Economic growth, income distribution and macroeconomic policies in a small-open economy : the case of Argentina (1950-2023)

Abstract

Between 1976 and 2023, Argentina has experienced one of the poorest growth performances globally, with an average annual growth rate of just 0.3%. Simultaneously, the country has faced persistently high inflation, including two episodes of hyperinflation. These periods of economic downturn and inflationary surges have responded to foreign currency shortages, implying that the balance of payments is one of the main limitations for output growth in Argentina. These challenges remain relevant today, as the economy is once again experiencing high inflation and recession. This thesis seeks to shed light on Argentina’s disappointing economic performance over the past decades and to explore the external sector’s role in constraining output growth, income distribution, and macroeconomic policies. It does so by performing a more general analysis of balance of payments constrained growth in small open economies, drawing from a classical-Keynesian perspective. The findings are then applied to assess how structural changes in the Argentinian economy have altered the impact of external constraints on growth. The first section of the thesis develops two theoretical models to examine the specific limitations imposed by the balance of payments on economies open to commercial and financial flows. These models yield several key insights: they demonstrate how economic cycles involving income distribution, foreign debt, and the exchange rate can emerge depending on prevailing wage norms; explore the relationship between productive integration and the external constraint; estimate explicit limits for government spending; and show how interest rate hikes can expand the external space available for growth, although up to a critical threshold beyond which debt crises may arise, a dynamic that can be affected by the currency denomination of external debt. The second section applies these theoretical insights to Argentina. Using a multi-sectoral growth model, it examines how changes in demand patterns, the productive structure, and income distribution have influenced the external space available for the economy since the 1950s. The model reveals that, starting in the 1970s, productive disintegration, coupled with shifts in demand patterns, have constrained Argentina's external growth capacity in the long run. In the short term, income distribution fluctuations, driven by wage pressures and frequent currency devaluations, have had a significant impact on the trade balance. The second part of the thesis is completed by a detailed analysis of Argentina's monetary system, focusing on its bimonetary nature, where the domestic currency fails to serve as a store of value. This dual-currency system is analysed to show that it imposes further limits to fiscal and monetary policies, as more flexible policies tend to increase demand for foreign currency, exacerbating external sector pressures.

Esta tesis desarrolla un marco analítico para evaluar las restricciones que el sector externo impone sobre el crecimiento económico, las políticas macroeconómicas y la distribución del ingreso en economías pequeñas y abiertas a los flujos comerciales y financieros. Este marco se utiliza para analizar cómo las transformaciones operadas en la economía argentina en las últimas décadas han reducido su espacio externo, contribuyendo a su bajo crecimiento relativo. La primera sección de la tesis introduce dos modelos teóricos que examinan las limitaciones específicas impuestas por la balanza de pagos en economías abiertas a flujos comerciales y financieros, basados en un supermultiplicador Sraffiano ampliado para considerar el sector externo. Estos modelos aportan varias ideas clave: muestran cómo pueden surgir ciclos económicos asociados a la distribución del ingreso, la deuda externa y el tipo de cambio; exploran la relación entre la integración productiva y el sector externo; estiman límites para el gasto público; y demuestran cómo los aumentos en las tasas de interés pueden expandir el espacio externo disponible para el crecimiento, aunque solo hasta un umbral crítico, más allá del cual pueden resultar en una crisis de deuda. La segunda sección aplica este enfoque conceptual al caso argentino. A través de un modelo de crecimiento multisectorial basado en matrices insumo-producto, examina cómo los cambios en los patrones de demanda, la estructura productiva y la distribución del ingreso han influido en el espacio externo disponible para la economía desde la década de 1950. El modelo revela que, desde la década de 1970, la desintegración productiva, junto con cambios en los patrones de demanda, ha limitado la capacidad de crecimiento externo de Argentina a largo plazo. Esta sección se completa con un análisis detallado del sistema monetario argentino, centrándose en su naturaleza bimonetaria. Mediante modelos econométricos, se demuestra que el bimonetarismo impone límites adicionales a las políticas fiscales y monetarias, ya que políticas más laxas elevan la demanda de divisas, exacerbando las presiones del sector externo.