Causes of Progressive Decline
The unique condition of Argentina, as a country which had achieved advanced development in the early 20th century but experienced a reversal, has inspired a wealth of literature and analyses on the causes of this progressive decline.
According to Di Tella and Zymelman (1967), the main difference between Argentina and other settler societies such as Australia and Canada was its failure to seek adequate alternatives to compensate for the end of geographical expansion with the definitive closing of the frontier. Solberg (1985) noted the differences between the land distribution in Canada, which led to a rising number of small farmers, and the small number of landowners each with large areas of land in Argentina.
Duncan and Fogarty (1984) argued that the key difference lies in the contrast between the stable, flexible government of Australia and the poor governance of Argentina. According to Platt and Di Tella (1985) the political tradition and immigration from different regions were the key factors, while Díaz Alejandro (1985) suggested that a restrictive immigration policy, similar to Australia’s, would have increased productivity encouraged by the relative scarcity of labour.
More recently, Taylor (1992) pointed that the relatively high dependency ratio and the slow demographic transition in Argentina led to a reliance on foreign capital to offset the resulting low savings rate. From the 1930s onwards, the accumulation of capital was hampered by the relatively high prices of (mostly imported) capital goods, which was caused by the industrial policy of import substitution, in contrast with the export-led growth favoured by Canada. Other distorting factors behind the high relative prices of capital goods include the multiple exchange rates, the black market for foreign currencies, the depreciation of the national currency and high customs tariffs. This resulted in a lower capital intensity, which led to lower rates of labour productivity.
The ultimate cause of Argentina’s historical backwardness appears to be its institutional framework. In macroeconomic terms, Argentina was one of the most stable and conservative countries until the Great Depression, after which it turned into one of the most unstable.
Read more about this topic: Economic History Of Argentina
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