Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

Proposition 3 In the short run, protectionist policies reduce the real remuneration of
landowners, capitalists in the primary sector and service workers. If φ
a
> 0, protectionist policies
will raise the real remuneration of workers and capitalists in the secondary sector.
Medium run
In the medium run, labor is allowed to move across industries, so wages equalize across sectors.
Log-linearizing the market clearing condition for labor, we have:
( m + y ) + (1 − λ)
( n + y ) l
λ
m m
n n
=
This equation and the condition that lm = ln
= l replace the two equations of wage determination
obtained for the case of the short-run equilibrium. Now, the short-run effects of an improvement in
the terms of trade include an increase in the production of services and a decrease in the total
production of manufactures. Since there is no factor adjustment in the primary sector, the
remuneration of capital and land increase by the same proportion as the terms of trade. This
generates an upward shift in the demand for services which is met both by an increase in its
equilibrium price and by a displacement of labor from the secondary to the tertiary sector. The
manufacturing sector uses less labor, and the return to capital in this sector therefore falls. Overall,
consumption of the primary good decreases, and consumption of the manufactured and service
goods increases.
Proposition 4 In the medium run, an improvement in the terms of trade increases the real
remuneration received by landowners and capitalists in the primary sector. It harms capitalists in
the manufacturing sector. The real wage increases if and only if:
χ (1 − λ)
>
a
( φ β + α )
Higher demand for services increases wages in that sector and attracts workers from the
manufacturing sector, raising wages across the economy. However, the equilibrium increase in
wages may fall short of compensating the negative welfare effect of the increase in the price of the
agricultural good. The more specialized in the primary and tertiary sector the economy is (i.e., a
higher χ
a
and a lower λ ), the more likely it is that real wages will increase in the medium run.
This is because, in such cases, the upward shift in demand for labor in the service sector is
stronger. Thus, notice that, if the economy is already industrialized, an increase in the terms of
trade may harm workers even in the medium run.
Proposition 5 In the medium run, protectionist policies reduce the real remuneration of
landowners and capitalists in the primary sector. If φ
a
> 0, protectionist policies increase the real
remuneration of capitalists in the manufacturing sector. If φ
a
> 0, workers' welfare increases if
and only if:
m
φ
a
a