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Competitive diversification in resource abundant countries: Argentina after the collapse of the convertibility regime

By Leandro Serino

October 2006

ABSTRACT

The strong recovery of aggregate macroeconomic variables reopened the debate about the long-term development strategy of Argentina. As a contribution to this debate we develop a Scandinavian version of the dependent economy model and discuss the complex task of economic diversification in resource abundant countries. After showing the constraining role of resource abundance for tradable diversification, we discuss the effects of macroeconomic diversification policies, especially nominal devaluations. The analysis shows that: (i) the promotion of structural change through devaluations is more costly in Argentina than in other countries with different structural characteristics; (ii) to effectively promote tradable diversification and avoid falling real wages devaluations must be implemented together with export taxes; (iii) taking into account Kaldor-Verdoorn effects links macroeconomic policies to productivity growth, which now contribute to increase the competitiveness of the non-traditional tradable sector through a new channel and limit the reduction and even open the possibility for rises in real wages. However, because the reduction in sectoral productivity differences is a fundamental condition for competitive and sustainable diversification additional policies with a direct impact on productivity growth, like investment in infrastructure, are also necessary.

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