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Debt and development in historical perspective: The external constraints of late industrialisation revisited through South Korea and Brazil

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  • Andrew M. Fischer

Abstract

Current debates about the role of external finance in development mostly overlook the insights from early development economics that late industrialisation generates a structural tendency to run trade deficits, thereby exacerbating rather than relieving external foreign exchange constraints. The developmental role of external finance is therefore based on its strategic marginal contribution to relieve such constraints. External debt in particular also allows countries to pursue industrial strategies without reliance on foreign direct investment. These insights are revisited in this paper as a critical input to both mainstream and heterodox contemporary scholarship on debt and development. While the mainstream generally avoids discussion of state‐led industrial policy, the heterodox has converged on a view that developing countries should avoid external finance. The contrasting external account histories of South Korea and Brazil are examined to demonstrate the validity of the classic insights and the contemporary fallacies. While the South Korean case speaks much to its geopolitical context, this does not necessarily refute the principle that post‐war late development engenders an intensive demand for external finance, which must be met if industrialisation strategies are not to be stymied, as in the case of Brazil, no matter how effectively domestic strategies are conceived and implemented.

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  • Andrew M. Fischer, 2018. "Debt and development in historical perspective: The external constraints of late industrialisation revisited through South Korea and Brazil," The World Economy, Wiley Blackwell, vol. 41(12), pages 3359-3378, December.
    • Handle: RePEc:bla:worlde:v:41:y:2018:i:12:p:3359-3378
    DOI: 10.1111/twec.12625
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    Cited by:

    1. Mara Leticia Rojas & María María Ibáñez Martín & Carlos Dabús, 2023. "Is Debt Always Harmful for Economic Growth? Evidence from Developing Countries," Working Papers 292, Red Nacional de Investigadores en Economía (RedNIE).
    2. Isaac Abotebuno Akolgo, 2023. "Ghana's Debt Crisis and the Political Economy of Financial Dependence in Africa: History Repeating Itself?," Development and Change, International Institute of Social Studies, vol. 54(5), pages 1264-1295, September.
    3. Gruber, Aaron, 2023. "Navigating a world of constraints: Developmentalism, industrial policy, and the limits to structural transformation in Ethiopia," ÖFSE-Forum, Austrian Foundation for Development Research (ÖFSE), volume 87, number 287748.
    4. Ingrid Harvold Kvangraven, 2021. "Beyond the Stereotype: Restating the Relevance of the Dependency Research Programme," Development and Change, International Institute of Social Studies, vol. 52(1), pages 76-112, January.
    5. Samuele Bibi & Sebastian Valdecantos, 2023. "The Price (and Costs) of Macroeconomic Stability in Peru: Some Lessons on the Implications of FDI‐driven Growth," Development and Change, International Institute of Social Studies, vol. 54(5), pages 1136-1168, September.
    6. Rekiso, Zinabu Samaro, 2020. "Trade deficits as development deficits: Case of Ethiopia," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 344-353.
    7. Bibi, Samuele & Valdecantos, Sebastián, 2023. "The price (and costs) of macroeconomic stability in Peru: Some lessons on the implications of FDI-driven growth," Nülan. Deposited Documents 4078, Universidad Nacional de Mar del Plata, Facultad de Ciencias Económicas y Sociales, Centro de Documentación.
    8. Bibi, Samuele, 2024. "Oil revenues, FDI and balance of payment dynamics: The case of Kazakhstan between the supercycle commodity boom and financial subordination," Resources Policy, Elsevier, vol. 90(C).

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