Thursday, December 10, 2009

Why is Argentina poorer than Canada?

Up to the 1930's, Argentina and Canada were very similar countries: rich, sparsely populated, income mostly from natural resources and agriculture, lots of immigrants, similar GDP per capita. Then after World War II, the economic fortunes of those two countries drifted apart. What happened?

Germán González and Valentina Viego think that Canada benefited from a rich and large neighbor that was a nice complement to Canada. Argentina, however, did not have this advantage and fell into a trap that made it more and more reliant on its core products and prevented it for following a "normal" development path towards industrialization. This conclusion comes from a fairly standard growth accounting exercise that highlights how Argentinian economic efficiency did not keep up with Canada's starting in the 1930's, primarily due to higher technology adoption in Canada. The latter is clearly helped by the vicinity of the US, while Argentina compounded things by adopting an ill-advised import substitution policy.

5 comments:

Anonymous said...

Which is why Mexico is so much richer than Argentina

Anonymous said...

Mmm, I am not sure this makes any sense.

I can see how being close to a rich country can be beneficial, but is this 'why' argentina is poorer than canada?

I think at best it's only a very minor part of the story. mexico, after all, is not as rich or developed as Canada... and there are many other poor countries close to rich ones. In the case of argentina (and latin america in general) institutional and cultural factors are much more relevant to explain divergence.

It's funny the paper was written by argentinians though. They're sure to be different from the rest of latin america. if only they were surrounded by europeans like themselves...

In reality, though, they share all the the same shortcomings of their neighbours, and then some.

This is a much more accurate account of why argentina didn't develop (an it's a common story accross all of latin america):

http://www.ft.com/cms/s/2/778193e4-44d8-11de-82d6-00144feabdc0.html

Anonymous said...

The first thing a country needs is a stable democracy. Argentina has a long history of just the opposite (eg. Juan and Eva Peron). But what is really needed are 1) a tradition of private property; 2) a body of real estate and personal property law with corresponding legal system; and 3) a stable currency. Argentina was very weak in all three categories compared to the Canada. Perhaps their flair for falling like a love sick teenager for emotional, short-sighted, and economic destroying dictators is the reason for their demise as an economic power. The United States could learn a few things from the mistakes of Argentinas' history. Argentina and the US do get duped by over emotional Presidential elections and leadership. It is as if both carve it.

Danny L. McDaniel
Lafayette, Indiana

DannyLMcDaniel said...

The First thing a nation needs is a stable democrarcy to succeed economically. Beyond that, there are three basic things required to having a thriving and highly developing economy: 1) a tradition of private property; 2) a body of real estate and personal property law with corresponding legal system; and 3) a stable currency. Argentina has been very weak in all three categories, which could help explain its demise as an economic power and never being able to live up to its promise as an economic force.

Second, Argentina has the national character of falling for emotional, over-promising, economic destroying leaders like a love sick teenager. The US can learn alot from Argentinas' history in this chapter of their national life. Juan and Eva Peron alone set the country back at least 50 years, not to mention what the Generals did to the country in the 1970's and 80's. Argentina could learn, and hoefully is learning, that it is better to what is right than do what seems practical at the time. They seem to carve emotional Presidential leadership as much as the Americans do.

Danny L. McDaniel
Lafayette. Indiana

Yofie said...

I agree with all the comments, that it's institutional history in each of the countries MUCH more than proximity to big rich countries or lack thereof that has made Argentina diverge from Canada. My website on what if Argentina had fulfilled its potential (and had been colonized by Britain from the early 1800s just like Canada) tells you a lot more about all of this. It's www.britishargentina.com if you want to see it.