Peru-Historical Background GROWTH AND STRUCTURAL CHANGE

Through the nineteenth century and into the mid-twentieth century, the great majority of the Peruvian population depended on agriculture and lived in the countryside. By 1876 Lima was the only Peruvian city with over 100,000 people--only 4 percent of the population (see table 3, Appendix). Much of the impetus for economic growth came from primary exports (see Glossary). In common with the rest of Latin America up to the 1930s, Peru maintained an open economic system with little government intervention and few restrictions on either imports or foreign investment. Such investment became highly important in the twentieth century, especially in the extraction of raw materials for export.

For many Latin American countries, the impact of falling export prices and curtailed external credit in the Great Depression of the 1930s led to fundamental changes in economic policies. Many governments began to raise protection against imports in order to stimulate domestic industry and to take more active roles in shaping economic change. But Peru held back from this common move and kept on with a relatively open economy. That put it behind many other countries in post-World War II industrialization and led to increasing pressures for change. Significant protection started in the 1960s, accompanied by both new restrictions on foreign investment and a more active role of government in the economy.

One of the country's basic problems has been that the growth of population in the twentieth century outran the capability to use labor productively. The ratio of arable land to population-- much lower than the average for Latin America--continued decreasing through the 1970s. Employment in the modern manufacturing sector did not grow fast enough to keep up with the growth of the labor force, let alone provide enough opportunities for people moving out of rural poverty to seek urban employment. The manufacturing sector's employment as a share of the labor force fell from 13 percent in 1950 to 10 percent in 1990.

Data as of September 1992

Figure 8 Gross Domestic Product (GDP) by Sector, 1990

Source: Based on data from Banco Central de Reserva del Perú, Memoria 1990, Lima, 1991.

Historical Background

Through the nineteenth century and into the mid-twentieth century, the great majority of the Peruvian population depended on agriculture and lived in the countryside. By 1876 Lima was the only Peruvian city with over 100,000 people--only 4 percent of the population (see table 3, Appendix). Much of the impetus for economic growth came from primary exports (see Glossary). In common with the rest of Latin America up to the 1930s, Peru maintained an open economic system with little government intervention and few restrictions on either imports or foreign investment. Such investment became highly important in the twentieth century, especially in the extraction of raw materials for export.

For many Latin American countries, the impact of falling export prices and curtailed external credit in the Great Depression of the 1930s led to fundamental changes in economic policies. Many governments began to raise protection against imports in order to stimulate domestic industry and to take more active roles in shaping economic change. But Peru held back from this common move and kept on with a relatively open economy. That put it behind many other countries in post-World War II industrialization and led to increasing pressures for change. Significant protection started in the 1960s, accompanied by both new restrictions on foreign investment and a more active role of government in the economy.

One of the country's basic problems has been that the growth of population in the twentieth century outran the capability to use labor productively. The ratio of arable land to population-- much lower than the average for Latin America--continued decreasing through the 1970s. Employment in the modern manufacturing sector did not grow fast enough to keep up with the growth of the labor force, let alone provide enough opportunities for people moving out of rural poverty to seek urban employment. The manufacturing sector's employment as a share of the labor force fell from 13 percent in 1950 to 10 percent in 1990.

Data as of September 1992