Introduction xi 
PART ONE GROWTH AND THE DYNAMICS 
OF PRODUCTIVE STRUCTURE 
1 THE QUEST FOR DYNAMIC EFFICIENCY: STRUCfURAL DYNAMICS 
AND ECONOMIC GROwm IN DEVELOPING COUNTRIES 3 2 TRADE OPENNESS AND TECHNOLOGY GAPS IN LATIN AMERICA: 
A "Low-GRowm TRAP" 45 3 FoUR SOURCES OF "DE-lNDusTRlAUZA110N" AND A NEW 
CONCEPT OF mE "DUTCH DISEASE" 71 4 GLOBALIZA110N, RISING LABOR lNEQUALITY, AND POVERTY 
IN LATIN AMERICA 117 
P ART Two MACROECONOMIC VULNERABILITIES 
5 DEVELOPING-EcONOMY CYCLES 145 6 FISCAL PouCY EFFICACY AND PRNATE DEFICITs: 
A MACROECONOMIC APPROACH 161 
7 EXTERNAL DEBT, GROwm, AND SUSTAINABIUTY 189 8 DIVERGENCE AND GROwm COLLAPSES: THEORY AND 
EMPIRICAL EVIDENCE 211 
Index 233 
FIGURES 
1.1 Productivity and GDP Dynamics 27 1.2 Effects of a New Wave of Innovations 28 1.3 Effects of Favorable Macroeconomic Shock 29 1.4 Three Possible Outcomes 31 2.1 Trade Multiplier and Its Determinants 51 2.2 Imports and Exports in the Postreform Period 
(Annual Growth Rates) 53 2.3 Growth and Trade Balance 54 2.4 Trade Multiplier in the Latin American Countries, 
Before and After Reforms 57 2.5 Trade Multiplier, 1970-80 and 1985 to the Last Year 
of the Postreform Period 64 3.1 Manufacturing and Services in the EU, 1960-2000 73 3.2 Rowthorn's Regression: Manufacturing Employment 
and Income Per Capita, 1990 76 3.3 Second Source of De-Industrialization: A Declining 
Relationship, 1960-98 77 3.4 Third Source of De-Industrialization: A Changing 
Turning Point in the Regression, 1960-98 80 3.5 Fourth Source of De-Industrialization: Cases of 
Overshooting? 82 3.6 Primary Commodity and Export Services Effects, 1998 83 3.7 Changes in Manufacturing Employment and Income in 
Primary Cornmodities, 1960 and 1998 84 3.8 a. The Netherlands: Unraveling the Dutch Disease, 
1960-98; b. The United Kingdom: Catching the Dutch Disease, 1960-98; c. The Netherlands and Five 
Countries of the EU, 1960-98; d. The Netherlands 
and Four Traditional Primary Cornmodity Exporters, 
1960-98 86 
3.9 a. Greece, Cyprus, and Malta: A Tourism Dutch Disease? b. Luxembourg, Hong Kong (China), 
and Switzerland: A Financial Dutch Disease? 89 3.10 Argentina, Brazil~ and Chile: Catching the Dutch 
Disease? 91 3.11 a. Nordic Countries: Three Different Industrialization 
Paths, 1960-98; b. Finland and Chile: An Anti-Dutch Disease and a Dutch Disease Industrialization? c. Finland: Changing Vertical Integration in 
Timber-Based Exports, 1963-2000 94 3.12 a. NIE-2s: Manufacturing Employment and Income 
Primary Cornmodity, 1960-98; b. NIE-1s: Manufacturing Employment and Income Primary Cornmodity, 1960-98 97 
3.13 Central America and Mexico: The Maquila Effect, 
1970-98 99 
3.14 The Andean Pact in South America, 1998 101 3.15 China, India, and Turkey: Manufacturing Employment 
and Income Primary Commodity, 1950-98 102 4.1 Initial Equilibrium Positions in Traded and Nontraded Goods Markets and Probable Shifts After Current and Capital Accounts Liberalization 124 4.2 Growth and Poverty in Latin America in the 1990s 128 4.3 Poverty and Inequality of Per Capita Household 
Income in Latin America During the 1990s 136 5.1 Closed Orbits in the Goodwin Model 148 5.2 Contractionary Devaluation Cycles 150 5.3 Cyclical Adjustment of Reserves and the Return 
Spread After a Shift in Foreign Portfolio Preferences Toward Home Bonds 153 5.4 An Animal Spirits Cycle in the Lavoie-Godley Model 157 6.1 From Prosperity to Adjustment, Chile, 1994-2001 171 6.2 Surplus Accounting for Selected Economies, 
Percent of GDP 173 6.3 GDP Growth and Real Exchange Rates 174 7.1 Stable and Unstable Dynamics of the Debt-Output 
Ratio 199 7.2 Effects of Capital Account Shocks, Given Different 
Debt-Export Ratios 200 7.3 Multiple Equilibria 201 7.4 Combined Effect of Debt-Export Ratio and Country 202 
Risk Premiums 7.5 Demonstration of Debt Sustainability Conditions 204 7.6 Effects of Lower Limits to the Absorption-Output 
Ratio 206 
TABLES 
1.1 Typology of Processes of Structural Change 22 2.1 Timing of Reforms 52 2.2 Theoretical Abacus of the Trade Multiplier 56 2.3 Structural Change in Latin America, Before and 
After Reform 58 2.4 Growth Rate and Trade Balance Applied to the 
Model, After Reform 59 2.5 Structural Change in Latin America, 1970-80, 
1985-99 64 
2.6 Growth Rate and Trade Balance Applied to the 
Model, 1985-99 65 
3.1 Employment in Manufacturing (% of total) 75 4.1 Factors of Growth in Latin American Countries in 
the 1990s 130 4.2 Productivity Growth 131 4.3 Growth and Inequality in Latin America in the 1990s 134 8.1 International Differences in Income Levels and 
Growth Rates 213 8.2 Long- Term Income and Growth Rates Predicted 
by Three Neoclassical Models 214 8.3 Incidence of Growth Collapse at Different Income 
Levels 221 8.4 Cases of Growth Collapse 222 8.5 Incidence of Collapse in Different Types of Economy 225 8.6 Inequality and Incidence of Collapse 226 8.7 Type of Economy, Inequality, and Growth Collapse 227