Trade and Development in Latin America Quiz

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Why do rich and poor countries have a common interest in development?

Poor countries want more and better opportunities, while rich countries want markets to buy their goods and sell their products

What might hinder the achievement of development according to the text?

Powerful domestic interest groups pursuing policies that promote particularistic interests

Why might rich countries support policies that hurt poor countries?

To maintain their dominance in global trade

What role can domestic institutions play in economic development?

They can either promote or slow development

How do powerful groups within countries affect development?

They may thwart development

Why might poorer countries be unable to pursue freer trade?

Rich countries may support policies that hurt the poor countries' ability to pursue freer trade

What might hinder international cooperation for development?

Biased international institutions in favor of rich countries

Why is achieving development challenging according to the text?

Disagreements among actors on policies and interests

What do actors prefer according to the text?

Everyone prefers more development to less

Why is it mentioned that 'you cannot get what you want'?

Because it doesn’t solely depend on you

Which development strategy aimed to make countries self-sufficient in manufactured products through high trade barriers, subsidies, and state ownership of basic industries?

Import-substitution industrialization (ISI)

Which policy prescription for Latin American countries included trade liberalization, privatization, and fiscal and monetary policies in the 1980s?

Washington Consensus

Which trade policy reflects the interests of rich countries despite constant push for agricultural product liberalization by LDCs?

World Trade Organization

Which development strategy encouraged countries to produce for foreign markets and consumers, leading to enormous successes for countries like South Korea and Mexico in the 1960s to 1990s?

Export-oriented industrialization (EOI)

What did development economists argue against in the 1970s and 80s due to deteriorating terms of trade?

Trade working against the interests of LDCs

What did LDCs mainly sell that faced decreasing prices due to competitive international markets?

Primary products

What is Engel’s law regarding food expenditure as income rises?

The proportion spent on food decreases

What did import-substitution industrialization aim to achieve?

Self-sufficiency in manufactured products through high trade barriers, subsidies, and state ownership of basic industries

What was a significant impact on developing countries by the IMF and World Bank?

IMF and World Bank policies and conditions attached to loans

What began to decline in enthusiasm in the 1980s, leading to a shift towards export-oriented industrialization?

Import-substitution industrialization (ISI)

Why might landlocked countries face higher trade costs?

They require multiple countries to access seaports

What is a potential consequence of dependence on a single resource, according to the resource curse theory?

Economic vulnerability and lack of diversification

How might unequal distribution of wealth impact a country's institutions?

Lead to undemocratic institutions and slow growth

What did European empires do that contributed to ethnic divisions across borders in some countries?

Divided land arbitrarily

Why might wealthy landowners, urban sectors, and politicians prioritize their interests over the public interest?

They may be driven by politics of special interests

What is a potential impact of colonization on natural resources in less developed countries?

Impact on economic diversification due to uneven distribution of resources

How might differences in political institutions and economic policies impact development paths?

Lead to varying development paths

Why might some resource-rich countries remain poor despite their natural wealth?

Their dependence on one resource leads to economic vulnerability

Explain the challenges faced by landlocked countries in terms of trade and access to seaports.

Landlocked countries face higher trade costs and require multiple countries to access seaports, making trade more difficult and expensive.

What is the resource curse theory and how does it impact the economic development of countries?

The resource curse theory suggests that dependence on one resource leads to economic vulnerability, lack of diversification, and corruption, hindering overall economic development.

How do government policies and politics of special interests affect the development of countries?

Government policies, provision of public goods, infrastructure, sound institutions, and social infrastructure, as well as the politics of special interests, can lead to prioritization of certain groups' interests over the public interest, impacting overall development.

How do differences in political institutions and economic policies impact the development paths of countries?

Differences in political institutions and economic policies can lead to varying development paths, with equal distribution of wealth leading to democratic institutions and economic growth, while unequal distribution leads to undemocratic institutions and slow growth.

What is the impact of the colonial legacy on the development of countries?

