Author Question: Explain why despite enormous natural resources, much of Latin America's population remains in ... (Read 139 times)

lak · **on:** Jun 30, 2018

Explain why despite enormous natural resources, much of Latin America's population remains in poverty and the region has been repeatedly experiencing financial crises.

What will be an ideal response?

Question 2

Refer to above figure. If trade were to open up between P and R, where would the world terms of trade locate in the figure above (somewhere on the PC/PF axis)? Would relative wages (w/r) in the two countries become equal? Is this consistent with the

Heckscher-Ohlin model? Explain.

zhanghao · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Most Latin America population remains in poverty because bad advise and inefficient proliferated about investment decisions having taken. At the same time, the revenues available to those able to exploit limited domestic markets inspired lobbying for imports licenses and expanding the market as well as corruption. Discrimination in the import that alternates financial system and poverty at the lowest income levels grew over time. Government corruption and bad administration of money have been one of the factors that enable Latin America population from growing. Since the 1950s and 1960s many of the Latin America countries in the region were able to attain amazing growth rates by exploiting the initially high returns from moving resources in to industrial uses from inefficient agricultural activities. Instead of using the growth to get rid of debts and decrease the deficit of the country, governments along with corrupt people wasted for getting about the debt that the country was facing.

Answer to Question 2

The terms of trade would settle somewhere between the two autarky relative prices on the PC/PF axis. The relative wages (w/r) will be lower than the highest and higher than the lowest on the vertical axis above, but will not coincide. This last result is in contradiction to the factor price equalization expectation we have from the model.