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GCE French Unit 1 Specimen Question Paper


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French Version 1.1 AS exams 2009 onwards A2 exams 2010 onwards GCE AS and A Level Unit 1: Specimen question paper
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Nombre de lectures 29
Langue English

Anglo-Saxon Structuralism vs. Latin American Structuralism in Development

Diego Sanchez-Ancochea
University of Oxford

A more recent version of this document was published in E. Pérez, E. and M.
Vernengo (ed.) Ideas, Policies and Economic Development in the Americas, New
York, Routledge, 2007, pages 208-227

The conviction that developing countries are structurally different to developed ones and
that specific theories and policy recommendations are required to address their problems
dominated the discipline since its birth in the 1940s to the 1970s. The neoclassical
counterrevolution of the early 1980s dramatically changed this vision and completely
reshaped the boundaries of the discipline. Neoclassical development economists
concentrated on issues of macroeconomic adjustment and static allocation of resources,
and recuperated the idea that a sole common theory could be used for both developed and
2developing countries. In the last few years, however, the lack of success of standard
neoclassical economics in explaining underdevelopment and promoting growth has
shown the need to recuperate the work of the “pioneers of development” (e.g. Lewis,
Hirschman, Rosenstein-Rodan, Nurkse, Myrdal) and readapt it to the current state of the

I thank Matias Vernengo and other participants at the Conference on Latin American and Caribbean
Economic Thought in the Eastern Economic Association Annual Conference, New York, march 2005 for
their valuable comments in an earlier daft.
It is true that in the 80s there was also a revival of interest in growth theory, partly caused by the lack of
convergence in per capita income between developed and developing countries (Romer, 1994). New
growth theory, however, concentrates primarily on developed countries and does not study structural
3 This need is even recognized by mainstream economists working in the neoclassical tradition. For a
textbook example see Ray, D. (1998). Anglo-Saxon structuralism vs. Latin American structuralism 2
Early development economists followed a structuralist approach, concentrating on
the study of long-term structural change and on the identification of bottlenecks and
rigidities that were characteristic of developing countries. They all shared similar doubts
about the efficiency of the price mechanism and a conviction that government
intervention and planning was necessary to achieve development (Arndt, 1985). They
also believed that an increase in overall productivity, a modernization of the agricultural
sector and industrialization were all necessary conditions to achieve high and sustainable
rates of growth in the long run.
Despite the numerous positive elements of their empirical and theoretical
approach to economic development, the Anglo-Saxon structuralists deserve criticisms for
at least two reasons. .First, although some authors recognized that the lack of foreign
exchange constituted a constraint on economic growth they did not pay enough attention
to the relation between developed and developing countries. Second, they all had a
limitless faith in the capacity of the state to efficiently intervene in the economic system
(Taylor, 1996).
Overcoming the first problem was one of the key contributions of a different type
of structuralism, the one developed in Latin America under the leadership of the
Economic Commission for Latin America and the Caribbean (ECLAC) during the 1950s
5and 60s. For the Latin American (LA) structuralists, developed and developing

4 For an excellent overview of the pioneers as well as autobiographical accounts of their views and work on
economic development, see Meier and Seers (1984).
5 The Latin American structuralists shared with their Anglo-Saxon counterpart their excessive faith in the
state and lack a valid theory of state intervention. In fact, both structuralist approaches to economic
development require a much better understanding of the internal structure of the state and of its relations
with society. In recent times the applied work of different political economists (such as Amsden, Evans
and Chang) has contributed to solve this limitation. For a review of their ideas, see Sanchez-Ancochea
Anglo-Saxon structuralism vs. Latin American structuralism 3
countries (center and periphery in their terminology) are two different components of a
common world economic system; the evolution of the center determines to a great extend
the structural characteristics of the periphery. In particular, developed countries’ control
of the process of technological innovation, together with their responses to periodic
financial crisis, has a major impact on developing countries’ ability to secure long term
economic growth and export success; at the same time, country-specific institutional
characteristics in Latin America determine their ultimate development paths.
This ability to analyze the interaction between global processes and the domestic
particularities of Latin American countries from a historical perspective makes LA
structuralism particularly relevant in the current global era. While mainstream
economists have begun to recognize the contribution of AS structuralists to development
economics (Krugman, 1997; Ray, 2000), they could probably learn even more from the
work of Raul Prebisch and his colleagues.
By comparing and contrasting the central claims of both AS and LA
structuralism, this chapter shows the unquestionable contribution that both made to the
understanding of economic development. By taking into account both internal and
external forces, I also argue that the LA version is particularly useful to understand the
evolution of the region and, more importantly, may be more relevant for development
studies under globalization.
This chapter begins with a critical discussion of AS structuralist, and its key
theoretical underpinnings. Section 3 introduces ECLAC’s theory of development based
on the notions of center and periphery. Section 4 compares and contrasts both Anglo-Saxon structuralism vs. Latin American structuralism 4
approaches and briefly underlines their potential contribution for the future evolution of
development economics.

