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External Integration, Structural Transformation and Economic Development: Evidence From Argentina

  • Pablo Fajgelbaum
  • Stephen J. Redding

This paper uses the natural experiment of Argentina's integration into world markets in the late-nineteenth century to provide evidence on the role of internal geography in shaping the effects of external integration. We develop a quantitative model of the distribution of economic activity across regions and sectors. The model predicts a spatial Balassa-Samuelson effect, in which locations with better access to world markets have higher population densities, higher shares of employment in the non-traded sector, higher relative prices of non-traded goods, and higher land prices relative to wages. We use the model and data on population density and sectoral employment shares to recover sufficient statistics that isolate the economic mechanisms through which external and internal integration affect economic development. Our analysis highlights the role of complementary investments in internal infrastructure and technology adoption in mediating the economy's response to external integration.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1273.

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Date of creation: Jun 2014
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Handle: RePEc:cep:cepdps:dp1273
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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