The colonial legacy has led to ethnic divisions across borders, arbitrary land divisions by European empires, and the lack of lasting institutions built by wealthy settlers, leaving little foundation for independence and development.

How do foreign interests and colonial legacies continue to impact the development of less developed countries?

Foreign interests and colonial legacies continue to bias the economy against less developed countries, impacting their development.

What are the domestic factors that hinder the economic development of countries?

Domestic factors such as government policies, politics of special interests, domestic institutions, and colonial legacy can hinder economic development.

Explain the impact of natural resources on economic diversification in less developed countries.

Natural resources in less developed countries may have been impacted by colonization, uneven distribution, and the hindrance of economic diversification due to mining or plantations.

How do wealthy landowners, urban sectors, and politicians affect the public interest in terms of development?

Wealthy landowners, urban sectors, and politicians may prioritize their interests over the public interest, impacting the overall development of a country.

What role does foreign direct investment and colonial past play in the economic development of resource-rich countries?

Foreign direct investment and colonial past can lead to resource-rich countries remaining poor, as seen in examples like Angola, Nigeria, and Indonesia.

What were the main arguments of development economists in the 1970s and 80s regarding the impact of trade on less developed countries?

They argued that trade works against the interests of LDCs due to deteriorating terms of trade, mainly selling primary products facing decreasing prices, while rich countries implement heavy agricultural subsidies and control manufacturing.

What is import-substitution industrialization (ISI) and what were its aims?

ISI began in the 1930s as a development strategy aiming to make countries self-sufficient in manufactured products through high trade barriers, subsidies, and state ownership of basic industries.

Why did countries following import-substitution industrialization (ISI) face problems by the 1970s?

By the 1970s, countries following ISI were self-sufficient in manufactured products but faced problems such as low-quality exports, inefficient industries, and protected markets.

What development strategy emerged as a shift from import-substitution industrialization (ISI) in the 1980s?

The focus shifted to export-oriented industrialization (EOI), encouraging countries to produce for foreign markets and consumers.

What were the key components of the Washington Consensus as a policy prescription for Latin American countries?

The Washington Consensus included trade liberalization, privatization, and fiscal and monetary policies.

What are some of the challenges faced by developing countries in their integration into world markets through globalization?

Integration into world markets through globalization creates both winners and losers, with poor countries often being the losers.

What were the main factors identified as hindering the development of less developed countries?

Institutions biased against LDCs, international political factors worsening development issues, and the impact of the World Trade Organization reflecting the interests of rich countries.

What was the impact of the IMF and World Bank on developing countries according to the text?

The IMF and World Bank have a significant impact on developing countries.

What is Engel’s law and how does it relate to the terms of trade between rich and poor countries?

Engel’s law states that as income rises, the proportion spent on food decreases, but the terms of trade work in favor of rich countries.

What is the key factor identified as necessary for improving the living standard of people in developing countries?

Improving the living standard of people in developing countries requires addressing both domestic and international factors.

Explain the common interests of rich and poor countries in terms of economic development according to the text.

Poor countries want more and better opportunities, while rich countries want markets to buy their goods and sell their products.

How might powerful domestic interest groups hinder development according to the text?

Powerful domestic interest groups might pursue policies that promote particularistic interests at the expense of overall development, leading to disagreement on policies.

What role can domestic institutions play in economic development according to the text?

Domestic institutions can either promote or slow development within countries.

Why might rich countries support policies that hurt poor countries?

Rich countries may support policies that hurt poor countries, such as pursuing freer trade in manufactured products, which they can benefit from, while poorer countries cannot pursue freer trade.

What is the potential bias of international institutions in favor of rich countries according to the text?

International institutions, such as the World Bank and International Monetary Fund, might be biased in favor of rich countries, possibly due to differences in interests and policies.

Why is it mentioned that 'you cannot get what you want' according to the text?

It is mentioned to emphasize that achieving development depends on various actors, interests, interactions, and institutions, and not solely on individual desires or efforts.

