The New Center-Periphery Relations

A new paper (in Portuguese) by Carlos Medeiros and Esther Majerowicz analyzes the economic relationship between China and Brazil using the center–periphery framework developed by Raúl Prebisch. It argues that, in the 21st century, this relationship reflects a dual process: China’s rise as a new global economic “center” and Brazil’s passive adaptation as a peripheral economy, reinforcing asymmetric development patterns.

A key claim is that China has become central not just because of its size, but because it is now a major source of industrial production and technological innovation, influencing global demand, trade patterns, and commodity prices. Its growth has reshaped the world economy, especially by increasing demand for raw materials and lowering prices of manufactured goods. For Brazil, this has led to a reprimarization of exports. The country increasingly exports commodities (soy, iron ore, oil) to China while importing manufactured goods. This pattern strengthens traditional center–periphery dynamics, despite being framed politically as South–South cooperation. This suggests similar problems as identified by myself and Esteban Pérez in a paper discussing the development strategies in Latin America. The main difference is that in the last decade and a half, the central position of China is more clear, even if the typical notion that American hegemony is over has been exaggerated in American liberal circles.

The authors identify two possible development paths. The dominant one is a business as usual strategy, aligned with Chinese demand and Brazilian agribusiness and mining interests, which deepens dependency. The alternative is a developmental strategy based on diversification, industrial upgrading, and technological cooperation, but this path seems currently unlikely. They also emphasize that Chinese investment in Brazil is concentrated in extractive industries and infrastructure, reinforcing the existing specialization pattern, although there are some emerging opportunities in sectors like renewable energy and digital technologies.

Finally, the paper argues that shifting toward a more balanced relationship would require active state planning, political will, and supportive social coalitions in Brazil. Without these, the current asymmetrical structure is likely to persist or deepen.

Development by invitation: a short digression on the concept

 

Development? Be my guest 

The concept of development by invitation, as far as I know, and most of my knowledge comes from Esteban Pérez's paper in a book we co-edited long ago,  originates with Arthur Lewis and refers to a development strategy in which small developing economies attract foreign capital to initiate industrialization. For Lewis, the problem of many small developing economies, particularly in the Caribbean, was that they lacked several key elements required for industrialization, namely: domestic capital, entrepreneurial skills and large domestic markets. Because of these constraints, industrialization could not easily emerge through domestic investment alone. Lewis therefore proposed industrialization by invitation, meaning that governments should invite foreign firms to establish manufacturing activities in the country.

Immanuel Wallerstein refers to a path of development in which a peripheral country advances economically because the multinational corporations from central countries actively expand into the world economy. This development occurred not through autonomous national transformation, but through external investment resulting from political and economic cooperation with central countries. For Wallerstein, the concept referred to a structural process within the capitalist world-system. In his framework, central countries allowed limited industrialization in some peripheral areas as multinational firms relocated production. That was, in fact, to some extent the phenomenon in a good part of the Latin American periphery, In other words, development by invitation was not a development policy, but a mechanism of global capitalism that reorganized production.

In the work of Carlos Medeiros (published with Franklin Serrano; he is pictured above), the notion of development by invitation refers to a historical process in which peripheral or late-industrializing countries accelerate their development because the leading powers of the international system actively support or tolerate their industrialization for geopolitical reasons. The concept is embedded in their analysis of international monetary regimes and growth dynamics. Growth is demand-led, and based on the supermultiplier, if that wasn't clear.

For Medeiros, the starting point is that capitalism naturally generates divergence between countries due to structural asymmetries in military power, technological capabilities, and monetary hegemony. All three are interrelated. Because of these asymmetries, most peripheral countries face a balance-of-payments constraint that limits growth. However, in certain historical periods, some countries can overcome these constraints when the dominant power facilitates their development.

