“Yet Another Tale of Two Cities: Buenos Aires and Chicago,” F. Campante & E. Glaeser (2009)

Argentina was one of the most prosperous places in the world at the turn of the twentieth century, and that wealth was massively concentrated in its capital, Buenos Aires. However, in the last 110 years, and particularly since World War II, Argentina’s growth has been significantly slower than other developed countries: Argentina now has a GDP per capita, in PPP terms, 30% the size of the United States. One way of examining why this happened is to look at the comparative experiences of Buenos Aires and Chicago. In 1900, both were centers of meet packing connecting a rich agricultural hinterland with world markets as rail and shipping hubs. So why was BA in relative decline afterwards? The authors propose four explanations: much lower initial human capital (Argentina was “rich but not modern” in 1900), much lower physical capital, lower levels of innovation after 1900, and less political instability due to the fact that Chicago was not a national capital. A simple (though not altogether convincing, due to poor quality data and the difficulty of aggregating “human capital”) decomposition suggests human capital differences one hundred years ago explain nearly all of the income divergence since then. In particular, feedback effects from poor education into more political instability can exacerbate the problem. To the extent that this thesis is offered, the linked paper serves more as an introduction to the literature on education and political cycles than as groundbreaking work on its own. Further, I am skeptical of the conclusion that Argentina actually was in such bad shape. From 1900 until World War 2, Argentina’s economy grew slightly faster than the economy of the UK! It appears that the particularly poor response to the Great Depression, plus continued isolationism and poor economic management during and after the Peron regime, are what needs explaining: Argentina was decidedly not in economic trouble from 1900 to 1930.

http://www.economics.harvard.edu/faculty/glaeser/files/Argentina_Campante_Glaeser.pdf

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