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The history of supply economies such as Uruguay illustrates the resource curse theory

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Introduction

The history of supply economies such as Uruguay illustrates the resource curse theory. Uruguay is a Latin American country squashed between Brazil and Argentina, two large and better-known neighbours. Migrant populations arrived mainly from Italy and Germany at the end of the nine-teenth century and the country developed, rather unusually for Latin America, as a country of small farmers with relatively few large estates (haciendas). Labour was in short supply so wages were high, and family farms tended to dominate. A society developed with a relatively even income distribution and no great distortions of wealth. The only resource was the land, which was plentiful and reasonably fertile. A pastoral economy developed, specialising in production of cattle and sheep for export. ...read more.

Middle

The wealth created was re-invested in a highly advanced welfare system, health service and infrastructure. This led contem- porary observers to describe the country as the Switzerland of South America (in other words, small and rich!). It was, according to some estimates, the eleventh wealthiest nation in the 1930s. Growth rate 0.77% Birth rate 17.42 per 1000 Death rate 9.06 per 1000 Infant mortality 14.14 per 1000 live births Fertility rate 2.37 Literacy 97.3% Montevideo was the capital and only urban centre with a primacy of x20. Its functions were administra-tive, educational and as a port for trade on which the country depended. Following the Second World War the Uruguayan 'miracle' began to unravel. ...read more.

Conclusion

of industrialisation high costs of starting up from scratch, which increases the import bill as machine tools all have to be imported. Thus the industrialisation programme incurred very high costs for few returns, so the following sequence occurred. * The government was obliged to cut back on welfare and education and to increase taxation. * More money was printed, which led to hyper-inflation. * Strikes and civil unrest led to the rise of the Tupamoras guerrilla movement. * 1 million people fled into neighbouring countries such as Brazil, as civil war broke out. * In 1973 the military took over. * Uruguay reverted to an export-oriented economy specialising in cheap semi-processed products, e.g. leather goods, for a market largely in Brazil and Argentina. * Uruguay slid down the 'league' table of wealth and development. ...read more.

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