Measured in current prices, post-war Argentina has had the highest aggregate capital-output ratio of any country for which data are available. Ex post savings and investment rose from around 12 percent of GNP in the late 1930s to over 20 percent since World War II. The annual growth of real GNP, on the other hand, has averaged less than 3 percent since 1948, a lower rate than that achieved during 1935-1948. Has this reflected gross inefficiencies in the investment pattern or merely changes in relative prices—notably, a pronounced rise in relative prices of capital goods? The ease for the latter explanation was first advanced by Rolf Hayn (Review of Economics and Statistics, 1962), who showed that when the various components of GNP are deflated to 1935-1938, using the corresponding implicit GNP price deflators, the post-war gross investment rate falls to 13 percent. Although still high compared to most other countries, the deflated ratio is no longer inordinately so.
Carlos Federico Díaz Alejandro explores the relative price trends more systematically, using alternative deflators, and more or less corroborates Hayn ’s findings. His explanation of the sharp rise of capital goods prices is different, however, and also more convincing than Hayn’s. So is his explanation of what held down the “real” investment rate in the period, 1948-1961. It was not, as Hayn contended, inadequate investment inducements resulting from Perón ’s egalitarian redistribution policies, but restricted capacity to import which constrained real investment.
I am not convinced, however, by Díaz Alejandro’s contention that the greater stress after 1954 on import substitution in capital goods has eased the constraint on the real investment rate and thus presumably made possible a higher real growth rate. His analysis stops in 1961. As it happens, the GNP growth rate from 1961 to 1968 has been even lower than that of the preceding decades. Excess capacity in the capital and consumer goods sectors has been chronic and substantial, and the period has been characterized by balance of payments problems despite a respectable increase in exports. Investment misallocation and relative price trends are more closely intertwined than is implied by Díaz Alejandro’s analysis.
The main finding of the monograph by Alieto A. Guadagni and Alberto Petrecolla is that the price cross and income elasticities of demand for beef are very low in Argentina. Moreover, the long-run elasticities (estimated from a multivariate distributed lag type function) are only slightly higher than the short run elasticities (estimated with unlagged variables). A more surprising finding is that the income elasticity of demand for meat in wage-earner families is somewhat less than in non-wage families. The dependent variable in all these regressions is beef consumed per capita, and the authors point out that the results might be somewhat different if instead the authors had cited pesos spent on beef. Nevertheless, the findings are persuasive and suggest that whatever its other alleged virtues, the policy pursued by most post-Peronist governments of lowering real wages is not an effective way of freeing more Argentine beef for export.
Villanueva elaborates on what is by now a familiar “structuralist” explanation of Argentine inflation. Industrialization generates increased urban demand for food, which the relative short- and long-term inelasticity of Argentine agricultural output has translated into rising food prices. Money wages have been rigid downward, but rise quickly in response to rising food prices, and this movement stimulates offsetting price increases produced by the snugly protected industrial sector. These rises turn internal terms of trade against agriculture once again, dampening agricultural profits. Since industry’s import needs are financed mainly by agricultural exports, however, industrial growth and agricultural under expansion soon lead to excess demand for foreign exchange and to devaluation. The latter restores favorable internal terms of trade for agriculture, but sets off renewed rounds of wage-price spiraling, und so weiter.
The most useful feature of Villanueva’s monograph is not his formal elaboration of this model, but his detailed examination of Argentine consumer price data, wages, and wholesale and retail markups. Readers will also profit from his summary of efforts by Peronist and post-Peronist governments to influence relative prices and, intermittently, to halt inflation.
