Colombia's Slow Economic Growth

From the Nineteenth to the Twenty-First Century

Ivan Luzardo-Luna

• Publisher: Palgrave Pivot
• Year: 2019
• ISBN:
  9783030257552
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

Looking at the years 1870-2016, this book analyses the reasons behind Colombia's chronically slow economic growth. As a comparative economic history, it examines why Colombia has seen lower growth rates than countries with similar institutions, culture and colonial origins, such as Argentina in 1870-1914, Mexico in 1930-1980, and Chile from 1982 onwards.

While Colombia's history has shown relative macroeconomic stability, it has also showna limited capacity for integrating into the world economy and embracing technological breakthroughs compared to the rest of the world, including steam, mass production and Information Technology.This volume thus moves away from the long-held view that institutional path dependence is the main determinant of differences in long-run economic growth across countries.

© The Author(s) 2019

I. Luzardo-LunaColombia’s Slow Economic GrowthPalgrave Studies in Economic Historyhttps://doi.org/10.1007/978-3-030-25755-2_1

Begin Abstract

1. The Particular Colombian Case in Latin America: A Singular Path with the Same Results

Ivan Luzardo-Luna¹

(1)

London School of Economics and Political Science, London, UK

Ivan Luzardo-Luna

Email: [email protected]

Abstract

Despite similarities with other countries in the Latin America, Colombia’s trajectory to development has been unique. If we need to oversimplify why the main Latin American countries do not yet have advanced economies, the short answer would be: deep and frequent economic depressions. If Colombia did not experience a depression since 1903, why did not this country do better?

Colombia’s problem is that it historically grew driven by input factors (capital and labour) accumulation rather than by productivity, which has remained stagnant for long periods. Productivity growth has depended on countries’ capacity to embrace technological progress. This book analyses how Colombia missed three technological waves of the last three centuries: steam, mass production, and Information and Communication Technology (ICT), and compares it with Argentina, Mexico, and Chile, respectively.

Keywords

Economic growthProductivityGeneral purpose technologySteamMass productionICTs

End Abstract

The economic history of Colombia is a story of a country that has swung between long periods of slow growth and short cycles of accelerated economic expansion. This unbalanced performance resulted in Colombia being classified a middle-income country in 2016. Its income per capita is similar to other Latin American countries such as Brazil or Peru, but below Argentina, Chile, and Mexico.

Despite similarities with other countries in the region, Colombia’s trajectory to development has been unique within Latin America. If we need to oversimplify why the main Latin American countries do not yet have advanced economies, the short answer would be: deep and frequent economic depressions, brought about to a large extent by macroeconomic mismanagement.

Depressions are characterised by profound economic decline, and are not very common throughout economic history, or at least since the dawn of the twentieth century onwards. Unlike recessions or normal business cycle fluctuations, a depression has long-lasting consequences in production capacity, employment, and, in some extreme cases, political stability. There is not a precise definition for a depression in quantitative terms, but some scholars use a decline in the real GDP per capita of more than 10% as rule of thumb.

Following this rule, Colombia has not experienced a depression since 1903, a rare exception in Latin America. The country has enjoyed relative macroeconomic stability in a region of the world where hyperinflation, debt crises, and sudden shrinking in the income per capita has been ever present. The Colombian case is a story of a country where economic booms have been very moderate, but economic progress has been constant since the early twentieth century.

Figure 1.1 contrasts the evolution of the GDP per capita between Colombia and the three largest economies in Latin America (except Brazil): Argentina, Chile, and Mexico, from 1905 up to 2016. These three countries had an income per capita significantly higher than Colombia in the early twentieth century, as the country was trapped in a long-lasting stagnation in the second half of the nineteenth century. Yet, Mexico had two major depressions at the dawn of the twentieth century—1910–1916 (the Mexican Revolution), and 1926–1936 (the Cristero War and the Great Depression )—which led to fall behind Colombia in 1927. Certainly, the Cristero War and the Great Depression were intense crises, as GDP per capita declined 31% between 1926 and 1932, in the middle of political instability generated by the civil war. Mexico was to have another major depression in the 1980s, as the real GDP per capita declined by 22% between 1981 and 1988, in the so-called Latin America lost decade .

Fig. 1.1

Real GDP per capita at 2011 US$ prices (logs), 1905–2016 (Source: Maddison Project Database, Version 2018. Bolt, Jutta, Robert Inklaar, Herman de Jong, and Jan Luiten van Zanden (2018))

The southern cone countries performed well in the nineteenth century and, in particular, Argentina was a good candidate to converge with the United States or Britain as, in the early twentieth century, it had one of the highest GDPs per capita in the world. Yet, Argentina has experienced six major depressions since 1899, and this explains why it remained as a middle-income country in 2016. Likewise, Chile also experienced prosperity in the nineteenth century, thanks to an export-led growth model based on mining (particularly in nitrate). Chile, however, saw seven depressions since the dawn of the twentieth century.

The possibilities for becoming a fully developed country for Argentina, Chile, and Mexico were severely limited due to recurring depressions. Some of them were caused by external factors, such as sudden international price declines in commodities, but it was mostly by poor macroeconomic management. More prudent fiscal and monetary policies in these countries could have not completely prevented economic crises, but they would probably have been recessions instead of depressions. Table 1.1 shows the main major depressions for Argentina, Chile, and Mexico from 1899 onwards.

Table 1.1

Major economic depressions, 1899–2016 (%)

Argentina			Chile			Mexico
Number	Year	Real GDP per capita decline	Number	Year	Real GDP per capita decline	Number	Year	Real GDP per capita decline
1	1900	−15.3	1	1913–1915	−21.2	1	1909–1915	−11.9
2	1913–1917	−26.5	2	1919	−16.3	2	1926–1932...

Table of contents

• Cover
• Front Matter
• 1. The Particular Colombian Case in Latin America: A Singular Path with the Same Results
• 2. The Price of the Regeneration: How Colombia Missed the Belle-Époque, 1870–1914
• 3. The Take-off, 1914–1929: Coffee, Railways, and Regional Divergence
• 4. The Liberal Republic, 1930–1945: Overcoming the Great Depression, the Rise of Interventionism, and Economic Slowdown
• 5. The Import Substitution Era, 1945–1980: The Consolidation of Interventionism, Financial Repression, and the Slow Way to Industrialisation
• 6. The Lost Decades, 1980–2000: External Debt, Structural Reforms, and a Deep Financial Crisis
• 7. Commodities-Driven Growth, 2001–2018: The Colombian Miracle
• Back Matter