Journal of Post Keynesian Economics / Summer 2010, Vol. 32, No. 4 623 © 2010 M.E. Sharpe, Inc. 0160–3477 / 2010 $9.50 + 0.00. DOI 10.2753/PKE0160-3477320408 ESTEBAN PÉREZ CALDENTEY AND MATÍAS VERNENGO Back to the future: Latin America’s current development strategy Abstract: In the years 2002 to 2006, Latin America registered, on average, one of the highest growth rates in over two decades. The empirical evidence suggests that the good economic performance of the past six years is increasingly and strongly correlated either with a positive terms-of-trade shock, mostly in South America, or with the increase in the flow of remittances, particularly in Central and North America. In other words, Latin America now exports commodities and people. The paper shows the possible limitations of this development strategy. Key words: development strategy, remittances, terms of trade. In the years 2002 to 2006, Latin America registered one of the highest average growth rates in over two decades. Aggregate demand decomposi- tion into the three major sectors of the economy (external, government, and private) shows that the growth trajectory is explained mainly by the favorable performance of the external sector and, to a lesser extent, by the increase in the debt of the private sector. 1 Since the late 1990s, Latin America has been able to reduce its current account imbalance, and from 2002 onward, managed to achieve a surplus. The improvement in the external sector conditions is attributable partly to a price commodity boom that benefited a subset of Latin American countries—namely, those that specialize in the exports of commodity products—comprised of mainly South American economies and Mexico. The commodity boom was triggered in part by the increased demand for Esteban Pérez Caldentey is an Economic Affairs Officer at the Economic Commission for Latin America and the Caribbean (ECLAC) (Santiago, Chile). Matías Vernengo is an Associate Professor at the University of Utah. The opinions here expressed are the authors’ and may not coincide with those of the institutions with which they are affiliated. Preliminary versions were presented at Facultad Latinamericana de Cienias Sociales (FLACSO), Quito, and the University of Utah, March 2008, and the authors thank several comments by participants. The authors thank the valuable comments made by an anonymous referee and comments by Jan Kregel and Mark Weisbrot. 1 See Eatwell and Taylor (2000) and Godley (2000).