Expansion of the economic frontier: Paraguayan growth in the 1970s

The rapid growth of the Paraguayan economy over the last decade is analyzed in terms of the expansion of agricultural production and an increase in construction activity. Construction of the Itaipu Dam, the world's largest hydroelectric project, has provided employment and spurred private construction. A government colonization programme and spontaneous Brazilian immigration has brought new land into production. Favourable international prices for Paraguayan exports and funds from the Itaipu project swelled foreign reserves and served to maintain the Paraguayan currency at an already overvalued rate. The paper argues that the overvaluation, combined with extensive smuggling, undermined incentives for investment in manufacturing and deprived the government of revenues needed to finance infrastructure for sustained economic growth and development.