chapter  11
25 Pages

The Role of International Trade in Growth and Employment Generation in Paraguay

ByFernando Masi, Francisco Ruiz Díaz

As a small country, Paraguay is substantially dependent on world markets to secure its economic future. It shares this destiny with such other small countries as Singapore, Taiwan, Hong Kong, Ireland, the countries of Central America and the islands of the Caribbean, all of which are relatively “open” economies. Such dependency is especially notable when a country is searching for a way to emerge from a relatively lengthy pattern of stagnation to sustained growth, as Paraguay is today (see Chapter 1). Most small countries that do achieve growth-bursts have built them around growing exports to world markets; such was in part the case of Paraguay earlier with the exports of cattle, cotton and electricity, but the country has also suffered severe downturns when exports lost their growth-inducing potential. Countries that have been able to overcome such fluctuations and maintain robust sustained growth are those that have developed a capacity to identify and encourage new competitive products, such that when a previously successful export loses its advantage the country already has others ready to substitute for it. In contrast, Paraguay’s phase of rapid export-based growth from the mid-1970s until 1981 (when growth averaged close to 10 percent per annum) came as a sort of free gift, in that it was not the result of any careful or sophisticated process of planning or execution. Another important development, the “triangular” trade 216consisting of under-invoiced or unregistered imports of final goods from third countries and their (also illegal) re-export to Brazil and Argentina, was also something of a historical accident. When conditions for these two types of trade became less favorable, the country fell into a prolonged period of stagnation, from which it has not yet been able to fully recover.