Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

Transition Remarks
Since 1980, Argentina has moved towards openness, but the economic results appear to have
been lackluster. The country’s economic growth has increased but only modestly, which has left
many wondering whether Argentina’s economic problems lie deeper than its policies towards
trade. The next paper challenges the existing data and the idea that Argentina has grown
sluggishly since its economy opened up.
Growth in real incomes requires two separate data series: nominal income and real price indices.
Flaws in either series could cause real income growth to be significantly mismeasured. In many
cases, measuring national output, at nominal prices, may be easier than measuring real price
indices especially in an era of rapidly changing product quality or new product innovation. Both
changes produce challenges for traditional price indices.
Consider, for example, the product quality challenge. Cars may appear to have kept relatively
constant prices over the last thirty years, but today’s automobiles bear little resemblance to their
predecessors a generation ago. They are fitted with electronic technology, and are typically much
safer. The shift in computer technology is even more dramatic, and even in the area of food, the
range and quality of goods appears to have increased enormously.
In the case of new product introduction, the measurement problems become more severe. An
iPod could not have been purchased, at essentially any price, in 1985. Hedonic work can be done
to try to create a facsimile, but the process is imperfect at best. The opening up of an economy to
world trade creates new product introductions almost as extreme as technological innovation.
There are two ways of getting at this problem. The first approach is to trust that hedonic price
methods enable us to adequately control for quality. This approach assumes relatively good
measurement of product attributes and a number of other statistical tools to price a particular
product attribute in any given year. While this approach is certainly quite valuable, it is also quite
imperfect.
The next paper implements the second approach to measuring changes in real income. This
approach assumes a constant relationship between real incomes and the share of incomes being
spent on food. If this relationship is stable across time, then changes in the share of expenditures
on food provide us with an alternative means of charting changes in real income. This approach
has been applied in many contexts, including long run historical data.
The authors find that the share of Argentinian incomes being spent on food has dropped
dramatically over the past thirty years. This implies that real incomes have increased
substantially more quickly than official statistics. Their estimate is that real incomes have risen
between 4.3% and 5.7% faster per year than previous estimates suggest. If true, this suggests a
radical rethinking of the past thirty years and a radical re-interpretation of the positive effects of
the era of Argentine openness.