Evening Must-Read: Nauro Campos: The Riddle of Argentina

…’developed’ in 1900 and ‘developing’ in 2000…. Financial development and institutional change are [probably] two main factors behind the unusual growth trajectory of Argentina over the last century…. Some argue that the decline started with the Great Depression (e.g. Diaz-Alejandro 1985)… Taylor (1992) argues for 1913…. Yet by 1947 Argentina was still ranked 10th in the world in terms of per capita income and della Paolera and Taylor (2003) estimate that the ratio of Argentina’s to the OECD’s income declined to 84% in 1950, to 65% in 1973, and then to 43% in 1987. It rebounded in the 1990s but with the run-up to the 2001 crisis again reverted….

The PGARCH multivariate analysis reveals a robust positive effect of the development of domestic financial institutions (private and savings bank deposits to GDP) as well as a negative growth effect from the instability of informal institutions (chiefly general strikes and guerilla warfare). As for the indirect effects on economic growth (through growth volatility), the results support negative roles for formal political instability (constitutional changes) and trade openness….

The main lesson… is one that economic historians already knew… institutions do matter but among them, political institutions and financial institutions seem fulcral…