Argentina : Sources of Growth, Seeking Sustained Economic Growth with Social Equity

Abstract

This report attempts to analyze selected topics, chosen in collaboration with the Argentine authorities, regarding the inter-linkages between economic growth, income distribution and poverty, as well as the respective roles of these factors in explaining the historical underperformance of the Argentine economy. The report aims to identify relevant issues for policy formulation and further economic work. Its emphasis is on longer-term structural factors which are thought to determine productivity and income distribution. The report is organized as follows. Chapter 2 briefly reviews the time-dynamics o f economic growth, poverty and inequality in Argentina. Sections of the chapter study the evolution of poverty and inequality. It is noted that inequality has increased dramatically, though not monotonically, since 1990 and, notably, increases in inequality were observed in periods of both growth and recession. Chapter 3 reviews the latest episode o f economic volatility in Argentina, a period that started with the sharp decline o f economic activity in 2002 and continued with a recovery since 2003. Special attention is paid to the impact of this recent volatility on economic growth, poverty and inequality. The sections study the social impact of the recent crisis and recovery; employing different methodologies to test whether the recent recovery was pro-poor. It also analyzes the recession and recovery at the sector level, while identifying the economic sectors that contributed most to poverty reduction during the latest upturn o f the economy. Chapter 4 then turns to a selected set of government policies that could help to deliver high economic growth. The section highlights the idea that macroeconomic stability is crucial to reducing poverty rates since the empirical evidence indicates that economic crises disproportionately affect the poor. Another major lesson from this section is that tax policy is not a good tool for redistribution in developing countries. Further it analyzes the potential impact of various trade initiatives on employment opportunities for relatively unskilled workers in Argentina; and presents the results o f a recent study on the returns to education for workers across income groups. Finally, it reviews some key issues involved in ensuring a favorable environment for private sector development.