Institutional Reforms: The Case of Colombia.

Author:Hannum, Christopher Michael
Position::Book review

Institutional Reforms: The Case of Colombia, edited by Alberto Alesina. Cambridge: The MIT Press. 2005. Paperback: ISBN 0 262 51182 7, $35.00. 420 pages.

Even by the standards of a troubled region, Colombia has fared poorly in recent years. At the turn of the new millennium, Columbia was so clearly in need of reform that Alesina and others made it the subject of "Institutional Reforms." Throughout the 1960s, 1970s and 1980s relative macroeconomic and political stability helped Colombia to record growth that consistently outperformed her neighbors. The growth continued through the first half of the 1990s before coming to an abrupt halt resulting in a prolonged slump that caused the first decline in Colombian living standards in decades. The contributors to "Institutional Reforms" attempt to answer "why," and suggest coherent and practical policy changes to help Colombia recover. Their conservative, neoclassical analysis predictably prescribes policies to ensure low inflation and reduce government intervention in the economy.

After Alesina's introduction and summary, Echavarria, Arbalaez and Gaviria describe the salient points of the recent economic history of Colombia. They explain the factors that have led Latin American growth to lag behind that of the world, Asia in particular, as well as the factors that have allowed Colombian growth to outpace that of other Latin American countries. The primary factors leading Asian economies to outperform Latin America include: openness to trade, low inflation, low government consumption, security and the rule of law. Of the factors contributing to Colombia's growth, the most important has been a relatively small and democratic government compared to the rest of Latin America. Colombia's only significant weakness, relative to Latin America, has been the especially weak rule of law, an issue covered in greater detail in Chapter 5 by Levitt and Rubio. However, Colombia's growth fundamentals began to come undone in the early 1990s. While the economy was propelled by speculation in land and housing the Colombian government began to lose its vaunted fiscal discipline, due in part, to an expected windfall from oil extraction that never materialized. During the 1990s, taxes as a share of GDP increased by 50%, while government spending doubled. The government's stock of debt almost doubled while interest payments tripled. In the second half of the 1990s, real per capita GDP shrunk by over 5%. Poverty and...

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