no. 3 (2004), pp. 573–96Google Scholar, show that the removal of trade restrictions, absence of war, and navigation improvements contributed to moderate price convergence between Chile and Peru, and to lesser extent between Peru and Spain, over the period from 1660 to 1810.

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13 According to Miguel Angel Centeno, ‘Blood and Debt: War and Taxation in Nineteenth-Century Latin America’, American Journal of Sociology, vol. 102, no. 6 (1997), pp. 1565–605, between 1820 and 1870 customs revenues represented, on average, a high percentage of current government revenues: 86 per cent in Argentina, 69 per cent in Brazil and Peru, 64 per cent in Venezuela, 59 per cent in Ecuador, 51 per cent in Chile, 37 per cent in Mexico, and 34 per cent in Colombia. Taxing trade became a persistent feature of Latin American history: see John H. Coatsworth and Jeffrey G. Williamson, ‘Always Protectionist? Latin American Tariffs from Independence to the Great Depression’, Journal of Latin American Studies, vol. 36, no. 2 (2004), pp. 205–32.

14 Centeno, ‘Blood and Debt’, shows that most countries in Latin America suffered major wars in the half-century after independence. Argentina with 10 wars leads the group followed by Brazil (6), Uruguay and Mexico (5), Chile and Peru (4) and Colombia (3).

15 North et al., ‘Order, Disorder’, pp. 54–5.

16 Carlos Marichal, ‘Una difícil transición fiscal: del régimen colonial al México independiente, 1750–1850’, in Carlos Marichal and Daniela Marino (eds.), De colonia a nación: impuestos y política en México, 1750–1860 (México DF, 2001), pp. 19–58.

17 Marichal and Carmagnani, ‘Colonial Fiscal Regime’, p. 296.

18 Marichal, La bancarrota del virreinato, pp. 48–52.

19 Marichal and Carmagnani, ‘Colonial Fiscal Regime’, p. 298.

20 Richard J. Salvucci and Linda K. Salvucci, ‘Las consecuencias económicas de la independencia mexicana’, in Prados de la Escosura and Amaral (eds.), La independencia americana, pp. 30–53.

21 Carlos A. Ponzio, ‘Looking at the Dark Side of Things: Political Instability and Economic Growth in Post-Independence Mexico’ (unpublished manuscript, 2005), available at www.economia.uanl.mx/publicaciones/Articulos-maestros/Ponzio_Political_Instability.pdf.

22 Alfonso W. Quiroz, ‘Consecuencias económicas y financieras del proceso de la independencia en el Perú, 1800–1850’, in Prados de la Escosura and Amaral (eds.), La independencia americana, pp. 124–46; Paul Gootenberg, Between Silver and Guano: Commercial Policy and the State in Postindependence Peru (Princeton, 1989).

23 Spain, a major world supplier, no longer supplied mercury to mining at prices below those prevailing internationally: see Rafael Dobado and Gustavo Marrero, ‘Minería, crecimiento y costos de la independencia en México’, Revista de Historia Económica, vol. 19, no. 3 (2001), pp. 573–611. This argument for Mexico can also be applied to the case of Peru.

24 Héctor Lindo-Fuentes, ‘Consecuencias económicas de la independencia en Centroamérica’, in Prados de la Escosura and Amaral (eds.), La independencia americana, pp. 54–79.

25 The complexity of land institutions inherited from the colonial period should be taken into account. These included, in particular, haciendas, ejidos and communal lands with ill defined borders, and Indian communities that linked communal ownership and group identity.

26 Marcelo de Paiva Abreu and Luis A. Corrêa do Lago, ‘Property Rights and Fiscal Systems in Brazil: Colonial Heritage and the Imperial Period’, in Bordo and Cortés-Conde (eds.), Transferring Wealth and Power, pp. 327–77; North et al., ‘Order, Disorder’, p. 40.

27 Jaime Jaramillo Uribe, Adolfo Meisel and Miguel M. Urrutia, ‘Continuities and Discontinuities in the Fiscal and Monetary Institutions of New Granada, 1783–1850’, in Bordo and Cortés-Conde (eds.), Transferring Wealth and Power, pp. 414–50. See also Salomón Kalmanovitz Krauter and Edwin López Rivera, El ingreso colombiano en el siglo XIX (Bogotá, 2008).

