Import substitution in Argentina, 1880-1913. Did trade policy matter

PEREZ CAJIAS, JOSE; RAYES, AGUSTINA

Seminario; Comercio internacional - Siglos XIX y XX; 2018

Universidad de Zaragoza

The notion that Latin American governments opened up their borders during the 19th century to manufactured foreign products was an idea widely accepted both by researchers and the popular knowledge. Whereas this hypothesis was questioned already in the 1960s (Hora, 2000), it was not until the work by Coatsworth and Williamson (2004) that a new consensus emerged among researchers: rather than a laissez faire laissez passer policy, Latin American governments had active tariff policies in order to collect public revenues. Thus, average tariff ratios in the region were the highest in the world from Independence (1810s-1820s) to the Great Depression (1929).Regardless of this new consensus, there still is a vivid debate about the protectionist effects that these tariffs could have on the economy. For instance, Rubio (2006) suggested that despite these high average tariff ratios, the growth of imports was also noticeable in the region during the belle époque. In the same vein, Nenci and Pietrobelli (2008) did not find any significant relationship between imports and the average tariff ratio in Latin America during the first half of the 20th century. In the case of Bolivia, Peres-Cajías (2017) suggested that high average tariff ratios coexisted with free entry duties to products that were extremely sensitive to different Bolivian regions.The goal of this paper is to contribute to this debate by analyzing the effects of tariffs on the evolution of different industrial imports in Argentina from 1870 to 1913. The Argentinean case has been selected give the early industrialization of the country; indeed, the industrial GDP grew at least at the same pace of total GDP during the period under scrutiny (Ferreres, 2005). Furthermore, we take advantage of current debates in the Argentinean historiography that suggest that the evolution of tariffs were also driven by protectionist claims generated by industrial elites located both in the interior of the country and in the coast (Hora, 2000). Therefore, we analyze the effects of tariffs on a set of products that have been highlighted as relevant in the early industrialization process in Argentina (Rochi, 2006) and that were critical to interior (sugar and wine) and coastal economies (beer, cigarettes and matches). Our contribution is twofold. First, given that the Argentinean exchange rate was not stable, we need to prove that tariffs were the most relevant instrument of trade policy. We do this through a novel approach given the lack of market prices in Argentina and the fact that import prices were official until 1941. Indeed, we evaluate the marginal effect of different trade barriers (transport costs, variations of the exchange rate and tariffs) to the unit price of European exports to Argentina. For this, we use official foreign trade statistics of European trade partners whose exports were appraised in market terms. Our first estimations suggest that these trade barriers increased the original unit market price of European exports in Argentina in a range of 50%-100% and that, at least, two thirds of this effect was driven by tariffs. Secondly, we need to prove that these effects of tariffs on import prices were relevant enough. Initially, by looking at complete series of imports per capita and partial information on production per capita, we identify the existence of relevant processes of import substitution in most products under scrutiny (being cigarettes the only exception). Thereafter, we test the effect of tariffs (both official and those that we estimated in the previous step) on the evolution of the quantities imported. We do this through gravity models that aggregate information from the five products under study, but also that analyze each product individually. The use of gravity equations allows identifying the elasticity of the quantities imported to tariffs. Our first results suggest that the elasticity was significant and very similar among those products that were critical to interior economies (that have been much more studied in the Argentinean historiography) and those located in the coast. References:Coatsworth, J. H., & Williamson, J. G. (2004). Always Proteccionist? Latin American Tariffs from Independence to Great Depression. Journal of Latin American Studies , 36 (2), 205-232.Ferreres, O. (2005). Dos siglos de economía argentina (1810-2010). Historia argentina en cifras. Buenos Aires: El Ateneo.Hora, R. (2000). Terratenientes, empresarios industriales y crecimiento industrial en la Argentina: los estancieros y el debate sobre el proteccionismo (1890-1914). Desarrollo Económico , 40 (159), 465-492.Nenci, S. and Pietrobelli, C. (2008) ?Does Tariff Liberalization Promote Trade? Latin American Countries in the Long-Run (1900-2000)?. Global Economy Journal, vol. 8(4), pages 1-30.Peres-Cajías, J. (2017) ?Bolivian Tariff Policy during the Late Nineteenth and Early Twentieth Century: High Average Tariff and Unbalanced Regional Protection?. Journal of Latin American Studies, 49 (3), pp. 433-462.Rocchi, F. (2006). Chimneys in the Desert. Industrialization in Argentina during the Export Boom Years, 1870-1930. Stanford: Stanford University Press.