Accounting Argentina's Growth Failure: Adjusting Productivity by Utilization Effects and Natural Capital

Abstract

At the beginning of the 20th century, Argentina’s per capita income was comparable to Australia’s, a recent settlement with a natural-resource-rich economy. But today, expectations and promises are broken. Argentina’s current per capita income is less than one-third of Australia’s. Argentina’s long-run growth performance was clearly below potential. However, Argentina typically exhibits rapid short-run recoveries, comparable in magnitude to the high growth rates observed in China. Such sharp short-run recoveries could mask a failure in long-run growth. The paper introduces a methodology to analyze Argentina’s growth failure through growth accounting, including short-term utilization effects and natural capital, enabled by the recent update of the ARKLEMS+LAND database from the Center of Studies of Productivity. In 2023, GDP per capita and labor productivity were at 1974 levels, and Total Factor Productivity was lower than in the 1950s. Short-run productivity gains are transitory, primarily due to labor and capital utilization effects during recoveries. The contribution of natural capital increased during the commodity price boom. This was due to the impact of rent shares on GDP and on the volume of natural capital services. Generalized Total Factor Productivity (GTFP), when natural capital is included, was moderately higher than standard TFP, which measures only the contributions of produced capital and labor. The lack of productivity growth explains Argentina’s underwhelming growth and the frustration of Argentine society with its expectations for potential living standards.