28 Cf. Jeremy Adelman, Republic of Capital: Buenos Aires and the Legal Transformation of the Atlantic World (Stanford, 1999).

29 Samuel Amaral, ‘Del mercantilismo a la libertad: las consecuencias económicas de la independencia argentina’, in Prados de la Escosura and Amaral (eds.), La independencia americana, p. 204.

30 Mario H. Pastore, ‘Crisis de la Hacienda Pública, regresión institucional y contracción económica: consecuencias de la independencia en Paraguay, 1810–1840’, in Prados de la Escosura and Amaral (eds.), La independencia americana, pp. 164–200.

31 Coatsworth, ‘Obstacles’, p. 84, estimated that the trade burden represented up to 3 per cent of New Spain's GDP. This figure was significantly higher than the one estimated for the Thirteen Colonies in North America.

32 Centeno, ‘Blood and Debt’; Coatsworth and Williamson, ‘Always Protectionist?’.

33 See Mar Rubio, ‘Protectionist but Globalized? Latin American Customs Duties and Trade during the Pre-1914 Belle Epoque’ (unpublished manuscript, available at http://www.econ.upf.edu/docs/papers/downloads/967.pdf), for reservations about Coatsworth's and Williamson's claims about the protectionist nature of tariffs in nineteenth-century Latin America.

34 Ronald Findlay, ‘International Trade and Factor Mobility with an Endogenous Land Frontier: Some General Equilibrium Implications of Christopher Columbus’, in Wilfred J. Ethier, Elhanan Helpman and J. Peter Neary (eds.), Theory, Policy and Dynamics in International Trade: Essays in Honor of Ronald W. Jones (Cambridge, 1993), pp. 38–54.

35 The hypothesis of a deterioration of terms of trade has become a common concern in studies of developing economies over space and time and hence deserves to be tested for post-independence Latin America: see Raúl Prebisch, The Economic Development of Latin America and its Principal Problems (New York, 1950); Hadass, Yael S. and Williamson, Jeffrey G., ‘Terms of Trade Shocks and Economic Performance, 1870–1940: Prebisch and Singer Revisited’, Economic Development and Cultural Change, vol. 51, no. 3 (2003), pp. 629–56.Google Scholar

36 Jeffrey G. Williamson, ‘Real Wages Inequality and Globalization in Latin America before 1940’, Revista de Historia Económica, vol. 17 (1999) (special issue), pp. 101–42; John H. Coatsworth, ‘Structures, Endowments, and Institutions in the Economic History of Latin America’, Latin American Research Review, vol. 40, no. 3 (2005), pp. 126–44, suggests a positive association between inequality and per capita income after independence.

37 Paul Krugman and Anthony J. Venables, ‘Globalization and the Inequality of Nations’, Quarterly Journal of Economics, vol. 110, no. 4 (1995), pp. 857–80, posit that under gradually falling transportation costs, such as during the 1820–1870 period, growing inequality would occur.

38 Richard J. Salvucci, ‘The Mexican Terms of Trade, 1825–1883: Calculations and Consequences’ (1993) (mimeo).

39 Asdrúbal Baptista, Bases cuantitativas de la economía venezolana, 1830–1995 (Caracas, 1997), pp. 86–90.

40 Juan Braun, Matías Braun, Ignacio Briones and José Díaz, ‘Economía chilena, 1810–1995: estadísticas históricas’, Pontificia Universidad Católica de Chile, Instituto de Economía, Documento de Trabajo no. 187 (1998).

41 Nathaniel H. Leff, Underdevelopment and Development in Brazil (2 vols., London, 1982), vol. I, p. 82.

42 José Antonio Ocampo, Colombia y la economía mundial, 1830–1910 (Bogotá, 1984), p. 93.

43 Salvucci, Linda K. and Salvucci, Richard J., ‘Cuba and the Latin American Terms of Trade: Old Theories, New Evidence’, Journal of Interdisciplinary History, vol. 31, no. 2 (2000), p. 216.Google Scholar

44 Carlos Newland, ‘Exports and Terms of Trade in Argentina, 1811–1870’, Bulletin of Latin American Research, vol. 17, no. 3 (1998), p. 412.

45 Salvucci and Salvucci, ‘Cuba and the Latin American Terms of Trade’, pp. 204–7. The authors show that productivity improvements partly offset the decline in the relative price of exports.

