Argentina and the Pursuit of the American Dream

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News Team

In the last twelve years, the Argentine economy has stopped growing, but its population has increased by 12% in the same period. The current President of the Nation, Javier Milei, believes that Argentina could achieve living standards of the United States within 35 years, and even have income similar to the Republic of Ireland in 40 years.

In 1960, Argentina had an income level similar to that of Ireland and higher than that of South Korea and Chile. However, by 2019, it was well below the first two and lower than that of Chile. The relative stagnation of Argentina is due to its economy fading until it stopped growing.

If the average economic growth between 1960 and 2019 is calculated for all these countries, two clear blocks can be identified. The United States, South Korea, and Ireland experienced higher growth rates compared to Latin American countries such as Chile, Brazil, and Argentina.

The Argentine economy has not only stopped growing, but its population has increased by 12% in the last twelve years. As a result, GDP per capita has dropped by 12% in the same period. The numbers indicate that Argentina is not only not growing, but it is decreasing in terms of GDP per capita at a rate of 1% annually.

At the beginning of the last century, Argentina had one of the highest GDP per capita in the world. A century later, it became a country in the middle of the table in the ranking of GDP per capita: 130th out of 255 countries.

The urgency and the need to recover fiscal balance are currently being debated, but it is worth remembering that physical investment, human capital, and technological progress are the factors that determine the long-term growth rate of a country.

To equal the GDP per capita of the United States in just 35 years, Argentina would have to grow at an annual cumulative rate of 2.85% per year. However, since 1960, the US has recorded per capita GDP growth close to 2% per year. Therefore, if US economic growth remains stable, Argentina should grow at 4.85% annually for 35 years to be able to close the current gap.

In short, Argentina needs to grow at 3% annually for 35 years above what it registers. one of the largest economies on the planet, to equal the current average income of an American. But given that the US will continue to grow, Argentina would need to grow at 5% to reach the American GDP per capita and close the gap in 2060.

Economic growth requires savings to finance investment, both physical and human capital, and technological progress. In recent decades, Argentina has opted for an economic model that stimulates consumption to the detriment of investment. The recovery of savings in the economy will be a necessary condition to resume the path of economic growth.

The authors are grateful for the statistical collaboration of Pablo García Seminara. Ramiro Castiñeira is director of the consulting firm Econometrica. Martín Grandes is a professor of Economic Growth Theory, FCE-UBA, a researcher at Conicet and co-director of the UBA Social Innovation Observatory.

Image Source: www.infobae.com

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