Development economics emerged as a sub-discipline of economics in 1943 with the
publication of Rosenstein-Rodan’s “Problems of Industrialization of Eastern and South-
Eastern Europe”. While various historical, political and ideological factors contributed to
its creation, the Keynesian criticism of neoclassical economics and its defense of
government intervention were particularly important. Most early development
economists were in England during the 1940s and participated both in the academic
planning debate that took place at that time and also in the development of the Keynesian
6revolution (Little, 1982). Many of them were also of Eastern European decent and were
thus highly influenced by the relative backwardness of that region (Jamenson and
Warner, 2003).
While the term structuralism is not found in any of the early writings about
development (Arndt, 1985), later economists like Chenery (1975) and Little (1982) used
it to refer to the first development economists and to distinguish their work from
neoclassical economics and neo-Marxism. In their account AS structuralism is based on
the following assumptions about the economy:

6 Many of the “pioneers of development” have a similar biography. They were born in developing
countries (most in Eastern Europe, some in India, Latin America and the Caribbean), studied in United
Kingdom and finished working in United States. For a brief biography of Rosenstein-Rodan, Hirschman,
Lewis and Nurkse, see Eatwell, Milgate and Newman (1987). Anglo-Saxon structuralism vs. Latin American structuralism 5
1. The economy is inflexible and economic change is constrained by obstacles,
bottlenecks and other rigidities (including foreign exchange shortages);
2. Aggregate demand is low and sectoral demands, especially demand for food, are
price-inelastic. As a result, adjustment to equilibrium between supply and demand is
slow and requires large changes in relative prices, which have a large influence on
income distribution;
3. Development requires a radical transformation in the structure of production.
Without industrialization, it is not possible to increase employment, productivity and
income per capita and to reduce poverty;
4. The market alone cannot solve the problems of developing countries because the
price mechanism has at least three major flaws: it is not always a good signaling
mechanism, economic actors may not respond to price changes in the “right” way,
and factors of production tend to be immobile (Arndt, 1985).
5. For them externalities and economies of scale are much more important than what
neoclassical economists usually assume.
In their analytical models AS structuralists usually ignored the influences of
prices, concentrated on real output changes, and assumed fixed relationships between
quantities (which allowed them to use input-output matrixes and linear programming).
Their theories, which varied greatly in their level of mathematical sophistication, were
based on the following key concepts: complementarities and poverty traps, linkages, and
dualism (based on the existence of surplus labor).
1. Complementarities, poverty traps and balanced growth Anglo-Saxon structuralism vs. Latin American structuralism 6
A central claim of many of the AS structuralists was that many investments are
complementary, so that the expansion of production in one sector is only profitable if it is
accompanied by the expansion of production in other sectors. Rosenstein-Rodan (1943)
was the first one to develop this idea through his famous example of the shoe factory. In
his 1943 paper he compared two different situations. In the first one a large shoe factory
is created in a developing area, which does not trade with the rest of the world. In this
case it is obvious that the firm will not be able to survive unless workers spend all their
wages in shoes (something very improvable!). In the second situation a whole series of
industries, which produce all the goods that workers consume, are set up. This
productive system will be viable because the expansion of one commodity, by generating
new income and thus demand for other commodities, will provide one another with new
markets (Basu, 1984). As a result, all firms will make profits, industrialization will
succeed and output and income per capita will increase.
In this account, underdevelopment is caused by the inability of firms to benefit
from the existence of complementarities in demand. Each capitalist, when making
her/his investment decisions, does not take into consideration the positive effect that an
expansion of his/her supply will have on other capitalists. As a result, the economy falls
into a poverty trap, which can only be overcome with a coordinated effort by several
Many other AS structuralists shared the idea that in each economy there are
multiple possible equilibria and that developing countries are trapped in one with low-
7income per capita. Nurkse (1953), for example, developed the concept of vicious circles

7 Mainstream development economists have recuperated this idea since the early 1990s. Different models
emphasize the existence of complementarities through demand (Murphy, Shleifer and Vishny, 1989), Anglo-Saxon structuralism vs. Latin American structuralism 7
of poverty. For him a vicious circle of poverty is a “circular constellation of forces
tended to act and react upon one another in such a way as to keep a poor country in a
state of poverty” (Nurkse, 1953 cited in Basu, 1984, 10). This set of forces is of two
types (Bustelo, 1998): forces of supply (e.g. low production per capita, low propensity to
save, lack of capital, low productivity) and forces of demand, including low purchasing
power and the small size of the market.
For Leibenstein (1957), high demographic growth together with a high propensity
to consume caused by the imitation of the consumption patterns of developed countries
(the so-called “demonstration effect” or “Duesenberry effect”) lead to a “quasi-stable”
equilibrium with low income per capita. Leibenstein also developed the “critical
minimum effort hypothesis”, which is based on the assumption that in every economy
there is a minimum level of feasible investment, when such level is reached, the economy
starts to growth (Basu, 1984).
Since the poverty trap is caused by a pervasive coordination failure, allocation of
resources is not efficient and the market alone cannot succeed in achieving high rates of
growth. As a result, for most AS structuralists government intervention was
indispensable. The state should undertake public investment projects and promote and
coordinate private investment through the elaboration of medium-term plans. This idea
led to the design of investment programs which were based on estimations of shadow
prices and input-output matrixes and which benefited from the advances in linear
programming (Little, 1982).