46 Newland, ‘Exports’ pp. 412–3.

47 Schöller, Paul, ‘L'évolution séculaire des taux de fret et d'assurance maritimes, 1819–1940’, Bulletin de l'Institut de Recherches Économiques et Sociales, vol. 17, no. 5 (1951), pp. 519–57.Google Scholar

48 Schöller, ‘L'evolution séculaire’, p. 543. Freights to Buenos Aires and Valparaiso became equal by 1868 whereas, around 1850, transport costs to Chile were at least one-third higher than to Buenos Aires.

49 See John L. Gallup, Jeffrey D. Sachs and Andrew D. Mellinger, ‘Geography and Economic Development’, International Regional Science Review, vol. 22, no. 2 (1999), pp. 179–232.

50 According to John H. Coatsworth, ‘The Decline of the Mexican Economy, 1800–1860’, in Reinhard Liehr (ed.), América Latina en la época de Simón Bolívar: la formación de las economías nacionales y los intereses económicos europeos, 1800–1850 (Berlin, 1989), p. 38, trade increased from 8.1 per cent of GDP in 1800 to 12.3 per cent by 1845.

51 Quiroz, ‘La independencia en el Perú’, pp. 134–6; Gootenberg, Silver and Guano, pp. 161–2.

52 Lindo-Fuentes, ‘La independencia en Centroamérica’, p. 60.

53 Lindo-Fuentes, ‘La independencia en Centroamérica’, pp. 65–6.

54 Stephen H. Haber and Herbert S. Klein, ‘Las consecuencias económicas de la independencia brasileña’, in Prados de la Escosura and Amaral (eds.), La independencia americana, pp. 153–8.

55 Amaral, ‘Del mercantilismo a la libertad’, p. 208.

56 The price index of the United Kingdom's exports has been employed to deflate current exports and comes from Brian R. Mitchell, British Historical Statistics (Cambridge, 1988), p. 526. The result provides a measure of the purchasing power of Latin American exports as the United Kingdom was the main trading partner of the new republics. See Leff, Underdevelopment, vol. I, p. 80, for a similar approach.

57 The relative dispersion of per capita exports, as measured by the coefficient of variation, fell, however, after 1850.

58 Salvucci and Salvucci, ‘Cuba and the Latin American Terms of Trade’, pp. 197–222.

59 Ocampo, Colombia, p. 98; Baptista, Bases cuantitativas, pp. 86–90.

60 Leff, Underdevelopment, vol. I, p. 80.

61 Newland, ‘Exports’, pp. 409–16; Braun et al., ‘Economía chilena’.

62 Computed from Ralph Davis, The Industrial Revolution and British Overseas Trade (Leicester, 1979), and Mitchell, British Historical Statistics.

63 Bulmer-Thomas, Economic History, p. 419.

64 See the discussion in Hanson, John R. II, ‘Exports Shares in the European Periphery and the Third World before World War I: Questionable Data, Facile Analogies’, Explorations in Economic History, vol. 23, no. 1 (1986), pp. 85–99.Google Scholar

65 British investment was also deflated by the price of UK exports, as investment was used (at least in part) for the purchase of capital goods and raw materials from Great Britain. British investment amounted to more than three times French investments and more than four times US investments in Latin America by 1913 (computed from figures in Carlos Marichal (ed.), Las inversiones extranjeras en América Latina, 1850–1930: nuevos debates y problemas en historia económica comparada (México, 1995), Appendix).

66 Irving Stone, ‘British Direct and Portfolio Investment in Latin America before 1914’, Journal of Economic History, vol. 37, no. 3 (1977), pp. 690–722. A significant share of the increase in government debt probably represented the funding of defaulted interest obligations rather than new capital: see Carlos Marichal, A Century of Debt Crises in Latin America: From Independence to the Great Depression, 1820–1930 (Princeton, 1989).

67 Carlos Newland and Javier Ortiz, ‘The Economic Consequences of Argentine Independence’, Cuadernos de Economía, no. 115 (2001), pp. 275–90.

68 See also A. Leticia Arroyo Abad, ‘Inequality in a Small Open Economy: Latin America in the 19th Century’, paper presented at the Seventh Conference of the European Historical Economics Society (Lund, 2007).

69 The export-led growth approach has been rejected for Brazil and Mexico by Leff, Underdevelopment, and Luis Catão, ‘The Failure of Export-Led Growth in Brazil and Mexico, c. 1870–1930’, University of London, Institute of Latin American Studies, Research Papers No. 31 (1992).

