Stagnation,Liberalization and Foreign Investment in Latin America

Abstract

Trade and investment policies reform that deepened integration in the world markets implemented by most Latin American countries in the last two decades have failed to deliver high and sustained growth rates as expected. Multilateral institutions, which strongly supported such reforms, now suggest that further market friendly changes are needed to produce the expected results. Drawing on evidence from Brazil, this paper argues that the neoliberal model that impregnated policy reforms in Latin America neglected a crucial political dimension, that is, the role of State in the planning and fostering of development. By weakening national states, liberalization, not only increased vulnerability to external shocks but also stimulated conflict in societies with profound social divisions and fragile institutions. Development requires a dense network of both public and private institutions managing issues related to the asymmetries in access to markets, to capital and to technology. Building such institutions is the critical part of a new agenda for development.