REAL INCOME LEVELS IN LATIN AMERICA

Abstract

The measurement and inter‐spatial comparison of Latin American real income levels calls for techniques which depart substantially from the conventional procedure of applying such official or free market exchange rates as happen to prevail in any given period. The reasons are varied, the main ones being that in an area such as Latin America prices are notoriously volatile, their structure differs radically from that encountered in other parts of the world, and the exchange rate system is characterized by frequent and usually irregular revisions, while in certain countries a multiple exchange rate system applies and no single factor is available for conversion purposes. In addition, there exists the problem common to all developing countries that the rates to a large extent reflect the exchange value of a limited number of export commodities vis‐à‐vis a wide range of imported goods and in no way typify the internal‐external price relationship for the bulk of production which by its nature fails to enter into international trading transactions.The author has endeavoured to circumvent these difficulties by adopting the often‐discussed “purchasing power parity” approach whereby national accounts data are converted into a common monetary denominator (in this case, the U.S. dollar) expressed in “real” or quantitative terms which as far as possible eliminate inter‐spatial price differences. Results are presented and analyzed, first for the base year 1960, and then for the period 1955–1964 at the level of main expenditure sectors as well as for the total gross domestic product.To the extent that available statistics permitted, results for Latin American countries are also related to the United States and certain countries in Western Europe, a main objective being to determine the approximate dimension of the incomes “gap” and to ascertain whether this is increasing, decreasing or remaining very much unchanged in size.