Structural Change and the BOT constraint: why did Latin America fail to converge?

This paper discusses why Latin America failed to achieve sustainable convergence with the developed world since 1960 and analyses different phases of convergence and divergence using a structuralist-Keynesian approach. First, it is argued that there are critical differences between Latin America, the developed economies and the Asian economies as regards the evolution of the income elasticity of the demand for imports (p), the rate of growth of exports and the balance-of-paymentsconstrained rate of growth. The income elasticity of the demand for imports in Latin America showed an upward trend, particularly after the mid-1970s, which was not matched by a similar increase in exports—a pattern in sharp contrast with that of the East Asian countries. The evolution of p and exports are used to set forth a typology of Latin American economic growth since 1960. In addition, the paper relates elasticities and the less favourable Latin American performance to the intensity and direction of structural change. Using a broad sample of developed and developing economies, it is shown that the developing countries that succeed in reducing the income gap are those that transformed their economic structures in favour of sectors with higher Schumpeterian and Keynesian efficiency.