When did Argentina lose its way?

This paper challenges the widely held view that Argentina’s economy performed relatively well until the early 1970s and that its fabled secular decline began only after 1975. Instead, it advances the alternative hypothesis that the roots of such decline were planted much earlier, and that its pace accelerated in the mid 1940s with the adoption of a corporatist import substitution industrialization (ISI) regime. The resulting distortions in relative prices and misallocation of capital resources generated significant inefficiencies that constrained the economy’s growth potential. Although successive modifications after the mid 1950s improved its performance, by the early 1970s the corporatist ISI regime had exhausted its capacity to sustain growth. The absolute stagnation that followed the 1975 crisis can be explained by the failure of successive governments to overcome the resistance of entrenched interest groups and complete the transition to an open market economy. We support this hypothesis using a range of empirical methodologies –including comparative GDP per capita ratios, convergence analysis, growth accounting and cyclical peak to peak analysis– combined with historical interpretation. We conclude that abrupt regime reversals fostered social conflict, political instability and macroeconomic uncertainty, all of which undermined the sustained productivity gains required for long term growth.