The green factor in the Argentine economy. Productivity and demand during convertibility and post-convertibility.
Keywords:
verdoorn law, productivity, institutional change, convertibility, post-convertibilityAbstract
Verdoorn´s law proposes a causal relationship between market growth and productivity growth. This paper finds that an important change in the "productivity regime" was created due to changes in the institutional frame after the crash of the Argentine Currency Board (Convertibility law that fixed the Argentine peso to the U.S. dollar between 1991/04 and 01/2002). This seems to be confirmed by the significant differences we find in the values of Verdoorn coefficient between the period when Convertibility law was in force and after. Indeed, the results show that productivity growth have been higher in the Post-Currency Board period.
Likewise, the significance and the values of the Verdoorn´s coefficient shows the existence of a strong relationship between market size and productivity improvement, i.e. in some degree, productivity is endogenous, as well as scale returns. These results lets us contribute to the debate about the relevance of market oriented policies headed to increase market size, strengthen and stabilize demand. Indeed, they are politically attractive because of their direct effects on the welfare, and they also represent an indirect instrument to improve output through productivity growth and the recursive mechanism of accumulative causation generated in the economic system.
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