April 27, 2006
1 This paper is a chapter of the book Venezuela: Anatomy of a collapse, edited by Ricardo Hausmann and Francisco Rodríguez. Francisco Rodríguez thanks the Kellogg Institute of International Studies of the University of Notre Dame and the Instituto de Estudios Superiores de Adminstración for their financial support. Reyes Rodríguez provided excellent research assistance.
Toward the end of the 1970s, Venezuelan economic growth experienced a stunning reversal. Since the beginning of the century, the country had undergone a sustained economic expansion that took if from being one of the poorest countries in the region to being the second-richest one even before the first oil boom.2 In 1979 that trend made an about-face. 3 Venezuelan non-oil per capita GDP declined at an annual rate of 0.9% over the ensuing 23 years, for a total cumulative decline of 18.6% What is more striking is that this occurred despite a significant incorporation of new workers into the labor force which should have ceteris paribus raised per capita income. Therefore, per worker GDP fell at an annual rate of 1.9% in the non-oil sector; its cumulative decline was 35.6%.
The causes of this collapse are not well understood. It is true that Venezuela was prey to many of the factors that characterize resource-dependent economies such as exposure to terms of trade volatility, an appreciated exchange rate that is unfavorable to the production of tradables, and a highly inefficient public sector. But all of these factors seemed to be able to coexist with economic growth during the more than half a century of sustained expansion that preceded the collapse. Indeed, Venezuela was widely viewed twenty-five years ago as an example of how to tackle the development process. For example, in October 1981 American Political Scientist Peter Merkl wrote: “It... [continues]
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