6 the Political Economy of Latin American Development
6 The Political Economy of Latin American Development One of the most pervasive themes in previous chapters has been the relation between institutions and growth-enhancing policies. In sharp contrast to our opening chapter, which focused on income inequalities and long-term growth trajectories dating back to Latin America's colonial period-when the region was predominantly rural-this chapter is closest in spirit to chapter 3 on state interven tion under ISL Specifically, this chapter analyzes the underlying political economy of populist upsurges in predominantly urban areas in which macroeconomic populisf!l has taken hold. The phenomenon is not new. Populism in Latin America dates back to the 1920s.1 More recently, political economy issues that emphasize the ethnical divide between Latin America's Europeans and mestizos and between indigenous and nonindigenous populations have been added to the new wave of populist topics in contemporary Latin America. Populism is difficult to define. In Latin America, however, the meaning of popu lism is slightly less difficult to determine. From an economist's standpoint, and paraphrasing Dornbusch and Edwards's groundbreaking work, largely inspired by twentieth-century Latin America, macroeconomic populism is an approach to economics that emphasizes growth and income distribution and deemphasizes the risk of inflation and deficit finance, external constraints, and the reaction of economic agents to aggressive nonmarket policies.2 Contrary to what chapter 4, with its focus on structural reforms of the 1980s and 1990s, may seem to indicate, macroeconomic populism is not just a ghost from the past. Populism in different forms and shapes is a twenty-first-century Latin American reality.
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