THE BALANCE OF PAYMENTS ‘AN‘D‘IMPORT SUBSTITUTING INDUSTRIALIZATEON iN ARGENTINA, 3945 ‘- 6.1 masas ma mg ammam mo. MICHIGAN 5mm umveasm mass WiLuAM FOLEY 19.6.9. MHIEHIWIHI WW 111111111 1 Michigan SW I 293 00675 9108 University v -vr—fi— v—W" This is to certify that the thesis entitled THE BALANCE OF PAYMENTS AND IMPORT SUBSTITUTING INDUSTRIALIZATION IN ARGENTINA, 1945-61 presented by James W. Foley has been accepted towards fulfillment of the requirements for Ph.D. ECONOMICS degree in WW 3““ / Major professor Date ,/Mfl/ /;Zf 0-169 {MAYZGJE‘ ABSTRACT THE BALANCE OF PAYMENTS AND IMPORT SUBSTITUTING INDUSTRIALIZATION IN ARGENTINA, 1945-61 37 James W . Foley Orthodox economic development theory has viewed balance of payments prob- lems (pressures) as being detrimental to economic growth . Instability and periodic scarcity of foreign exchange are alleged to decrease the importation of capital goods needed for industrialization and thus hinder economic growth . Albert 0 . Hirschman has challenged this view, suggesting that balance of payments pressures may induce import substitution and thus stimulate economic growth.I He argues that a country confronted with balance of payments problems and unable to finance continued im- portation of a given product may begin to produce locally the previously imported product. It was the central task of this dissertation to test this hypothesis by examin- ing the relevant circumstances in Argentina during the period 1945-61 . Since the late nineteen-forties Argentina has suffered continuous balance of payments difficul- ties and thus was a suitable country for such a test. In order to test this hypothesis it was first necessary to define operationally a balance of payments pressure . That is, it was necessary to distinguish between weak balance of payments pressures supposedly incapable of inducing import substitution and strong pressures which presumably would compel some sort of remedial action by James W . Foley the government which might induce import substitution. Two methods based on Argen- tine institutional arrangements and a priori reasoning were developed for this purpose. Accordingly, l955-58 were labelled years of strong balance of payments pressures . If the Hirschman hypothesis is correct, import substitution should have occurred con- currently or shortly thereafter. In order to analyze the subsequent phase of import substitution, twenty-nine products were chosen for detailed study The sample prod- ucts accounted for more than half of Argentine imports, in dollars, during the mid- nineteen-fifties . Seven of the twenty-nine products did not subsequently experience import substitution. These seven products were quantitatively unimportant, account- ing for little more than 3 percent of total imports . The remaining twenty-two prod- ucts did experience rapid and massive import substitution. Between l956 and I962, the dollar cost of these twenty-two products as a percentage of total imports fell from 48.0l to l7.3 percent. Successful import substitution, by and large, required large-scale foreign investments . Those products that were substituted without foreign participation, were quantitatively unimportant, comprising a small share of total imports. Signifi- cantly, their domestication required little or no imported capital . The quantitatively more important products and groups of products studied (i.e., automobiles, trucks, oils, paper and paper products, iron and steel, and trac- tors) did require foreign participation in the import substitution process. This resulted from the basic structure of the Argentine economy when balance of payments pressures first were evidenced and import substitution felt to be necessary. By the late nineteen- forties, the stage of easy import substitution, involving technologically simple, James W. Foley labor-intensive industries, was complete. Remaining to be substituted were the tech- nologically complex, capital-intensive industries, which required for their establish- ment large amounts of imported capital. Given the prevailing low level of foreign exchange, an import bundle comprised overwhelmingly of non-consumer goods, and a stagnant export sector, foreign investment was necessary to overcome the foreign exchange bottleneck. Accordingly, the Argentine government, in l958, instituted the Industrial Promotion Laws which welcomed foreign enterprises that contributed to import substitution and/or export expansion . An examination of the relationship between Argentine balance of payments pressures and import substituting industrialization has demonstrated that the former has had a pronounced effect on the latter. Thus, the Hirschman hypothesis that balance of payments pressures induce import substitution has been supported by the Argentine experience of the late nineteen-fifties and early nineteen-sixties . IAlbert O . Hirschman, The Strategy of Economic Development (New Haven, Connecticut: Yale University Press, 1967), pp. loo-76. THE BALANCE or PAYMENTS AND IMPORT SUBSTITUTING INDUSTRIALIZATION IN ARGENTINA, 1945-6] By James William Foley A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Economics l969 ACKNOWLEDGMENTS Two groups must be thanked for their efforts in my behalf. The Midwestern Universities Consortium for International Activities gave me the opportunity to under- take this effort by granting to me a one-year fellowship for study in Argentina . The members of the DiTella Institute, Buenos Aires, extended to me their cordial and unlimited c00peration. Particularly helpful were Mario 5 . Brodersohn, Miguel A. Almada, Jorge