1. Analyze some of the characteristics of the Spanish and/or Portuguese colonial America, which constituted obstacles to the economic development of the region.- Spanish Colonial America was conquered and was forced to accept centralized and legalistic bureaucracy, which resulted in impeding the economic development. - All decisions were made to benefit the royal center instead of to improve productivity of the colonies. - Trade was also restricted to a few ports and ports were closed to foreigners. There was lack of investment in communications. - An overlapping power between church and state caused inefficient administration. Only “peninsulares” that are born in Spain were allowed to hold office, not “criollos” that are non-European blood. Also, evolution of latifundism caused landowners to manage their landpoorly. - Most of the wealthy class studied law to get favorable positions to thecrown, which meant no investment in other professions leading to lowproductivity and growth. High value was placed on leisure and conspicuous consumption-thus low saving and little productive investment.Portuguese Colonial America, mainly Brazil, had export cycles of Brazilian wood, sugar and gold cycle. Sugar was produced along the coast of NE Brazil mostly by African slaves , which led to poor distribution of income and division of labor. When gold was discovered in central Brazil, the distribution of income shifted to the SE and Central. However, Portugal wanted Brazil to be dependent on Portugal; gold was only traded few times a year and exporters were taxed heavily. The wealth from gold was short-lived and the economy stagnated again.Small market size, low balance of trade, lack of investment, poor division of labor and distribution of income, poor management and low savings became obstacles to the economic development.2.Discuss some of the internal and external factors which impeded the growth and development of Latin America in the century preceding WW1.After independence in 1820s, Latin America slowly integrated into the world market. 1. Fragmentation of Spanish America after independence led to more barriersand less division of labor. Latin America was very dependent on British because Britain supported liberation movements in trade of favorable access of British goods in Latin America. 2. The church lost many of its properties, resulting in decline of education. They used public office to encroach on community lands and thus spread the latifundism.3.Because income distribution was based on power rather than productivity, there were not enough skilled administrators. So there was little incentives toinvest in domestic market.3.A) what happens to the distribution of income in the theories of Ricardo, Marx and Schumpeter?Ricardo’s theory : Classical Development,Weakness: 1. No recognition of agricultural progress 2. No recognition of increasing return to industry 3. Erroneous view of landlord. His theory was based on the fact that profits will lead to capitalists to invest in industry. However, in LA, most of the profits went to hands of landowners since agriculture was the main economics sector. This meant less resource forcapitalists to invest. Ricardo proposed that one could tax landowners to ensure redistribution of income to other sectors for investment.Marxian theory was based on the fact that economic value is consisted of machinery costs, labor costs and profit: (value)V=(fixed cost)C+(variable cost)v+(profit)sMarx thought that the Latin American economy based on the three capitalist crisis. 1st crisis of falling profitability rate: lack of investment would eventually increase capital costs reducing profits. 2nd crisis of disproportionality of income: most of the industries were capital intensive, which means that income would go into non-wage mining section. 3rd crisis ofthe increasing rate of exploitation in capital markets: however, in Latin America, exploitation rate led to under consumption since there were very few competitive sectors, wages were low for spending. Schumpeter’s theory was based on an economic structure focused on bankers, investors, creditors and immigrant workers. He believed that an economic change would cause dynamic growth. However, most economies were mono-exporters in Latin America. Only one industry would get competitive and diversification would have to occur to cause a change and redistribute income.b) How did Nurkse and Lewis handle the existence of disguised unemployment?Disguised unemployment happens when only one sector is competitive. Nurkse believed that only the government could change a vicious business cycle where wages gets lower if only one sector is competitive. Individuals in Latin America were so poor that they had very little or nothing to save. With the government intervention, pushing other industries, it can redistribute income and improve division of labor. Lewis said that increased savings will improve distribution of income and diversify production. An unlimited supply will drive wages low until capitalists use profits to invest in other areas. There will be an increase in wages on other sectors at first, but soon there will be a leveling out and competitive market forces will level out as explained by the disguised unemployment.4.a) what was the impact of free trade on 19th century Latin American economies?Trade patterns in 19 th century were that the North specialized in industrial goods and the South in primary goods. The trade was held according to comparative advantage to produce the goods more efficiently. But it led to extreme dependency of South on North. Since South was extremely specialized economies, it could not counteract the economic depression originating in the North. International investments reinforced thisdivision of labor. With the help of international investment, South produced goods and was forced to import goods that were cheaper than domestic goods and to export only primary goods. Only selected groups benefited fromthis free trade.b) on what basis did Prebisch (and ECLA) criticize free trade with respect to Latin America’s development?Prebisch divided the world into Center and Periphery where Center specialized in industrial goods and Periphery in primary goods. According to Prebisch, there is low income elasticity of demand for food in Center. As the level of income increases, the proportion of income distribution on food is low. Due to technology and synthesis, demand for raw