Ebook: Peru's Great Depression: A Perfect Storm?

We describe Peru's great depression over the 1970’s and 1980’s and discuss possible
hypotheses that may explain its deep collapse and slow recovery. The main finding of
the paper is that it is very hard to find a single explanation for Peru's great depression.
Very much like a perfect storm, so many things went wrong at the same time, with the
effects of each negative shock amplifying those of the other shocks. In particular, our
findings suggest that the external shocks that hit the country in the 1980s were
amplified by a weak and fractionalized political system (for a discussion of the
interaction between external shocks and ability to recovery from external shocks, see
Rodrik, 1999), limited domestic entrepreneurial capacity, and lack of a coherent
industrial policy that could lead to the discovery of new productive activities.