Sakamoto, and Eduardo A. Zalduendo. Without their help, this study would not have been possible. My advisor, Dr. John M. Hunter, deserves special thanks for his advice and patience. It is to him that I dedicate this work. Also I am grateful to Dr. Carl E. Liedholm and Dr. Anthony Koo for their comments and suggestions. The criticisms of colleagues, Dr. Fred Miller and Professor Percy D. Warner were very helpful. Most of all, I am grateful to my family for their encouragement, patience and faith . Chapter IV TABLE OF CONTENTS THE HYPOTHESIS IMPORT SUBSTITUTION DEFINED THE PROCESS OF IMPORT SUBSTITUTION ANALYTICAL JUSTIFICATIONS OF IMPORT SUBSTITUTION MEASURES OF IMPORT SUBSTITUTION RELEVANCE OF HYPOTHESIS TO DEVELOPMENT THEORY OUTLINE OF DISSERTATION THE FACTOR ENDOWMENT OF ARGENTINA I900-l930: THE PERIOD OF EXPORT-ORIENTED GROWTH GROWTH SINCE I930 METHOD OF ANALYSIS THE HYPOTHESIS DEFINING A BALANCE OF PAYMENTS PRESSURE MEASURING IMPORT SUBSTITUTION SELECTING THE INDUSTRIES DETERMINING ADEQUATE MARKET SIZE, ENTREPRENEURIAL PROPENSITY AND CONSUMPTION PATTERNS CORRELATION AND CAUSATION THE ANALYSIS GROUP I: THE EASY TO SUBSTITUTE PRODUCTS GROUP II: PAPER PRODUCTS GROUP Ill: STEEL AND IRON PRODUCTS GROUP IV: PETROLEUM AND PETROLEUM PRODUCTS GROUP V: AUTOMOBILES AND TRUCKS GROUP VI: TRACTORS AND COMBUSTIBLE MINERAL SOLIDS 2] 2l 27 39 63 63 7O 76 8 I 83 83 87 l07 109 II2 ll5 Il7 IZI TABLE OF CONTENTS Chapter V SUMMARY AND CONCLUSIONS SYNTHESIS OF FINDINGS FUTURE INVESTIGATIONS BIBLIOGRAPHY APPENDIX Page 124 124 125 127 134 Chapter Table IV App . I 2 OsU'I-A LIST OF TABLES INVESTMENT AS A PERCENTAGE OF GROSS NATIONAL PRODUCT STRUCTURE OF THE VALUE ADDED IN MANUFACTURING IN ARGENTINA IMPORTS AS A PERCENTAGE OF THE VALUE OF DOMES- TIC PRODUCTION PLUS IMPORTS: SELECTED MANUFACTURING PRODUCTS INTERNAL TERMS OF TRADE (1950 = 100) INDEX OF AGRICULTURAL PRODUCTION INDEX (1950 = 100) OF EXPORT AND IMPORT PRICES IN U.S. DOLLARS FOREIGN INVESTMENT AUTHORIZATION (EXCLUDING PETROLEUM) FOR THE PERIOD 1958-63, ACCORD- ING TO INDUSTRIAL CLASSIFICATIONS PARTICIPATION OF BRANCHES OF MANUFACTURING IN THE TOTAL INCREASE IN VALUE ADDED, 1927-29 TO 1959-61 GROSS & NET RESERVES OF GOLD & FOREIGN EX- CHANGE 1945-63 (In millions of dollars) NET SUPPLY OF GOLD AND FOREIGN EXCHANGE AS A PERCENTAGE OF IMPORTS, 1945-63 CURRENT ACCOUNT BALANCE AND THE NET SUPPLY OF GOLD AND FOREIGN EXCHANGE, 1945-63 (in millions of dollars) SUBSTITUTION COEFFICIENTS FOR SAMPLE PRODUCTS: 1955-61 VALUE OF IMPORTS OF VARIOUS PRODUCTS AS A PERCENTAGE OF THE TOTAL IMPORTS IN DOLLARS AND PESOS: PERIOD 1955-62 PRODUCTION AND IMPORTATION OF ASBESTOS, 1945-61 PRODUCTION AND IMPORTATION OF ANTIMONY, 1945-61 PRODUCTION AND IMPORTATION OF NEWSPRINT, 1941-61 Page 33 36 38 45 46 48 58 60 88 89 91 102 104 134 135 136 Chapter App . Table 4 5 ‘OCD 10 11 12 13 14 15 16 17 18 19 20 21 LIST OF TABLES Page PRODUCTION AND IMPORTATION OF ELECTRIC METERS, 1945-61 137 PRODUCTION AND IMPORTAT ION OF YERBA MATE, 1945-61 138 PRODUCTION AND IMPORTATION OF DIESEL OIL, 1945-61 139 PRODUCTION AND IMPORTATION OF KEROSENE, 1945-61 140 PRODUCTION AND IMPORTATION OF SULFUR, l945-6l 141 PRODUCTION AND IMPORTATION OF ACETIC ACID, 1951-61 142 PRODUCTION AND IMPORTATION OF BISMUTH, 1945-61 143 PRODUCTION AND IMPORTATION OF HOPS, I945-61 144 PRODUCTION AND IMPORTATION OF EDIBLE OILS, l945-6I 145 PRODUCTION AND IMPORTATION OF GRAPHITE, I945-6l 146 PRODUCTION AND IMPORTATION OF WOOD PASTE FOR FABRICATION OF PAPER AND CELLULOSE, 1941-61 147 PRODUCTION AND IMPORTATION OF CIGARETTE PAPER, 1941-61 148 PRODUCTION AND IMPORTATION OF CELLOPHANE, 1941-61 149 PRODUCTION AND IMPORTATION OF WORKPAPER AND WRITING PAPER, 1941-61 150 PRODUCTION AND IMPORTATION OF CAST IRON, I945-61 151 PRODUCTION AND IMPORTATION OF STEEL INGOTS, I945-6I 152 PRODUCTION AND IMPORTATION OF LAMINATED STEEL, 1945-61 153 PRODUCTION AND IMPORTATION OF CRUDE PETRO- LEUM, 1945-61 154 vi Chapter App . Tab I e 22 23 24 25 26 27 28 29 LIST OF TABLES Page PRODUCTION AND IMPORTATION OF FUEL OIL, 1945-61 155 PRODUCTION AND IMPORTATION OF GAS OIL, 1945-61 156 PRODUCTION AND IMPORTATION OF AIRPLANE FUEL, 1945-61 157 PRODUCTION AND IMPORTATION OF OILS FOR LUBRICATION, 1945-61 158 PRODUCTION AND IMPORTATION OF AUTOMOBILES, 1945-61 159 PRODUCTION AND IMPORTATION OF TRUCKS, 1951-61 160 PRODUCTION AND IMPORTATION OF TRACTORS, l945-61 161 PRODUCTION AND IMPORTATION OI= COMBUSTIBLE MINERAL SOLIDS, I945-61 162 vii LIST OF FIGURES Chapter Figure Page III 1 EFFECTS OF A TARIFF 66 2 EFFECTS OF A SUBSIDY 69 IV 1 PRODUCTS NOT EXPERIENCING IMPORT SUBSTITUTION 94 2 GROUP I: THE EASY TO SUBSTITUTE PRODUCTS 96 3 GROUP 11: PAPER PRODUCTS 97 4 GROUP 111: STEEL & IRON PRODUCTS 98 5 GROUP IV: PETROLEUM & PETROLEUM PRODUCTS 99 6 GROUP V: AUTOMOTIVE PRODUCTS 100 7 GROUP VI: TRACTORS & COMBUSTIBLE MINERAL SOLIDS 101 viii CHAPTER I This chapter initially sets forth the hypothesis to be tested: that balance of payments pressures induce import substitution. This is followed by a general discus- sion of import substitution which examines (1) the definition of import substitution; (2) the process of import substitution as it has historically occurred in Latin America; (3) the analytical iustification of import substitution as a growth strategy; and (4) the various measures of import substitution . I then discuss the relevance of the basic hypothesis to development theory . Finally, I outline the scope of this work . THE HYPOTHESIS] Albert Hirschman has suggested that balance of payments pressures frequently induce import substitution. This thesis is summarized in the following statement. That