Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

Under autarky, or when the patterns of trade are such that the country exports manufactured goods,
the tax on exports of primary goods has no effect whatsoever. We might think that the government
could also tax the exports of manufactured goods. However, we do not delve into those issues
simply because we do not think that they will shed any light on the main topic of this paper. So we
assume that the economy is always in one of the two other possible scenarios in which τ matters:
either close to a steady state in which the economy specializes in the production of primary goods,
or close to a steady state in which there is diversification of production and the country exports
primary goods.
7.2.1 The Demand for Protectionism
In this section we derive the effects of protectionism and changes in the terms of trade on the real
remunerations of the factors of production. We log-linearize the model to derive the effect of
protectionism in the short and medium run. The log-linearization is around an initial allocation.
This initial allocation might be a steady-state equilibrium, in which case it is determined by π
and τ ; however, the argument follows through for any initial allocation determined also by κ
and λ .
The zero profit condition in the primary sector implies:
aa = (1− α ) t + αk a
d d
where a
a
= dpa
/ pa
is the percentage variation in the domestic price of the agricultural good,
t = dq/
q denotes the percentage variation in the rent of the land and k
a
= dra
/ ra
is the percentage
variation in the return to capital in the primary sector. Since, in the short and medium run, capital is
not mobile between sectors, it will be useful to employ different notations for the capital invested
in the primary and secondary sectors. Finally, α is the share of capital in the total cost of
production in the primary sector. Homotheticity of the production function implies that α is a
function only of input prices. Moreover, under the assumption of a Cobb-Douglas technology, α
is invariant. Similarly, in the manufacturing sector, we have:
m
m
= lm(1− β ) + kmβ
d d
where m
m
= dpm/
pm
is the percentage variation in the domestic price of the manufactured good,
l
m
= dwm/
wm
denotes the percentage variation in wages and k
m
= drm
/ rm
is the percentage
variation in the return to capital in the secondary sector. As before, β is the share of capital in the
total cost of production. We continue to assume that β ≥ α ; that is, we assume that capital is used
more intensively in the secondary sector. Though this last assumption is not crucial, it will help us
to solve some ambiguities later on. Finally, for the service sector, we have:
n =
where n and l
n
= dwn/
wn
are the respective percentage variations in the prices of the service
good and the wages paid in that sector.
Cobb-Douglas preferences ensure that the percentage increase in expenditures of the three goods
are the same: aa + ca
= mm
+ cm
= cn
+ n , where c
i
denotes the percentage variation in the
l n