70 See Kravis, Irving B., ‘Trade as a Handmaiden of Growth: Similarities between the Nineteenth and Twentieth Centuries’, Economic Journal, vol. 80, no. 323 (1970), pp. 850–72.Google Scholar The view of D. C. M. Platt, ‘Dependency in Nineteenth-Century Latin America: An Historian Objects’, Latin American Research Review, vol. 15, no. 1 (1980), pp. 113–30, that the break with Spain reintroduced ‘an unwelcome half century of independence’ from foreign trade and finance' thus seems to be exaggerated.

71 Bates, Coatsworth and Williamson, ‘Lost Decades’.

72 Maddison, World Economy, only provides guesstimates for two countries (Brazil and Mexico) over 1820–70, which are actually those whose rates of growth are the lowest. Likewise, John H. Coatsworth, ‘Economic and Institutional Trajectories in Nineteenth-Century Latin America’, in John H. Coatsworth and Alan M. Taylor (eds.), Latin America and the World Economy since 1800 (Cambridge, MA, 1998), pp. 23–54, considers these two countries and Cuba.

73 Ponzio, ‘Looking at the Dark Side’. Quiroz, ‘La independencia en el Perú’, pp. 129–33, 143; Dobado and Marrero, ‘Minería’.

74 Computed from Coatsworth, ‘Decline’, p. 41. Between 1800 and 1877 a −0.2 per cent annual decline would have taken place. Maddison, World Economy, p. 191, in turn, assumed a smaller drop than Coatsworth over the period between 1820 and 1870. This view is shared by Enrique Cárdenas, ‘A Macroeconomic Interpretation of Nineteenth-Century Mexico’, in Haber (ed.), How Latin America Fell Behind, pp. 65–92.

75 Richard J. Salvucci, ‘Mexican National Income in the Era of Independence, 1800–1840’, in Haber (ed.), How Latin America Fell Behind, pp. 234–5.

76 John H. Coatsworth, ‘Mexico’, in Joel Mokyr (ed.), The Oxford Encyclopedia of Economic History (New York, 2003), vol. III, pp. 501–7; also Coatsworth, John H., ‘Structures, Endowments, and Institutions in the Economic History of Latin America’, Latin American Research Review, vol. 40, no. 3 (2005), pp. 126–44.Google Scholar

77 Ernest Sánchez Santiró, ‘El desempeño de la economía mexicana tras la independencia, 1821–1870: nuevas evidencias e interpretaciones’, paper presented at the conference, ‘Obstáculos al crecimiento económico en Hispanoamérica y España, 1790–1850’, Fundación Ramón Areces, Madrid, May 2007.

78 Pedro Fraile, Richard J. Salvucci and Linda K. Salvucci, ‘El caso cubano: exportaciones e independencia’, in Prados de la Escosura and Amaral (eds.), La independencia americana, pp. 80–101.

79 Antonio Santamaría, ‘Las cuentas nacionales de Cuba, 1690–2005’ (mimeo, 2005). A similar rate of growth is obtained for 1830–60.

80 Leff, Underdevelopment, vol. I, p. 33, suggested that Brazil experienced no growth in the early nineteenth century but, to my knowledge, no quantitative assessment of aggregate performance is available for this period.

81 Baptista, Bases cuantitativas, pp. 28, 58. Output per head grew at a yearly rate of 2.2 per cent between 1830 and 1850, but this figure falls to 0.9 per cent when it is computed between 1830 and 1870.

82 Kalmanovitz and López Rivera, Ingreso colombiano, p. 15. These authors rely on current price estimates as they assume price stability up to 1870.

83 José Díaz, Rolf Lüders, and Gert Wagner, ‘Economía Chilena 1810–2000: producto total y sectorial, una nueva mirada’, Pontificia Universidad Católica de Chile, Instituto de Economía, Documento de trabajo no. 315 (2007), p. 57.