fluctuations in foreign exchange availability may, up to a point, accelerate economic development can be Shown in the follow- ing way. Take first the years during which foreign exchange earnings are ample and import restrictions non-existent. During this period an underdeveloped country expands its traditional imports and develops a taste, a market, and a need for a number of hitherto unknown and unappreciated commodities . As more incentive goods become avail- able, backward-sloping supply curves of effort are being "unbent" and economic operators become more market-oriented in their work habits and production efforts. A nunber of "thresholds" are being crossed, but production is not started because of the opposition of the importing interests, the difficulties of competing with them, and the lack of interest of public authorities . lThis section examines, in a cursory manner only, the hypothesis to be tested. For a more detailed discussion of this hypothesis see Chapter III, pp. 63-70. Come the lean years and imports are restricted in one way or an- other; the entrepreneurs then know from the previous phase that the size of the home market for some of these imports warrants the build- ing up of domestic manufacturing, and such proiects now are strongly supported by public opinion because the absence or high price of the previously imported commodities is felt as a deprivation; in fact, in this phase the domestic importers themselves, or the foreign exporting interests, often turn producers of the goods they previously shipped into the country . It is interesting that Hirschman should equate import substitution with the acceleration of economic development. Whether Hirschman is correct in his assump- tion will be discussed below, along with other issues relating to import substitution. THE CONCEPT OF IMPORT SUBSTITUTION IMPORT SUBSTITUTION DEFINED3 Import substitution occurs whenever a country undertakes to produce locally a good which had previously been imported . Successful substitution requires that the size of the domestic market be sufficient to support output levels consistent with mini- mum acceptable profits for the entrepreneur or a high enough level of protection such 2Albert O . Hirschman, The Strategy of Economic Development (New Haven, Conn.: Yale University Press, 1967), pp. 173-74. 3Non-industrial import substitution is excluded from this discussion for two reasons . First, the historical agrarian orientation of Latin American nations has meant that subsequent import substitution had to be, by and large, industrial in nature. This bias in the definition of import substitution is also reflected in the literature which either explicitly or implicitly rules out agrarian import substitution and, instead, speaks of import substituting industrialization. See for example Henry J. Bruton, Principles of Development Economics (Englewood Cliffs, N.J.: Prentice-Hal I, Inc .), pp. 323-48; Alfred Maizels, Industrial Growth and World Trade (Cambridge: Cambridge University Press, 1963), pp. l48-51;Cerald M. Meier, Leading Issues in Development Economics that low output levels can be profitable .4 Initially import substitution almost always requires some form of protection in order that the infant industry might be protected against "unfair" international competition, at least during the industry's incipient stages. In practice, this protection, once instituted, tends to become permanent. THE PROCESS OF IMPORT SUBSTITUTION According to the Organization of American States and the United Nations' Economic Commission for Latin America, the process of import substitution typically goes through three stages: the domestication of consumer goods, intermediate goods, and finally capital goods production .6 Although such a schematic approach is (New York: Oxford University Press, 1964), pp. 297-303; and Hollis B. Chenery, 'Patterns of Industrial Growth, "American Economic Review, Sept. 1960, pp. 624-54. 4 . . . . . It should go w1thout sayIng that also reqUIred are technIcal and entrepreneurIal expertise, and in general, the appropriate resource endowment. 5The high level of industrial protection, generally prevalent in Latin American countries, has helped to foster gross inefficiencies in Latin American industries. Firms, finding themselves protected from international competition, are under no compulsion to modernize or make more efficient their present mode of Operation . The resulting in- efficiencies, coupled with narrow domestic markets, have aggravated the typical his- torical pattern of low-volume, high unit costs, and high prices. For an excellent discussion of the inefficiencies of Latin American industries, see David Felix, "Mone- tarists, Structuralists, and Import Substitution Industrialization: A Critical Appraisal, " Inflation and Growth in Latin America, eds. Werner Baer and Isaac Kerstenetsky (Homewood, III .: REhard D.lrwin, Inc., 1964), pp. 370-401 . ’ 6Pan American Union, General Secretariat of the Organization of American States, Economic Survey of Latin America, 1962 (Baltimore: The Johns Hopkins Press, 1964), p. 4.20. analytically useful and substantially correct, I find it more helpful to envision im- port substitution as a two-stage process . The first stage might well be labeled that of "easy import substitution ." In this, substitution occurs for those products which can be manufactured by relatively simple production techniques which are relatively labor intensive.7 That this stage should come first is completely logical. Easier tasks are naturally undertaken first; later as a nation's expertise develops, more