For Medeiros,  development is not simply the relocation of production associated to multinational or transnational firms, be that as a policy strategy or an endogenous process of integration within the capitalist system. It involves state-led industrialization and strategic geopolitical support from the hegemonic power. Hence, development by invitation can produce successful industrial catch-up, not merely integration into the world economy.

Note that Esteban's discussion implicitly highlights a critique of the early concept from a structuralist perspective. Even though Lewis viewed the strategy as a path to development, in practice it often led to enclave industrialization and persistent dependence on multinational firms. The outcome sometimes resembled the type of dependent integration emphasized by Wallerstein. In a sense, Medeiros version is a further critique, suggesting that the interaction of political coalitions, behind the developmental state, and the geopolitical context matter.

Note that one might be correctly skeptical  of the notion that a country develops simply because the hegemonic power invites it to do so. Even acknowledging that favorable geopolitical contexts existed, such as those of Japan, South Korea, or several European countries in the postwar period, one might argue that development was ultimately the result of internal strategies, that is, strong states pursuing active industrial policies of technological catch up. In this view, the invitation may have constituted a favorable external framework, but it was never the decisive factor.

However, this critique appears to address a somewhat simplified interpretation of Medeiros’ concept. In his framework, development by invitation was never presented as a purely external process or as a microeconomic explanation based on private decisions. The concept was formulated in macroeconomic and geopolitical terms, placing emphasis precisely on the role of the state. The question was not whether Japan or Korea developed simply because the United States invited them, but rather why certain developmental states were able to industrialize so rapidly through manufactured exports. The answer highlights that these states benefited from exceptional external conditions. First, the unilateral opening of the US market, financial transfers,  very often facilitated technological transfers, beyond tolerance toward aggressive industrial policies, and strategic support within the context of the Cold War. This was not diplomatic magic, but rather a combination of an internal developmental state and a relaxation of the external constraint facilitated by American hegemony.

In other words, Medeiros’ concept does not attempt to explain development exclusively through external factors, but rather to illuminate why certain developmental states faced fewer external constraints, had greater access to financing, and enjoyed broader access to strategic markets than others. This allowed for a particular mix of export promotion and import substitution and helps explain why several Asian countries not only avoided the lost decade that followed the debt crisis of the 1980s, but also managed to accelerate their process of industrialization as a good part of the center, and other peripheral regions deindustrialized.

If the discussion is brought to the current Argentine case (I wrote a short note on this in Spanish), the most important point may not be to deny the relevance of the concept but to recognize that Argentina today lacks a developmental state capable of taking advantage of any potential invitation. If the government dismantles industrial, technological, and financial policy instruments, then whether a country is invited or not becomes almost irrelevant. The issue is not whether Washington extends a diplomatic invitation, but whether there exists a national strategy capable of transforming a favorable geopolitical context into productive accumulation.

Ultimately, the debate should not revolve around whether development arrives mechanically by invitation, but rather around the interaction between internal state strategy and external conditions. Development has never been automatic or purely external, but neither has it been independent of the geopolitical order and the decisions of the hegemonic power.

Development Finance, External Constraints and Effective Demand in Maria da Conceição Tavares' Thought

 

A panel about Maria da Conceição Tavares with talks by three of her disciples and students, Ricardo Bielschowsky, Carlos Medeiros and Franklin Serrano.

New issue of ROKE is out

The April Issue of the Review of Keynesian Economics is now out. The issue contains a collection of articles covering a spectrum of important issues. It opens with a debate over New Developmentalism which pits development relying on macro prices (especially the exchange rate) against historical state-led development policies. Next, there is an article on the role of the wage share in determining exchange rates. Thereafter, there are several articles on Post Keynesian growth theory. One addresses the evolution of income and wealth inequality, while others empirically assess alternative approaches to theorizing demand growth.

Two paper are open: "A Structuralist and Institutionalist developmental assessment of and reaction to New Developmentalism" by Carlos Aguiar de Medeiros and "Making sense of Piketty's ‘fundamental laws’ in a Post-Keynesian framework: the transitional dynamics of wealth inequality" by
Stefan Ederer and Miriam Rehm.

