Article Reviews

South America’s Conundrum

Just read a New York Times article “The Resource Trap” which highlighted an interesting issue with South American countries. In recent years, China has had a huge appetite for raw commodities, importing soybeans from Brazil and Argentina, iron ore from Brazil, copper from Chile, oil from Brazil and Venezuela, etc.

For these South American countries, commodity exports to china accounts for a huge portion of GDP (50% in 1980s, 27% in 1999, 39% in 2009). And because of that, they are subjected perennially to the boom and bust cycles of commodity usage. This has also led to wild currency fluctuations.

To mitigate this, the countries are trying to diversity into other areas such as manufactured products, value-added products (e.g. ethanol, chocolate), services, and other products (e.g. wine, salmon, fruits). However, the demand for commodities has caused resources to be channeled to meet that demand, hence impeding progress on those other fronts. While it is good that there is great demand for what the countries can export, it has also trapped them in doing just that.



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