ven- turesome and complex proiects are undertaken . The second stage can be described as the phase of "difficult import substitution .' During this stage, the production of consumer durables, intermediate, and capital goods is domesticated. Typically such goods have saphisticated production techniques and relatively high capital require- ments. Moreover, profitable production may require an output level greater than the domestic economy can support. In short, this stage is difficult because a country may lack one or more of the following: the ability to mobilize domestic savings for invest- ment purposes, sufficient foreign exchange to finance the import component of poten- tial investment, the appropriate "know-how, " and a sufficiently large domestic market.8 This two-stage approach to the process of import substitution seems to be what I Raul Prebisch, former head of the Economic Commission for Latin America, had in 7United Nations, Economic Commission for Latin America, "The Growth and Decline of Import Substitution in Brazil, " Economic Bulletin for Latin America, March, 1964, p. 5. 8It should be noted that the above variables would also be lacking during the "easy" import substitution stage . At that time, however, they are not of critical im- portance . For example, the ability to mobilize investment funds and/or foreign exchange is, by definition, not as critical during the non-capital intensive phase of import substitution as it is during the capital intensive phase. mind when he made the following salient comments about Latin American develop- ment. In fact, the stage of easy substitution is past. It was relatively simple to substitute domestic production for imports of industrial items of current consumption and of some durable and capital goods, and there is little margin for substitution in this field in most of Latin America . We are now moving into the stage of import substitution in reSpect of intermediate goods or durable consumer or capital goods, which, besides being difficult to manufacture, require markets much larger than those of the individual Latin American countries . More- over, there are some intermediate goods for which substitution possi- bilities are few, or simply non-existent, because of the shortage or total lack of natural resources . If Prebisch is correct, the more imperative it becomes that future import sub- stitution (both in terms of proiects undertaken and projects advocated) be well iusti- fied. The following section discusses some of the more important justifications given for import substitution as a growth strategy . ANALYTICAL JUSTIFICATIONS OF IMPORT SUBSTITUTIONlo (1) Import substitution industrialization is often supported for the simple and pragmatic reason that many people in underdeveloped countries prefer industrial activity to agricultural activity. These people are convinced that it is somehow more prestigious (or perhaps more to their own and their cauntry's economic advantage) to be engaged in manufacturing instead of agriculture. Often this view is reflected by 9United Nations, Towards a Dynamic Development Policy for Latin Americans (New York, 1963), pp. 69-70. 10The basic framework of this section has been drawn from a review article by Gerald Meier. See Gerald M. Meier, "Import Substitution and Industrial Protection --Note," Leading Issues in Development Economics, op. cit., pp. 297-303. the government which therefore plunges headlong into industrial projects which have little or no economic justification .11 Fortunately, industrialization may also be sup- ported for more logical reasons. Many economists have noted and discussed the close and positive relationship that exists between the level of industrialization and the level of per capita income.‘2 Since the two variables are closely related, it is easy (though statistically invalid) to assume that the variables are causally related. Proponents of import substitution industrialization (who base their advocacy on the above relationship) are implicitly assuming that the line of causation runs from an increase in industrialization to an increase in per capita income, rather than vice versa. Obviously, this assumption is Open to severe criticism . It may well be that an increase in income leads to an increased demand for manufactured goods, and thus to an increase in industrial activity. Since the line of causation is not known, any such statistical “proof" of the virtue of import substitution is, at best, a somewhat dubious and shaky basis for development strategy . If, however, it is assumed that industrialization is desirable, then it seems clear that import substitution will play a major role in this process . In a recent study, Hollis Chenery calculated the relative importance of import substitution in stimulating industrialization . Chenery shows that for forty countries, an increase in income Illn this case, the belief in industrialization becomes an article of faith and for this reason, a systematic analysis of potential projects is not deemed necessary. ”For an excellent list of references on this point, see Hollis Chenery, "Pat- terns of Industrial Growth, " American Economic Review, 0 . cit., p. 624 and pp. 653-54. Also see Bruce M. Russett, et al., World HandbooE of Political and Social Indicators (New Haven, Conn.: Yale-Wiversity Press, 1964), p. 28f. Here the authors have correlated per capita gross national product with employment in industry accounted for only one-third of the increase in industrial output, and that the re- maining two-thirds of the increase in industrial output was due to importsubstitution.13 (2) The well known Prebisch-Singer thesis is frequently used to support import substitution as a growth strategy.