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I Don't ThinkWe Are i n Kansas Anymore BLAMING VICTIMS is an appealing evasion of responsibility, especially when the victims are far from virtuous. But when sins are as heterogeneous as those of the Latin American regimes of 1980, one wonders how well the exemplary mass punishment fits the alleged individual crime. Most Latin American economies, for a variety of domestic and external reasons, in 1980-81 faced the need for reform and adjustment to the new international economic environment. However, the response was slow, and policy errors continued to be made. Yet the incompetence and torpor of policymakers do not fully explain the depth of the depression of the early 1980s in Latin America and the mediocre outlook for recovery. This paper will argue that what could have been a serious but manageable recession has turned into a major development crisis unprecedented since the early 1930s mainly because of the breakdown of international financial markets and an abrupt change in conditions and rules for international lending. The nonlinear interactions between this unusual and persistent external shock and risky or faulty domestic policies led to a crisis of severe depth and length, one that neither shocks I am grateful to

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. What is to be included among "trade policies"? Pride of place will be given to· those in~luencing significantly the level and composition of exports of goods and services, although those associated with inducing import substitution beyond the levels dictated by market forces will also be discussed. Most LDCs can influence their long.run import level by encouraging or discouraging exports, while in practice, they are unlikely to expand exports just by increasing their imports, a simple point ignored by some import liberalization attempts of the 1960s. In other words, although one can imagine increases in imports triggering mechanisms which will lead to higher exports, the lags and frictions of that process are likely to be substantially greater than those involved between an export rise and the following import expansion. Exchange rate policy, taxes and subsidies on Terms of use: Documents in

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SUMMARY This paper deals with several issues related to the impact of import substitution on a country's demand for imports. With the help of a simple model, it points out that once a given rate of growth has been reached and is maintained through time, the fact that investment expenditures have a high import component will not give rise to balance of payments difficulties, as the direct impact of this year's investment on the demand for imports should be more than offset by last year's investment in the import substituting industry now coming to fruition. The pressures on the balance of payments will arise during the transition period when a country is attempting to step up capital formation in the import substituting sector. The paper also emphasizes the need to take into account all direct and indirect repercussions of an increase in investment on the demand for imports when estimating the foreign exchange savings to be realized from a given investment project. The second part of the paper considers the likely effects of a change in the relative prices of imports on the manufacturing sector producing goods previously imported, but which still relies on imported raw materials and intermediate products, and on the demand for imports. Several reasons are given for a presumption against a high price elasticity in the demand for imports, based on the derived nature of a large component of such demand. Given these structural conditions the alternatives open to a policy maker in a semi‐industrialized country facing the need to cut back imports are likely to be quite grim.