TFP Growth in Argentina during the 1990's. A Stylized Fact?

ARIEL COREMBERG

Cork, Ireland

Congreso; 28th General Conference of The International Association for Research in Income and Wealth. Cork, Ireland, August 22 – 28, 2004; 2004

IARIW

Argentine economy showed an outstanding growth during the 1990´s. A higherinternational liquidity, macroeconomic stability and structural economic reforms,encouraged a significant inflow of foreign capital that favoured an increase of domesticabsorption: investment, consumption, and public expenditure.The privatization of public utilities and market deregulation at the beginning ofthe decade caused a significant apparent increase in productivity even though theestablishment of a convertibility exchange system and higher capital inflows generateda substantial appreciation of the domestic currency.Productivity gains resulted in significant cost-savings, partially offsetting thecompetitive disadvantages of real appreciation. An obvious indication of this effect wasthe remarkable growth of the tradable goods sector, which not only increased itsproduction but also its exports.However, the drop of the real exchange rate was not sustainable in the longrun. Productivity gains were merely apparent; a fact that proved that convertibilityexchange system was not sustainable.In the aftermath of the so-called "tequila" shock in 1995, Argentine economywas unable to absorb the additional shock of Brazil´s devaluation in 1998 in themedium term by means of increases in domestic savings and productivity needed tocompensate the negative consequences of external shocks on its performance.By the end of the decade, a sizable accumulated external and fiscal imbalancebrought the convertibility system to an inescapable end that entailed important capitalflight, bank runs, default of external debt and megadevaluation, a deep economic crisiswith after-effects that are still perceptible.The aim of this work is to discuss briefly whether productivity growth inArgentina during the 1990´s was not sustainable in the long run.The main purpose of the paper is that the apparent nature of productivity gainsmay be due to error identification. Through an exhaustive analysis of economic growthsources and a consistent statistical methodology, it will be shown that the Argentineeconomy during the nineties had an extensive growth type based on factoraccumulation rather than on organization improvements independent of suchaccumulation. This might be the reason why "spill over" effects were absent in thisapparent productivity growth which did not generate a sustainable increase of realincome in the economy as a whole.