Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

understand the rise of the urban-rural political cleavage that appeared following the Second World
War, but it cannot account for the periods of integration into world trade seen in the late 19th
century and after the fall of the Berlin wall.
At first sight, it seems that this type of path-dependent anti-trade trap could have appeared in any
economy; however, we claim that this is not the case. It is true that endogenous protectionism can
arise in almost any economy if we assume some adjustment costs and persistent external volatility
in the terms of trade. However, if the underlying distributional conflict is not too intense, the
economy can gradually steer itself toward a more efficient pattern of trade. It is the intensity of the
distributional conflict --determined mainly by technology and factor endowments- and the
inability to resolve it by institutional means that places Argentina in a special situation.
Our model has three features that generate both path dependence and intense distributional
conflict. First, the production of the exportable good does not use the pivot input --labor--
intensively. Otherwise, the pivot group would tend to support free-trade policies in the short and
medium run. Second, the exportable good is an important component of the consumption bundle.
Otherwise, it is possible to show that, in the medium run, workers would prefer a tariff level that
decreases with the terms of trade; in that case, workers would prefer gradual liberalization as the
terms of trade improve. Third, at the point in time when the terms of trade worsen, the economy
has to have enough capital to start the endogenous industrialization process. Poor economies that
have not accumulated enough capital yet are less prone to the severe distributional conflict
described here. These three conditions fit fairly well for Argentina and point to what other
economies we should look at in an effort to discern protectionist traps. We focus on land-rich
newly settled countries, particularly Australia, since there is a long tradition of comparing
Argentina with Australia in the literature (see, among others, Díaz-Alejandro, 1984, and
Gerchunoff and Fajelbaum, 2006).
5.1 Argentina and Australia
There are a number of similarities between these two economies that make this exercise of
comparative history worthwhile. First, their initial endowments, that is, the relative scarcity of
labor relative to land, determined their position as exporters of agricultural goods. Second, there is
the natural emergence of manufacturing sectors in response to the natural protection provided by
exogenous international conditions and the distance of main industrial centers. Third, there is the
demand for protectionism by urban manufacturing interests. As a result, both countries relied
heavily on tariffs and quantitative restrictions to trade to provide protection for their
manufacturing sectors. These policies were blamed for the relative poor performance of these
economies and were eventually abandoned by the end of the twentieth century, although not
without opposition from vested interest groups.
K. Anderson (2002) states that "seven decades of import-substituting industrialization cost
Australia dearly in terms of its comparative standard of living. In 1900, Australia was arguably the
highest-income country in the world on a per capita basis. But by 1950 its rank had slipped to third;
by 1970 it was eighth; and by the 1990s Australia was not even in the top twenty" and that
"Australia's comparatively poor growth performance for most of the twentieth century contrasts
with that of the final decade, when Australia out-performed all other advanced economies other