through ‘roundaboutness’ in the production process (Ciccone and Matsuyama, 1995) or through the
financial system (Acemoglu and Zilibotti, 1997) as an explanation of multiple equilibria and poverty traps. Anglo-Saxon structuralism vs. Latin American structuralism 8
For most of these authors government planning should follow a strategy of
balanced growth, that is, “investment would have to proceed simultaneously in the
economy’s various sectors and industries in the same proportions in which the buying
public apportions the expenditure of its additional income among the outputs of those
sectors and industries” (Scitovsky, 1987, 55). The balanced growth approach
concentrated on matching domestic demand and domestic output without paying too
much attention to international trade. It argued for a policy of import substitution
industrialization (ISI), and rejected the idea that countries should specialize according to
their comparative advantage.
2. Linkages and unbalanced growth
Some AS structuralists, led by Albert Hirschman, while also concentrating on the role of
bottlenecks, external economies, and complementarities, did not see balanced growth as
the best strategy for industrialization. In their opinion, this strategy required too many
financial resources and a huge planning effort and it underestimated the efficiency gains
that a dynamic comparative advantage could provide (Bustelo, 1998).
For Albert Hirschman (1958, 5), “development depends not so much on finding
optimal combinations of resources and factors of production as on calling forth and
enlisting for development purposes, resources and abilities that are hidden, scattered or
badly utilized”. In particular, an optimal strategy for development should increase the
ability of economic agents to make investment decisions, which in Hirschman’s account
was a central problem in developing countries. He believed that a simultaneous
investment effort in many sectors was not required and promoted instead the adoption of
a policy of unbalanced growth. This strategy rested on the idea that a concentration of Anglo-Saxon structuralism vs. Latin American structuralism 9
investment in a few sectors would induce increases in supply in related sectors through
the creation of sectoral shortages and imbalances.
For the proponents of unbalanced growth the selection of the key sectors of the
economy, which received different names such as ‘leading sector’ (Rostow), the
‘propulsive industry’ (Perroux), or the ‘development block’ (Dahmen) (all cited in
Hirschman, 1987), was a key task for the planning authorities. For Hirschman (1958),
governments should favor industries with a strong interdependence or linkages with other
sectors of the economy. He defined two different types of linkages: backward and
forward linkages. An activity A has backward linkages when it stimulates an increase in
investment and production of sectors that act as inputs in its production process, while it
has forward linkages when it induces the creation of new activities that utilize the output
of activity A.
At first it appeared that the development of input-output models would make the
measurements of linkages easy. In fact, during the 60s and 70s different indicators of
8forward and backward linkages based on the Leontief inverse matrix were developed.
Nevertheless, Hirschman himself ended up recognizing that an exact measurement of
backward and forward linkages during the process of development is impossible. This is
so because “output tables cannot reveal which additional industrial branches are likely to
be created in the wake of industrial investment in a given product line” (Hirschman,
1987, 211). They cannot show the impact of technological innovation and the usage of
new inputs in the process of industrialization either. As a result the notion of linkage
slowly became more an analytical concept used to deal with theoretical problems in

8 See Syrquin (1992) for a discussion of different measurements of linkages and for a summary of different
empirical studies that tried to measure the value of linkages in different sectors of the economy. Anglo-Saxon structuralism vs. Latin American structuralism 10
development economics than a policy instrument for planning. The realization of this
fact led Hirschman to extend the meaning of the concept and use it to study the “causal
links between technology, ideology, institutions and development” (Hirschman, 1987,
220). In some of his latest books, Hirschman introduced new concepts such as fiscal and
social linkages and started to think of specific commodities as “acting as a
multidimensional conspiracy in favor of or against development within a certain
historical and sociopolitical setting” (cited in Syrquin, 1992).
The debate over balanced and unbalanced growth, which gave rise to a large body
of theoretical and empirical literature in the 1950s and 60s, was not completely
satisfactory (Little, 1982). First of all, the difference between the two strategies with
respect to the role of international trade was not as great as it is usually assumed. In fact,
both Rosenstein-Rodan and Nurkse acknowledged that imports and exports are important
and thought that balanced growth can enlarge the opportunities for trade. Second, both
approaches coincided in the need for government planning but promoted two different
ways of doing it. Those who favored balanced growth insisted on the convenience of
planning at the macro-level while Hirschman and others believed that project and sectoral
plans would be more efficient. Third, both approaches shed some light on different
dimensions of the development process. Balanced growth theorists were correct in
9pointing out the need for some balance between different sectors of the economy. They
were, however, too optimistic about the technical and financial ability of the state to lead
a big push in an efficient manner and without facing foreign exchange constrains.
Meanwhile, the unbalanced growth theorists’ belief that certain sectors could act as