What might hinder the achievement of development according to the text?

Disagreements among actors, powerful domestic interest groups pursuing particularistic interests, biased international institutions, and differences in interests and policies between rich and poor countries might hinder the achievement of development.

If everyone wants development, why is it so hard to achieve according to the text?

It is challenging to achieve development due to the complex interactions, differing interests, and potential biases among actors and institutions at both domestic and international levels.

How might unequal distribution of wealth impact a country's institutions according to the text?

Unequal distribution of wealth can lead to powerful groups within countries impeding development, as they might prioritize their own interests over the public interest.

What might hinder international cooperation for development according to the text?

International cooperation for development might be hindered by differing interests between rich and poor countries, biased international institutions, and disagreements on policies among actors.

Study Notes

  • Less developed countries (LDCs) aim to develop, developed countries encourage it, but why is it challenging?

  • Geographic location is a significant factor:

    • Landlocked countries: higher trade costs, require multiple countries to access seaports
    • Tropical countries: poor soil, diseases, costly infrastructure maintenance
    • Natural resources: colonization impact, uneven distribution, mining or plantations hinder economic diversification
  • Geography is important but not deterministic, as countries cannot be relocated

  • Foreign direct investment and colonial past:

    • Some resource-rich countries remain poor, like Angola, Nigeria, Indonesia
    • Resource curse theory: dependence on one resource leads to economic vulnerability, lack of diversification, and corruption
  • Domestic factors:

    • Government policies: provision of public goods, infrastructure, sound institutions, and social infrastructure
    • Politics of special interests: wealthy landowners, urban sectors, and politicians may prioritize their interests over the public interest
  • Domestic institutions:

    • Differences in political institutions and economic policies lead to varying development paths
    • Equal distribution of wealth leads to democratic institutions and economic growth, while unequal distribution leads to undemocratic institutions and slow growth
  • Colonial legacy:

    • European empires divided land arbitrarily, making for ethnic divisions across borders
    • Wealthy settlers did not build lasting institutions, leaving little foundation for independence
  • The economy may be biased against LDCs, as foreign interests and colonial legacies continue to impact their development.

  • Development economists in the 1970s and 80s argued that trade works against the interests of LDCs due to deteriorating terms of trade.

  • LDCs mainly sell primary products, which face decreasing prices due to competitive international markets.

  • Rich countries implement heavy agricultural subsidies and control manufacturing, keeping prices high.

  • Engel’s law states that as income rises, the proportion spent on food decreases, but the terms of trade work in favor of rich countries.

  • Institutions are biased against LDCs, and international political factors worsen development issues.

  • The World Trade Organization reflects the interests of rich countries, despite constant push for agricultural product liberalization by LDCs.

  • The IMF and World Bank have a significant impact on developing countries.

  • Import-substitution industrialization, or ISI, began in the 1930s as a development strategy.

  • ISI aimed to make countries self-sufficient in manufactured products through high trade barriers, subsidies, and state ownership of basic industries.

  • By the 1970s, countries following ISI were self-sufficient in manufactured products but faced problems such as low-quality exports, inefficient industries, and protected markets.

  • Country's enthusiasm for ISI declined in the 1980s, and the focus shifted to export-oriented industrialization (EOI)

  • EOI encouraged countries to produce for foreign markets and consumers. It led to enormous successes for those countries like South Korea and Mexico in the 1960s to 1990s.

  • The Washington Consensus emerged in the 1980s as a policy prescription for Latin American countries and included trade liberalization, privatization, and fiscal and monetary policies.

  • Integration into world markets through globalization creates both winners and losers, with poor countries often being the losers.

  • Improving the living standard of the billions of people in developing countries requires addressing both domestic and international factors.

Test your knowledge of the impact of international trade on the development of Latin American countries in the 1970s and 80s. Explore the arguments made by development economists regarding terms of trade, agricultural subsidies, and the competitive nature of international markets.

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