Strengthening long-term growth in Argentina

D. Artana, E. Bour, J.L. Bour y N. Susmel

FUNDACION DE

I NVESTIGACIONES

ECONOMICAS

LATINOAMERICANAS

OECD Seminar “Beyond the crisis – Returning to sustainable growth in Latin America”

Paris, November 24th 2010

Labor regulation is also rigid in our estimate of the EPL3

Source: FIEL

More rigidity

Source: Artana, D. & I. Templado “Is the Argentine Revenue Effort Too High?” 2010.

And the tax burden is also high

• Manufacturers pay on average US$ 3 per million BTU

New Exploration Contracts between 3.5 & 5

Price controls of energy products are one factor that explains a declining stock of reserves and production

of natural gas

There was a reduction in informality, but 2003-09 average is similar to 1993-2000

Informality rates

• Reallocation from low productivity to high productivity sectors was not very important

• Within-sector more consistent with some external force that drives labor productivity up in all economic sectors

And quality of education deteriorated in spite of some increase in public expenditures as % of GDP

Quality worsened

Quality improved

We estimated determinants of growth in Argentina in the period 1981-2009

• Stock of capital adjusted by utilization

• Labor adjusted by number of hours worked

– We also opened for Formal and Informal Workers

• Country risk as separate variable

• Terms of trade (Kehoe and Ruhl, 2007; Becker and Mauro, 2003; Edwards, 2007; Cavalcanti Ferreira et al (2010)

– Gain is similar to technological improvement

• We can estimate how much the gain in terms of trade contributed to growth in 2003-2009

– One third when informal employment is included

– 73% in our best estimate that takes into account lagged effects.

Conclusions

• Good luck made a substantial contribution to Argentina’s growth since 2003

• Fiscal challenges that were a key factor behind Argentina’s dismal performance in the past are not such a big challenge (low debt, moderate deficit). But filling the gap with taxes will be costly given the already high tax rates on formal activities

• Evidence points to the need to improve the quality of micro policies and the investment climate … or to bet for permanent luck