‘4 According to this thesis, Latin American export- ing countries are increasingly going to be disadvantaged in their trade with the already developed nations . Prebisch argues that the income elasticity of Latin American ex- ports (consisting mostly of primary products) is less than the income elasticity of Latin American imports (mainly manufactured products) from the advanced countries of Europe and North America . The greater market control which industties (and workers) in advanced countries enjoy also tends to work to the detriment of Latin American countries . Prebisch asserts that productivity gains in advanced countries are reflected in higher wages and/or profits, but only rarely in lower prices . This is due to the price control which firms in an oligopolistic industry can maintain and to the bargaining ability of powerful labor unions . In underdeveloped countries such market power is alleged to be lacking, and as a result, increased productivity leads to lower prices. The net result of these factors is that the commodity terms of trade have progressively as a percentage of working age population . The resulting correlation coefficient, based on data from 77 countries, is a high .79, thus tending to confirm the thesis that industrialization is positively associated with high per capita income. I3Chenery, op. cit., p. 641. 14See H .W. Singer, "The Distribution of Gains between Investing and Borrow- ing Countries," American Economic Review (May, 1950), pp. 473-85. For Prebisch's views see United Nations, Economic Commission for Latin America, The Economic De- velopment of Latin America and Its Principle Problems (Lake Success, N.Y.: United Nations, 1950). Because of the ovaus significance for Latin America, I will rely on the views of Prebisch in discussing this point. moved against Latin American countries; thus a given amount of exports has progres- sively purchased less imports. In support of his contentions, Prebisch cites the British 15 terms of trade for the period 1876-80 to 1946-47. This data and the generalizations drawn from them have been criticized extensively.l6 Nevertheless. the main argu- ment of declining terms of trade is valid, at least for certain products. This, however, is not nearly so important as the fact that the universal validity of the Prebisch view is widely believed in Latin America. The result has been an almost mystical faith in the efficacy of import substitution. In this regard Wendell Gordon has stated: The import-substitution mentality that has dominated Latin Ameri- can thinking in recent years seems to conceive that any new produc- tion facility is good, almost regardless of cost, provided it turns out a product that can substitute for some imports . At times one gets the impression that the Latin American commitment to the principle of import substitution is so strong as to justify domestic production re- gardless of cost. And in giving the protection that is necessary for the high-cost industries, the Latin American governments willflancede almost any tariff rate that the domestic manufacturers ask for. (3) Import substituting industrialization is also supported for the purportedly dynamic effect which it has upon the economy of an underdeveloped country. One variant of this view stresses the role of linkages, 18 in the deveIOpment process . 15United Nations, op. cit., p. 9. “For a good review of the Prebisch-Singer thesis and the criticism directed toward it see Benjamin Higgins, Economic Development (New York: W.W. Norton and Company, 1959), pp. 357-7? and Meier, op. cit. I7Wendell C. Gordon, The Political Economy of Latin America (New York: Columbia University Press, 1966), pp. 319-20. 18A distinction is usually made between forward and backward linkages . In this regard Hirschman asserts that "every nonprimary economic activity will induce attempts to supply through domestic production the inputs needed in that activity." Hirschman places special emphasis upon the importance of backward linkages . He argues that the establishment of a final-stage industry (1 .e ., an industry or industries that "perform the 'final touches' on almost-finished industrial products imported from abroad")'9 encourages the subsequent establishing of industries supplying inputs for the final-stage industries . Once an industry is established, a continued supply of inputs is necessary for its viability . Knowing this, potential domestic producers of inputs are much less reluctant to begin production, even though they may have to compete with imported inputs. Moreover, the final-stage industry itself may overtly encourage domestic production of inputs . This is particularly true if the final-stage industry fears a serious decline in the capacity to import, which will imperil a con- tinued supply of imported inputs . Hirschman goes on to state that forward linkages are far less compelling inducement mechanisms and are therefore inferior (or less powerful) to backward linkages .20 This is particularly true for agricultural and min- ing activities . Once the assumption of the superiority (or greater likelihood) of back- ward linkages is granted, then it follows, by definition, that growth strategies should stress import substituting industrialization as opposed to primary-export activity. Another variant of this theme points out the substantial benefits to be derived from an industrially trained labor force; these benefits are said to be lacking in other This he labels a backward linkage. He further states that "every activity that does not by its nature cater exclusively to final demands, will induce attempts to utilize its outputs as inputs in some new activities ." This he labels a forward linkage . Source: Alfred O. Hirschman, 0p. cit., p. 100. '91b1d., p. 111. 