Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

⎡
φ ⎤
a
+ φm
(1−
λ ) ⎢( 1−
β ) χa
+ β
⎥ ≤1
⎣
φa
+ ( 1−τ
) φm
⎦
Workers' welfare increases with protectionism if the economy is beyond a given level of
industrialization. In this case, workers may ally with capitalists in the secondary sector to demand
protectionist policies. If τ = 0 , this condition is satisfied as soon as the economy starts producing
in the secondary sector. A higher tax rate implies that the condition will be met for higher λ and
lower χ
a
. In Figure 3, we find the pairs ( π , τ ) , such that workers are indifferent to whether there
is more or less protection, since movement in either direction will improve workers' welfare in the
medium run.
Moreover, we expect that, the more industrialized the economy is, the larger the share of workers
who will be employed in the secondary sector and, hence, by virtue of Proposition 2, the larger the
share of workers who will also benefit from protectionist policies in the short run.
Long Run
In the long run, the economy will tend toward a new steady state. Therefore, it is useful to analyze
the effects of protectionism based on the results obtained in Section 7.1.
A full analysis of the long-run solution for this economy is fairly complicated. Nevertheless, the
two propositions set out below suffice for our purposes in this paper. We focus only on the
preferences for protectionism of landlords and workers, since we assume that capitalists are
concerned only with policies in the short and medium run, when their capital is sunk in one
particular activity. We assume that the economy is initially in the specialization and trade or in the
diversification and trade regions (i.e., it exports the primary good). Otherwise, changes in the
export tax rate would not have any effect.
Proposition 6 In the long run, landlords benefit from an improvement in the terms of trade
and from a reduction in export taxes.
Proposition 7 If the economy is specialized, then, in the long run, workers benefit from
∗
an improvement in the terms of trade and from a reduction in export taxes. There is always a π
high enough so that workers are better off at τ = 0 .
7.3 Constant-Elasticity-of-Substitution (CES) Preferences and Technology in
Autarky
In this appendix, we derive a log-linearization around the autarky equilibrium for a CES economy.
The results of this section are referred to in Section 3.4.
The production functions of the agricultural and manufactured goods are, respectively: