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Dual equilibrium and growth cycle in Argentina

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  • Jose Luis Nicolini-Llosa

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.

Suggested Citation

  • Jose Luis Nicolini-Llosa, 2011. "Dual equilibrium and growth cycle in Argentina," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(2), pages 185-207.
  • Handle: RePEc:taf:irapec:v:25:y:2011:i:2:p:185-207
    DOI: 10.1080/02692171.2010.483462
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