2016161., p. 109. 10 forms of activity. Proponents of this argument emphasize the technical training which industrial labor receives, the gradual inculcation of rational modes of thinking and action which hopefully will permeate the society, and the acceptance of industrial discipline as a necessary concomitant of a modern economy . Certainly such "resources" are badly lacking in many underdeveloped countries . (4) Many Latin American countries find themselves heavily dependent on the outside world for all sorts of imports ranging from frivolous consumer goods to badly needed intermediate and capital goods . To finance these imports, export earnings are 2] Unfortunately, many countries in Latin America find that their export needed. earnings are subject to frequent and often violent fluctuations, for reasons largely beyond their own control .22 This pattern is particularly typical if exports are oriented primarily towards one product, if price elasticity of demand is low, and if supply is internationally rather than monopolistically determined. The above description fits most Latin American countries . For example, Epically, tin represents over 90 percent of Bolivian exports; petroleum, over 90 percent of Venezuelan exports; coffee, two- thirds and four-fifths of Colombian and Brazilian exports, respectively; sugar, over 80 percent of Cuban exports and one-half of Dominican exports; bananas, nearly 2lAlthough the various forms of external financing as well as foreign exchange reserves can be used to finance imports, in the long run import financing is determined by export earnings . 22For a complete discussion of the problem of export instability and its effects see Alasdair I. MacBean, Export Instability and Economic Development (Cambridge: Mass.: Harvard University-5e55, 1966). 11 two-thirds of Ecuadorian exports; and copper, almost 70 percent of Chilean exports.23 These products typically have low price elasticities and a supply which is interna- tionally determined . The combination of the above factors can and does lead to export instability. Short term fluctuations in export earnings can wreak havoc upon an underde- veloped economy, particularly if the import bundle is composed mainly of inputs needed for already established domestic industries . In this case, short-term fluctuations result in local industry grinding to a halt no: because of insufficient demand, but rather be- cause of an inability to finance the import of needed inputs .24 David Felix calls this a quasi-Keynesian state.25 Besides unemployment, fluctuations in exports also cause uncertainty as to the future availability of foreign exchange (needed for the financing of imported inputs). This uncertainty tends to decrease the volume of investment and tends to make "the suppliers of capital and credit charge higher interest rates and im- .26 pose more stringent conditions, thus diminishing investment even more. One of the solutions to the problem is to attempt to stabilize prices by means 23Committee for Economic Development, Regional Integration and the Trade of Latin America (New York: Committee for Economic DeveTOpment, T968), p. 24. 24I am here assuming that foreign exchange reserves are not managed counter- cyclically; that is, it is assumed that the authorities do not "save" foreign exchange during an export boom and instead allow reserves to be used to finance increased im- ports . 25David Felix, "Beyond Import Substitution: A Latin American Dilemma ," A paper presented to the Seminar on Strategy for the Foreign Sector and Economic De- velopment, Buenos Aires, September 7 to September 10, 1966 (Buenos Aires: Center of Economic Research, Di Tella Institute, 1966), p. 6. 26MacBean, op. cit., p. 29. 12 of some sort of international commodity agreement. Already there are or have been various agreements involving wheat, sugar, tin and coffee .27 As with any such or- rangement, the incentive for ”cheating" is great and as a result, such agreements often "break down, " and even an initial agreement may be difficult or impossible to obtain . Another approach to the problem is one of import substitution industrializa- tion; that is, production of essential products locally and thus elimination of depen- dence on the outside world. This solution, however, is not as easy as it would first appear. To be economically profitable, industries producing certain products (for example, steel and automobiles) must operate at sufficient output levels so as to take advantage of economies of scale. If the domestic market is too small to support such output levels, the result will be either unprofitable operations, exceedingly high- priced products, or in some cases, both. This particular problem would be partially alleviated if the Latin American Free Trade Area ever becomes effective . (5) Another justification of import substituting industrialization is closely re- lated to the eventual goal of a Latin American Free Trade Area. In 1960, most of the more important countries of Latin America (Argentina, Brazil, Chile, Colombia, Ecua- dor, Mexico, Paraguay, Peru and Uruguay) established an organization known as the Latin American Free Trade Association. The treaty (of establishment), signed in 1960, proposed an 8 percent yearly reduction in tariffs over a 12 year period, so that by 1973, tariffs would be almost eliminated between the participating nations . Unfortunately, there is nothing mandatory about this proposal and as a result little agreement has 27L. Baronyai and J.C. Mills, International Commodity Agreements (Megdco: Centro de Estudios Monetarios Latinoamericanos, 1963). 