New book on the Brazilian economy

If you read in Portuguese this book by Professor Carlos Medeiros is a must. If you don't, learn Portuguese, and read his book. Meanwhile read this paper, on a different topic.

Natural Resource Nationalism and Fiscal Revenues

One of the relevant points made by Amico and Fiorito for the case of Argentina, that apply to many countries in the region, is the increase in fiscal revenue that was associated to the higher national participation in the gains from exports of primary goods. This has been, in part, associated to the left of center governments and the so-called Natural Resource Nationalism. The table below shows the evidence.

It can be seen that, with the exception of Mexico and Venezuela, where State revenue from oil was already high, in all other countries there was a significant increase in State revenues. Governments have appropriated primary export earnings and turned them into fiscal resources by taking a share of operating earnings, either through public enterprises (which included nationalization in some cases) or through equity holdings, more stringent requirements on the payments of royalties, and by levying taxes on export earnings.

Read more on the fiscal situation in Latin America in ECLAC's report here. For more on Natural Resource Nationalism read the following paper by Carlos Medeiros (h/t Revista Circus).

What's the deal with MERCOSUR/SUL?

First there is the issue of whether it should be called MERCOSUL in Portuguese or MERCOSUR in Spanish. More people speak Portuguese, but more member countries speak Spanish. But that is not a real problem. The problem that almost nobody understands is that it is a Free Trade Agreement (FTA). While MERCOSUR/SUL is an alternative to the Free Trade Area of the Americas (FTAA) in the sense that it excludes larger integration with other regions, and the US in particular, it is a Free Trade Agreement (FTA), and was part of the neoliberal logic of integration that came to dominate in both Argentina and Brazil in the 1990s when the main agreements were signed. Per se the treaty is not better than the North American Free Trade Area (NAFTA), and the main advantage is that, given that the initial asymmetries between Argentina and Brazil were smaller than between Mexico and the US, the negative effects were also less significant.

There is little connection with the logic of integration that was defended from the 1950s onwards by the economists at the Economic Commission for Latin America (ECLA) – and the Caribbean, now (ECLAC) – which was based on industrial integration for the creation of economies of scale. In Prebisch's view the aim of integration was to support industrialization. In fact, to some extent the boom in South America – in contrast to Central America and Mexico – in the 2000s has been based on a peripheral integration with Asia, in particular China, that allows for the exports of commodities. In that sense, the Bolivarian project is based on a change in State ownership, wherever it was possible, and an increase in the State’s share of the absolute rents associated with commodity exports, and an increase in transfers programs. Something that has been named natural resource nationalism [on the problems of national resources and development strategies see the paper by Carlos Medeiros here].

The degree of industrial development has been limited in the region during the last decade (meaning import substitution re-industrialization), even if it is far from clear that deindustrialization has really occurred, that is, a Dutch Disease problem (I would argue there is almost no case for it). Also, integration of infrastructure or regional financial development have been limited at best, and most plans (like the Banco del Sur or Sul in Portuguese) remain in its early stages. But the limitations of the process of integration should not lead to the notion that we need more integration at any cost in the region. In fact, one of the great advantages of Brazilian external policy is that is has refrained from getting into FTAs and Bilateral Investment Treaties (BITs), preserving policy space, as noted by Kevin Gallagher.

It is important to emphasize that more trade does NOT depend necessarily on reducing the ability of the State to manage trade flows (what is often referred to as Free Trade; for critiques of the comparative advantage theories of trade see here, here and here). Trade integration should not be made at the expense of national development policies, and further integration, with Asia or even within the region, should take place, but subordinated to the development of national processes of industrialization. MERCOSUR/SUL too should be envisioned, less as a FTA, and more as an instrument of mutual support for those national strategies.