Dual equilibrium and growth cycle in Argentina

Jose Luis Nicolini-Llosa

International Review of Applied Economics, 2011, vol. 25, issue 2, 185-207

Abstract: Argentina's GDP growth cycle, tracing the high exchange rate volatility in 1970-2008, is discussed. Growth depends on foreign exchange availability. The country's comparative advantage is in agriculture, but manufactured exports are grow faster. Two remarkably different PPP exchange rates coexist - one appropriate for agriculture and one for manufacturing - destabilising the market exchange rate. Thus, two unstable growth equilibria coexist generating GDP fluctuations. Currency devaluation sets the cycle's ceiling and the end of devaluation sets the cycle's floor. Chronic government deficits widen the cycle, harming institutions and decelerating growth. A land tax to finance rural investment would facilitate a high and stable exchange rate (AR$/US$) and convergence to the high growth equilibrium.

Keywords: Argentina; business cycle; dual equilibrium; growth; balance of payments; development (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1080/02692171.2010.483462

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