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Peru, Trade, and Growth

The Wall Street Journal‘s Mary Anastasia O’Grady is always worth reading — and this recent essay that she penned is no exception to this rule.  It’s entitled "Peru Takes the Other Path."  Here’s a selection:

Yet price stability on its own would have left the country [Peru] well below
its potential. Far more impressive is the restructuring of the economy,
which has led both to growth and to a more equal distribution of
opportunity. While a boom in commodity prices has certainly fueled
development of late, Peru is also sprouting entrepreneurs in a variety
of nontraditional industries. And these innovators are making their way
onto the global stage.

The key reform that has made all this possible is the
opening of the economy, which until 1990 had very high tariffs designed
to protect local industries.

Peruvian journalist Jaime Althaus documents the
effects of the opening in his 2007 book (Spanish only) titled "The
Capitalist Revolution in Peru." Far from "deindustrializing" the
country, Mr. Althaus argues, trade liberalization has strengthened
Peruvian manufacturing. Under high tariffs, the industrial sector
served mainly as an auto and electronics assembler, using inputs from
abroad. But when protection ended, local manufacturing began to
discover its comparative advantages.

There were plenty. High growth rates – averaging 11% a
year from 1990-2002 – have occurred in sectors that make china,
porcelain, knitted fabrics, plastic products and basic chemicals, to
mention a few.

The story of the "cluster" of small metallurgical
companies that has emerged in Lima is especially compelling. In recent
years, these entrepreneurs have been competitive in bidding for work
that was previously dominated by important international firms. They
have also become exporting powerhouses.


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