Transformational growth, macroeconomic instability and industrial development: Theoretical implications from the economic history of Argentina

The main themes of this dissertation are economic instability and the links between micro- and macroeconomic behavior which lead to instability. These topics are explored by focusing on an idiosyncratic case, Argentina, viewed from the theoretical lens of Transformational Growth. Transformational Growth explicitly incorporates history in macroeconomic analysis and explicitly links microeconomics (technological change and market structures) with macroeconomics (inflation and aggregate growth). The hope is that some conclusions, generalizable to other semi-industrialized countries, can be found regarding the relationship between macroeconomic instability and industrial development. After a methodological introduction, I tackle the problem of inflation (i.e. an expression of instability). The policy recommendations usually derived from mainstream models rely on market forces to find equilibrium and promote economic growth. Thus, low (or null) fiscal deficits and monetary contraction would reduce inflation and unleash prosperity. An econometric exercise establishes that the low inflation of the 1990s in Argentina, after decades of high and very high inflation (including, at times, hyperinflation), was due neither to monetarist policies, nor fiscal restraint. Then, an alternative explanation, one not based on Neoclassical theory, is required. In order to further probe this point, I briefly survey alternative explanations of inflation, highlighting the connections between micro- and macroeconomic issues. In particular, the relationship between industrial development and macroeconomic instability becomes salient in this discussion. Consequently, an overview of economic history in Argentina, exploring these connections comes next. A model which tries to link economic instability and endogenous growth, the stylized facts of the previous chapter and running theme of the other ones, is offered in the last substantive chapter.