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Economic Development of Central America Econ. 4200 - Spring 2004 – Dr. Taylor - page 22 / 153

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(a) First targets => Consumer goods industries (processed foods, beverages, textiles, clothing, and footwear – with technologies easily obtained and mastered by domestic producers)

(4) Keep an overvalued exchange rate => Imports are cheap (in particular, intermediate inputs are cheap) and exports are expensive to foreigners (reduced dependence on foreign markets for economic well-being … foreigners just won't buy your products)

- Remember that until 1929, economic growth in most of Latin America was almost entirely linked to the fortunes of export production.

- The Great Depression => falling export volume and prices => created a severe recession throughout the region in the 1930s.

=> Marked change in national economic policy…

(1) Many governments introduced policies to maintain the level of internal demand.

(2) WWII: Demand for Latin America's agricultural and mineral products rose but imported manufactures were scarce. Some of the unsatisfied demand began to be filled by homemade products.

(3) Following the end of the war, most Latin American governments formulated clear policies to foster "import-substituting industrialization".

- Governments improved the region's transport system and expanded the supply of electricity and water (public owned enterprises).

- Governments helped finance local industry and welcomed foreign corporations willing to establish factories in certain industries.

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