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Costa Rica and Uruguay - The political economy of poverty, equity, and growth, Volume 1
 
Author:Rottenberg, Simon [editor]; Collection Title:A World Bank comparative study
Country:Uruguay; Costa Rica; Date Stored:2002/09/12
Document Date:1993/01/31Document Type:Publication
SubTopics:Environmental Economics & Policies; Governance Indicators; Achieving Shared Growth; Economic Theory & Research; Economic Conditions and VolatilityISBN:ISBN 0-19-520883-8
Language:EnglishMajor Sector:(Historic)Economic Policy
Region:Latin America & CaribbeanReport Number:11644
Sub Sectors:(Historic)Macro/non-tradeVolume No:1

Summary: This study of Uruguay and Costa Rica reveals two countries with striking similarities in initial conditions, economic policies and outcomes. It portrays two countries that have achieved relatively high per capita income through the export of primary products -- coffee and bananas in Costa Rica, beef and livestock in Uruguay. Both countries have also followed redistributive policies and were among the earliest to establish welfare states. This occurred after World War II in Costa Rica and at the turn of the century in Uruguay. The result has been a high degree of equity in both countries, both of which have democratic systems of government. Over time, however as a result of growing urbanization and the interplay of interest group pressures in democratic politics, redistributive policies have led to explicit and implicit taxation of their most productive source of revenue -- the agriculture sector. Entitlements created by the welfare state have been underwritten by an increasing squeeze on the rural sector. This has come about as a result of the growth of public employment and parastatals, discriminatory exchange rate and agricultural price policies, growing trade protection, and inefficient industrialization. Incipient fiscal crises resulted in both countries. In Uruguay this manifested itself as a balance of payments crisis triggered by the large oil price increase of the early 1970s; Costa Rica's plight occurred a decade later, when voluntary lending to Latin America was brought to a halt by the world debt crisis and the rise in interest rates. The authors chart the twists and turns in subsequent policymaking in both countries. Both countries aimed to liberalize their economies -- thereby raising their growth rates by increasing their responsiveness to a more turbulent world environment; both aimed to roll back redistributive entitlements that had become unviable. Their success had been mixed, although Uruguay's spectacular growth in the early 1970s, after initial liberalization, shows the potential for growth flowing from good policies that exist in both countries.

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