The Great Depression of the Peruvian Economy: A Perfect Storm?

We describe the Great Depression that Peru experienced during the 1970s and 1980s and analyze the possible hypotheses that may explain the severe collapse and slow recovery of the Peruvian economy. The main conclusion of this study is that it is difficult to find a single explanation for the Great Depression that Peru endured. Just as in a perfect storm, so many things went wrong at the same time that the effects of each negative shock amplified those of other shocks. Our results suggest that the external shocks that hit the country in the 1980s were amplified by a weak and fragmented political system, limited entrepreneurial capacity, and the lack of a coherent industrial policy that could promote the discovery of new productive activities.