The Origins and Development of the Latin American Structuralist Approach to the Balance of Payments (1944-1964)

Abstract

The paper offers an historical account of the origins and development of the Latin American structuralist approach to the balance of payments between 1944 and 1964. We focus on the contributions by Raul Prebisch, Celso Furtado and Juan Noyola, all of them members of the United Nations Economic Commission for Latin America (CEPAL) during the 1950s. Structuralist authors stressed the differences between balance of payments dynamics in developed (industrialized) and underdeveloped economies. Prebisch used the foreign trade multiplier concept to distinguish the business cycle mechanisms at the “centre” and at the “periphery”. Noyola introduced the notion of external disequilibrium as a feature of the economic development process. This was further elaborated by Prebisch’s formula connecting the relative rates of growth to the ratio of income-elasticities of imports, later restated by Anthony Thirlwall. Furtado examined in detail the implications of the effective external demand constraint for economic growth, an important element of the two-gap models of the 1960s. The main piece of structuralist research, from an empirical perspective, was the CEPAL 1957 report about external disequilibrium in Mexico elaborated by Furtado and Noyola, which was not published at the time. We discuss that report in the context of the Mexican devaluation of 1954, which also attracted the attention of J.J. Polak and other economists at the International Monetary Fund.