Trade, Structural Transformation and Development: Evidence from Argentina 1869-1914
59 Pages Posted: 16 Jun 2014 Last revised: 26 May 2021
Date Written: June 2014
We provide new theory and evidence on the role of external integration (reductions in international transport costs) and internal integration (reductions in domestic transport costs) in structural transformation and economic development using Argentina’s integration into the world economy in the late-19th century. Using standard neoclassical assumptions, we derive the novel theoretical prediction of a spatial Balassa-Samuelson effect, in which locations closer to world markets have higher population densities, urban population shares, relative prices of non-traded goods and land prices relative to wages, and specialize in the most transport-cost-sensitive goods. We present reduced-form evidence in support of these theoretical predictions and structurally estimate the model’s parameters using spatially-disaggregated data over nearly half a century. In counterfactuals using the estimated model, we find that reductions in transatlantic freight rates raised Argentina’s GDP, population and welfare by 17.7, 13.8, and 7.1 percent, respectively. By comparison, the construction of the railroad network raised GDP, population and welfare by 12.8, 9.4 and 4.8 percent, respectively. We show that the construction of the railroad network raised the net present value of land income by more than its construction costs and that external integration magnified this impact on land values.
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