84 Carlos Newland, ‘Economic Development and Population Change: Argentina, 1810–1870’, in John H. Coatsworth and Alan M. Taylor (eds.), Latin America and the World Economy Since 1800 (Cambridge, MA, 1998), pp. 207–22; Newland, ‘Exports’; Newland, Carlos and Poulson, Barry, ‘Purely Animal: Pastoral Production and Early Argentine Economic Growth, 1825–1865’, Explorations in Economic History, vol. 35, no. 3 (1998), pp. 325–45.Google Scholar

85 Newland and Poulson, ‘Purely Animal’, p. 328; Newland, ‘Economic Development’, p. 212.

86 Population figures come from Newland, ‘Economic Development’, p. 218.

87 Assuming that Uruguay's per capita GDP grew in the same way as Argentina's between 1820 and 1870, including the backward interior provinces, would probably lead to an underestimate. Thus, I arbitrarily assumed that Uruguay evolved in the same way as Argentina a whole between 1820 and 1850, and in the same way as Argentina's littoral between 1850 and 1870.

88 Maddison, World Economy.

89 That is, so-called ‘international dollars’ which are adjusted for differences in national price levels.

90 Bates et al., ‘Lost Decades’. They rely on Maddison's World Economy guesstimates. It is worth stressing, however, that, in Table 6, the lowest rates of growth for GDP per head between 1820 and 1870 correspond to those countries with less reliable GDP figures, Brazil and Mexico. If the exceptional cases of Brazil and Cuba are excluded, per capita GDP growth would reach 0.6 per cent between 1820 and 1870.

91 See Prados de la Escosura, ‘Economic Consequences’.

92 The United States represents an exceptional case during the nineteenth century, growing faster in terms of GDP per head than any other region in the world, with the exception of the ‘European offshoots’ (Canada, Australia and New Zealand): see Maddison, World Economy.

93 This used to be the case in European economic history, when countries' success or failure was assessed according to the extent they replicated the British experience of industrialisation: see Patrick K. O'Brien and Çaglar Keyder, Economic Growth in Britain and France, 1780–1914: Two Paths to the Twentieth Century (London, 1978).

94 Coatsworth, ‘Economic and Institutional Trajectories’; Paul Collier and Jan Willem Gunning, ‘Explaining African Economic Performance’, Journal of Economic Literature, vol. 37, no. 1 (1999), pp. 64–111; Leandro Prados de la Escosura, ‘Improving the Human Development Index: Historical Estimates’, Universidad Carlos III (unpublished manuscript); Jeffrey D. Sachs, ‘Tropical Underdevelopment’, NBER Working Paper Series no. 8119 (2001); John W. McArthur and Jeffrey D. Sachs, ‘Institutions and Geography: Comment on Acemoglu, Johnson and Robinson (2000)’, NBER Working Paper Series 8114 (2001).

95 Douglass C. North, Institutions, Institutional Change and Economic Performance (Cambridge, 1990), p. 102; Engerman and Sokoloff, ‘Factor Endowments’, pp. 260–304; North et al., ‘Order, Disorder’, p. 19

96 Prados de la Escosura, ‘Human Development Index’; Sachs, ‘Tropical Underdevelopment’; McArthur and Sachs, ‘Institutions and Geography’.

97 Prados de la Escosura, ‘Economic Consequences’.

98 Gabon, Mauritius, Seychelles, South Africa and Singapore have been excluded from the sample as they represent exceptional cases with per capita income levels ranging between 2,700 and 4,200 1990 Geary-Khamis US dollars.

99 While the per capita income figures for African and Asian countries correspond to the date of independence, in the case of Latin America estimates figures c. 1820 are used. Cuba, however, became independent in 1898. If Cuba's per capita income in 1898 (1,030 1990 Geary-Khamis US dollars) were used in the comparison, she would belong to the second quintile.

100 Stanley and Barbara Stein, The Colonial Heritage of Latin America: Essays on Economic Dependence in Perspective (New York, 1970), p. 128.

101 The growth of per capita GDP trebled (up to 1.5 per cent annually) between 1870 and 1913 for the eight-country sample considered here. On average, the position relative to the United States remained stable at a time in which the United States was achieving its leadership in terms of per capita income and labour productivity: see Leandro Prados de la Escosura, ‘When Did Latin America Fall Behind?’, in Sebastián Edwards, Gerardo Esquivel and Graciela Marquez (eds.), The Decline of Latin American Economies: Growth, Institutions, and Crisis (Chicago 2007), pp. 15–57.

102 Coatsworth, John H., ‘Inequality, Institutions and Economic Growth in Latin America’, Journal of Latin American Studies, vol. 40, no. 3 (2008), p. 565.Google Scholar