Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

Figure 2: The Long Run Equilibrium, κ
Notice that the specialization region in Figure 1 coincides with the region where κ equals zero in
Figure 2. Under specialization and trade, capital and labor employment in the secondary sector are
zero.
In the autarky region, the tax rate is set high enough so that the country will not trade with the rest
of the world; consequently, changes in π or τ will have no marginal effect on the resulting
allocation of resources in the economy. For any point in the region, the factor allocation is the
autarky allocation, which we denote as κ
aut
and λ
aut
(see Section 7.1.1 in the appendix). The
autarky region in Figure 1 coincides with the region with κ = κ
aut
in Figure 2.
In the diversification and trade region, the manufacturing sector employs capital and labor. As we
move upward and to the left within this region, both κ and λ increase from zero, as in the
frontier with the specialization and trade region, up to κ
aut
and λ
aut
in the autarky region. The
diversification and trade region in Figure 1 coincides with the region where κ is increasing in
Figure 2.