Positive natural resource shocks and domestic adjustments in a semi-industrialized economy: Argentina in the 2004-2007 period

Leandro Serino

ISS Working Papers - General Series from International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague

Abstract: This paper evaluates the domestic adjustment to recent positive external shocks in Argentina's natural resource sectors. Although there is no single, exclusive determinant of Argentina's fast economic growth in the period 2003-2007, the paper illustrates the favourable contribution of certain economic policies to this outcome. According to counterfactual simulations performed with a dynamic Computable General Equilibrium (CGE) model especially designed to capture structural features of the Argentine economy, export taxes on natural resource products and Argentina's competitive exchange rate policy have counteracted Dutch disease adjustments associated the positive terms of trade shock (which may be contractionary in the medium-term if no economic policies are implemented) contributing to productive and export diversification and to bring about output growth. The analysis also shows that in a context of strong demand impulses spending the income collected with export taxes may not be beneficial for the overall competitiveness of the economy, hence counteracting one of the purposes of the tax policy. This implies, first, that subsidies to producers of wage-goods may be ineffective to control overall price increases, and second, that optimizing the contribution of public investment in infrastructure to improve the competitiveness of the economy requires special attention to the timing of public investment.

Keywords: Argentina; Dutch disease; exchange rate policy; productive diversification; terms of trade (search for similar items in EconPapers)
Date: 2009-11-01
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