13 been reached concerning the implementation of this program .28 If, however, L.A.F.T.A. ever becomes effective, those countries with already existing productive facilities for certain products will in all probability be selected to specialize in the production of those products, supplying not just themselves, but all or much of Latin America. Indeed, such a program of national specialization is precisely what the original planners of L.A.F.‘T.A. hoped would develop. Thus, those countries which substitute for imports now, even as a high real cost, may well benefit greatly in the future .29 Of course, this approach to development (i.e., import substitution even at high real cost in the hope of eventual integration) is highly Speculative and risky, but as with all risky ventures, the "pay-off, " if there is one, could be substantial. (6) The final justification for import substitution is really a special case which is relevant to Argentina and which may now or in the future apply to other Latin Ameri- can countries . Assume that a country has a growth rate closely tied to the growth of exports . This does not necessarily imply the standard case of export-led growth . In Argentina, exports are necessary only to the extent that they finance the import of 28This is not the place to go into a discussion of the mechanics of L'.A.F.T.A.; however, for a brief discussion of the concept of and the problems facing L .A.F. T. A. see Gordon, op. cit., pp. 328- 34. For a more extensive discussion, see Bela Balassa, Economic Development and Integration (Mexico: Centro de Estudios Monetarios Latin- americanos, 1965). Also see Roy Blough and Jack N. Behrman, "Problems of Regional Integration in Latin America ," Regional Integration and the Trade of Latin America, op. cit. 29I am here following a Latin American bias and am assuming that industrial- ization is the most potent growth strategy available and feasible in Latin America . 14 inputs needed for the expansion of existing industry.30 In such a case, exports would not be necessary at all (for growth to take place) if foreign exchange reserves were sufficient to finance the import of needed inputs over long periods of time. But if re- serves are not plentiful (as inevitably they cannot be over long periods of time) and if foreign investment is lagging, then an expanding export sector is necessary for the expansion of already established industries . If, however, the export sector is stagnant and cannot be stimulated, either for political or economic reasons,31 then import sub- stituting industrialization becomes the appropriate and indeed the only development 32 strategy open to development planners . MEASURES OF IMPORT SUBSTITUTION Import substitution as a growth process is intuitively understood by all develop- ment scholars . The concept, however, has no single agreed-upon definition or measure. In this regard, the Economic Commission for Latin America has stated: The concept of import substitution itself gives room for various in- terpretations . It can be taken to mean either the equivalent of a de- crease in the absolute volume of imports; or the difference between the potential import demand which would have existed if the import 30Export earnings are also necessary to finance external debt service require- ments. Argentine debt service requirements in 1964, for example, were $481.3 mil- lion. Total exports in 1964 were $1,410.3 million. Source: Argentina Economica y Financiera (Buenos Aires: Oficina de Estudios para la Colaboracion Econd'micajnter- nacional, 1966), p. 302 and p. 281 . 3lSee Chapter II, pp. 44-50. 32If the products which are potentially substitutable use production technique requiring still more imported inputs, then it will be necessary to import substitute by means of foreign investment. See Chapter II, pp. 49-50. 15 coefficient had remained constant, and the imports actually effected; or a similar difference, but in respect of a potential demand estimated on.the assumption of a measure of elasticity--generally eggeeding un1ty--of Import demand In relatlon to the total product. Since the concept of import substitution is subject to "various interpretations," the number of theoretical measures is large. Basically, though, all measures of import substitution stress certain variables . Accordingly, this section will not review all the variant measures but will instead discuss the basic ones . The simplest measure of import substitution compares total imports as a percent- age of aggregate national income (gross national product, for example) between two points of time.34 If the import coefficient declines, then this is taken as a rough measure of import substitution . With this measure, "substitution does not necessarily entail a contraction in the absolute volume of imports, but simply means that they in- t, "35 thus causing a decline in the import crease more slowly than the total produc coefficient. A variant of this technique is used for individual products or groups of products .36 Here the import coefficient is defined as imports of some good or group of goods such as consumer goods) as a percentage of total domestic supply, defined as domestic production plus imports. A decline in this import coefficient is taken as evidence of import substitution . Both of these techniques suffer from similar 33United Nations, Economic Commission for Latin America, The Process of Industrial Development in Latin America (New York: United Nations, 1966), p. 26. 