Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

has a comparative advantage in the production of agricultural goods. Thus, it might or might not
produce manufactured goods. It also produces services. We assume that the agricultural good is
produced in the primary sector using land and capital, while the manufactured good is produced in
the secondary sector using labor and capital. Services are produced using labor only. We also
assume that capital moves between the primary and secondary sectors more slowly than labor
moves between the secondary and tertiary sectors. This gives rise to three different time horizons:
the short run (no factor reallocation), the medium run (only labor adjusts) and the long run (full
reallocation).
We show that import-substitution policies exhibit path dependence. Indeed, this is a very
important insight in understanding the economic history of Argentina. We also use our model to
characterize the demands for protectionist policies of the different groups in the economy. In the
short run, landowners, capitalists who have invested in the primary sector and workers employed
in the tertiary sector support free-trade policies. On the other hand, capitalists and workers in the
secondary sector support protectionist policies. In the medium run, workers behave as a group and
will support protectionist policies if the industrial sector is sufficiently developed (i.e., the
secondary sector employs enough labor and capital). In the long run, workers will support free
trade if the terms of trade are favorable enough.
Using the insights derived from our model, we then argue that much of the distributional conflict
that arose was among owners of different production inputs and that trade policies were widely
used to shift income across groups. At the beginning of the century, factor allocation resembled
what we call "specialization and trade." During the inter-war period, trade opportunities and the
terms of trade worsened, which led to an incipient industrialization process. Argentina started the
second half of the century with a very different economic configuration, as industrialization had
come a long way in terms of what we refer to as diversification and trade. These new economic
conditions also changed the political equilibrium. Urban workers employed in the manufacturing
sector and industrialists were now major social actors who demanded that the industrialization
process be deepened, which hurt trade and took the economy close to autarky. The years that
followed the Second World War witnessed an extraordinary expansion of trade in which Argentina
was not an active participant. We contend that one important reason behind this outcome was the
set of protectionist policies that were enacted in the years following that war and that the main
supporters of these policies were the new political forces that emerged from the industrialization
process in the inter-war period.
The second half of the century was characterized by a strong distributional conflict centered on
trade policy. Traditional sectors composed of owners of factors employed in the primary sector
supported free-trade policies, whereas the newer political forces supported protectionism and
import substitution. Argentina embarked on an ambitious process of import substitution that aimed
at achieving self-sufficiency, especially in activities deemed strategic, such as oil and steel. As
domestically produced goods were substituted for labor-intensive imported manufactures, the
industrial sector grew and drew inputs from other sectors. The substitution of capital-intensive
activities was more problematic. Some of these activities were not profitable even though they had
a captive internal market. With little regard for economic rationality, the government took an
active role in developing these activities through public enterprises that became a chronic source
of deficits.