Long run economic development in Latin America in a comparative perspective: Proximate and ultimate causes
André A. Hofman
This paper describes trends in economic growth and its causes in several Latin American countries in the 20th century. In the explanatory scheme, a distinction is made between 'proximate' and 'ultimate' causes of economic growth. Proximate causes are those areas of causality where models and quantification is possible, whereas ultimate causes are much more difficult to quantify. Some elements in the realm of the ultimate causes (like institutions and income distribution) will be analysed in an historical perspective and others, especially total factor productivity and growth accounting, in the proximate scheme. Latin America's performance is also compared to developed and other developing countries.
The paper provides a quantitative assessment of Latin American economic growth performance in the twentieth century in a comparative perspective. Within the region it was found that heterogeneity has not decreased and no clear tendencies of convergence can be detected. The reform process of the late 1980s and 1990s was implemented because of the profound crisis of the 1980s and the detection of some structural weaknesses in the Latin American economies. Some aggressive and early reformers show impressive growth results (e.g. Chile) but on the whole, the growth performance in the 1990s has been rather disappointing.
The paper stresses the fact that the proximate causes are not independent of the ultimate causes of growth as to a significant degree, proximate causes are dimensions through which ultimate causes can be seen to operate. At the proximate level, the interaction between capital accumulation and technological progress is an example of this interdependence. At the ultimate level, there exists interaction between the institutional framework of a society and the implementation of economic policy. An example of interdependence between the ultimate and proximate levels is the relationship between technological progress and the institutional context.
The paper concludes with a description of some of the most important characteristics of Latin America in the realm of the ultimate causes. The interdependence between proximate and ultimate is mainly analysed in terms of growth. Besides the unsatisfactory growth performance, equity aspects are another worrying characteristic of contemporary trends in the region and institutional factors are probably key determinants in explaining the weak relationship between growth and equity.