This book notes that in the 1950s Latin America was the most developed region outside of the industrial countries, yet by the beginning of the 21st century, it had fallen behind East Asia. To explain this, Elson focuses on what he calls “deep determinants of economic development” such as geography, initial conditions, trade integration with the world economy, policies and institutions.

He argues that geography, in terms of resource endowments, was not that different between the two regions but finds Confucianism versus the colonial legacy of Catholic counter-Reformation of Iberian cultures to be important factors. But his main concern is economic policy and the role of political and institutional structures in shaping those policies.

He argues that the development philosophy adopted in Latin America in the 1960s, typified by ‘dependency theory’ and codified by the UN Economic Commission of Latin America (ECLA) under Raul Prebisch, as compared with the pragmatism of Asian policy makers was an important determinant of the differences in the early performance of the two regions. In addition, the role of the state as a coordinator of private sector-friendly and export oriented policies in Asia contrasted with the heavy state intervention in industrialisation and import substitution in Latin America. This explains why the early rapid industrialisation behind protective tariff barriers meant Latin America never gained international competitiveness and fell behind the export-oriented Asian manufacturing growth. The book’s discussion on the role of institutions and governance notes the strength of the meritocratic Asian civil service as opposed to Latin America, where governments tended to be dominated by patron-client relations. The analysis is generally agnostic on the myriad of political systems in both regions be they electoral democracies, repressive regimes that come with military coups, or benign autocracies. But the books praise of Asian policies in dealing with the problems of social exclusion and unequal income distribution sits uneasily given that the region has some of the world’s lowest wage economies.

There is also a useful review of the “changing paradigms in development economics”, tracing the evolution of thinking from the early neo-classical growth theorists to the school that took into account technological progress, to a greater focus now on institutions and the role of the state. The discussion on the ‘developmental states’ in East Asia versus Latin America shows how perceptions of the role of the state have zig-zagged from seeing it as a major driver of industrialisation in the 1960s to seeing it mostly as a problem in the 1980s and 1990s when the Washington Consensus prevailed. At present thinking is reverting back to an active government role, although this time it is not as a substitute for private sector and market but in a supporting role as a coordinator and regulator. There is now finally a more nuanced appreciation of the role of government in promoting growth and employment even in World Bank circles under its Chinese chief economist, Justin Lin.

Having worked in the IMF and World Bank on both these regions, Elson knows his stuff. Together with the review of the theories, this book is a useful introduction to development economics. Many of the factors he cites accounting for the better growth performance of Asia, such as the importance of the Asian meritocratic civil service and the fortuitous shift by these countries into export led-growth just as trade liberalisation and world trade growth took off in the 1960s, are well known and accepted. There are inevitably exceptions to generalisations in an exercise like this. To give one example, Indonesia under Suharto, when it was seen as one of the most successful economies in East Asia, was beset with gross patron-client relationships and governance issues which the country still grapples with.

While this book is good on the in-country factors that could explain the differences in growth, it is weak on the external aspects – the  international and regional context of the development of the two regions. In concluding that it was not a major differentiating factor, Elson defines ‘geography’ too narrowly as climatic and physical natural resource endowment. But one of the most important factors behind East Asian countries’ success is that they were in the right region in the world, with firstly Japan and its miracle growth after WWII investing heavily in the region, and second the locomotive role of China with its extensive supply-chains resulting in the high levels of intra-regional trade that Elson praises.  He does note the difference between the US role in Latin America and the constructive role that Japan played in Asia, recognising the importance of the ‘flying geese’ concept where Japan, then South Korea and China set examples to the rest of the region. But he does not explore sufficiently the impact of US policies in Latin America which – with the exception of NAFTA – seemed to take an interest in its regional back-yard mostly when US banks were in trouble. This is also in contrast with US policies in Asia in the early years of the Cold War when it supported the development of Taiwan, in a way rather similar to the successful ‘developmental’ mission of the EU towards the East European transition economies after 1989.

Although the importance of trade integration is noted, there is little emphasis on international capital flows and the impact of sudden-stop crises on Latin American growth, as seen after the widespread defaults of the early 1980s. For almost a decade before a resolution was found, growth stagnated in Latin American debtor countries, with access to international credit not returning until the early 1990s. The region, as Elson notes, was subject to more systemic banking and other payments crises than any other region in the world and had to contend with the wrenching institutional and political reforms that would follow each crisis in order to regain access to international financial markets. In Asia, with the exception of the 1997 Asian crisis, where IMF programmes were sharply criticised, the lower incidence of financial crises in the region allowed these countries to find their own way forward.  This allowed for more consistency of policy and a more gradual evolution of institutions in Asia. Latin America did not have this option.

It takes two-to-tango in this integrated global economy with large quantities of capital sloshing around. As Elson shows, Latin American countries pursued the wrong policies and over-borrowed, falling into repeated payments crises and economic crises. But in addtion, international creditors engaged in excessive lending, which triggered emerging market crises with capital outflows when conditions in the international financial centres changed. The latest IMF World Economic Outlook considering the potential spillovers from a rise in international interest rates notes that around half of the variance in growth in emerging markets is associated with “external factors” to the country (IMF, WEO, April 2014). In this sense, half of the reason why Latin America fell behind and East Asia moved ahead would need to be sought in ‘external’ factors. Hence this book focuses on only part of the story.