Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

A final point on this mechanistic approach to growth: with a fixed amount of natural resources in
the production function, it could appear that population growth would dilute "land" more rapidly
than capital, leading to a lower rate of economic growth. That is not necessarily the case. If
suddenly both Argentina and the Netherlands double their population, per capita GDP would fall
by half in both cases if there are constant returns to scale, no matter what the factorial
combination behind that income. Both could compensate for that increase in population by
increasing capital − actually, as pointed before, Argentina could have an advantage here as it
would need less investment to attain the original per capita income, as capital would be more
productive there if there are decreasing returns. Higher population growth reduces economic
growth with or without natural resources in the production function 7 .
The message here is that there aren't obvious reasons in mainstream growth theory telling us that
Argentina should have diverged from the rich as soon as incorporation of new land −a key to its
earlier success− came to an end. The motives behind Argentina's decline need to be more subtle
in trying to explain the dynamics of factor and technology accumulation. That doesn't exclude, of
course, models in which natural resources can be a curse, in any of the many ways surveyed, for
example, by Sachs and Warner (1997). Two- and three-sector models have been central to the
debate on Argentina's growth difficulties 8 . Most of them touch upon the question of whether
Argentina could have grown by persisting in its bet on its natural resources or if, rather, capital
accumulation and technological advances necessarily required a structural transformation
towards a more diversified economy − and the related question of whether that transformation
would result from a market process or could only take place with government's assistance.
Models in the endogenous growth tradition do probably make a difference between Argentina
and Netherlands under the conditions described above. For example: Campante and Glaeser's
paper in this volume show that Buenos Aires had lower levels of physical and human capital than
Chicago. In models such as Lucas (1988), the level of human capital is a significant determinant
of economic growth, as the rate of increase in human capital depends on its level, through
externalities. A similar story could be made of technology or physical capital. Would Argentina
fit in such a model or would it still be an outlier? Can a model along such lines explain the
unstable timing of Argentina's decline, with periods of accelerated divergence (the 1980s) and
some of moderate convergence (the 1960s)? The answer is far from obvious.
The general point here is that even if arguments relating Argentina's subsequent development to
its conditions at some point in its prosperous may be true, in any case there's nothing evident
about them. In other words: Argentina's twentieth century economic performance is in fact a
puzzle. There are no straightforward reasons why, contemplating Argentina in 1910 or 1928, one
could predict Argentina's unfortunate divergence. It should come as no surprise that
contemporary observers tended to be optimistic about Argentina's future, in 1900, the twenties or
even as late as the immediate postwar. 9 An almost-rich country turned almost-poor, Argentina is
7 And it's probably a factor of some significance to understanding Argentina's comparative decline. In 1910,
Argentina's population was 2.4% of the population of the "richest twelve" (footnote 2); in 2000, it was 6.4%.
8 The list of explanations in this vein are too numerous to be listed here. Di Tella and Zymmelman (1967) and Díaz
Alejandro (1970) are two examples.
9 One of them was Paul Samuelson: "In 1945 I was a young talented economist. I was at the height of my abilities. If
someone had asked me what part of the earth would develop the fastest in the next 39 years, I would have said: Latin