34lbid., pp. 21-34. 35Ibid., p.27. 36See, for example, United Nations, The Economic DeveIOpment of Latin America ,in the Post-War Period (New York: United Nations, 1964), pp. 2F23. 16 deficiencies . These are summarized below. It is clear that several factors are liable to bring dmut changes in the import coefficient irrespective of import substitution . It may be modified, for instance, by changes in the composition of domestic investment, in exports or in public expenditure, or again by changes in the structure of production . The import coefficient may also be re- duced by direct measures of curtailment or control, without any sub- stitution actually taking place, an eventuality that often occurs in the case of non-complementary imports and, more particularly, dur- able consumer goods . Alfred Maizels has devel0pedasirrple measure of "gross" import substitution.38 This method also focuses on the change in the import coefficient over time and thus is subject to the same criticisms as those quoted above. Maizels defines gross import substitution as "the difference between actual imports at the end of the period and what they would then have been had they formed the same proportion of total con- sumption as at the beginning of the period . "39 This measure can be written as dM=Oj (ml-Nb) (1) where "dM" is the change in imports between two periods of time,40 "01" is total supply (1 .e ., the sum of imports and domestic production) of a given good in the ter- minal year, and "m1" and "mo" are import coefficients for the terminal and initial year respectively . 37Ibid., p.21. 38Alfred Maizels, Industrial Growth and World Trade, op. cit., pp. 150-51. 39IbId., p. 150. 0The variables may be expressed either in terms of physical units or by some unit of value, such as dollars . 17 A numerical example will clarify the meaning of this measure. Assume that be- tween the initial and terminal years the import coefficient has fallen from .45 to .30 and that in the terminal year total supply is 180 units . Placing these values in the equation we obtain the following: 180 (.30 - .45) 180 (-.15) = -27 dM If the import coefficient had remained constant, imports of this good would have been 27 units higher in the terminal year than they in fact were .4] One of the weaknesses of the above measure is that it gives a misleading im- press ion of the overall trend of imports during the development process . Development, even by import substitution, does not always cause a decline in imports. The expan- sion of national income often leads to an increase in the demand for imports. Maizel has developed a measure of the effect of "demand expansion on imports ." This is de- fined as the "difference between imports of manufactures at the beginning of the period and what they would have been at the end had they changed in the same pro- 1142 portion as total consumption of manufactures . This measure of the expansion of imports due to increased domestic demand can be written as dM=mo(O]-Oo) (2) where "dM" is the change in imports between two periods of time, rno is the import —— a 4lMaizel '5 measure of gross import substitution is substantially the same as that used by Chenery, who defines import substitution as 01 (mo - m] ). See Chenery, op. cit., p. 640. 42Maizel, op. cit., pp. 150-51. 18 coefficient during the initial year, and "OI" and "Co" are total supply for the ter- minal and initial years, respectively. A numerical example will clarify this measure. Assume that the total supply of some good has increased from 100 to 180 units between the initial and terminal years, and that the import coefficient during the initial year was .45. Placing these values in the equation gives the following: dM= .45 (180 - 100) = .45 (80) =36 This means that if the import coefficient had remained constant, imports would have increased by 36 units due to the expansion of domestic demand . The total change in imports that occurred between two periods of time can now be expressed by combining equations (1) and (2). dM = Oj (mj -mo) + m0 (Oj -Oo) (3) Using the values given in the previous examples we obtain dM = 180 (.30 - .45) + .45 (180 -100) = 180 (.15) + .45 (80) = -27 + 36 which means that 75 percent of the increase in imports that would have occurred if the import coefficient had remained constant has been substituted . When the absolute value of the first term exceeds the value of the second term, "net" import substitution 43 is said to occur . 43This statement assumes that the import coefficient has declined and that total supply has increased over time . For a more complete discussion of this measure see Chapter III, pp. 76-81 . l9 RELEVANCE OF HYPOTHESIS TO DEVELOPMENT THEORY Development literature has tended to view export instability as a deterrent to economic growth .44 The chain of causation is as follows . Export instability causes fluctuations in the capacity to import which in turn necessitates variations in imports . Such variations in imports are alleged to cause instability in investment and real con- sumption which "clearly has undesirable implications from both social and economic .145 standpoints . In discussing export fluctuations, MacBean flatly asserts that "there can be no doubt what the general opinion is"; they are "a hindrance to the stability and growth of underdeveloped countries ."46 In fundamental contrast, Hirschman views foreign exchange fluctuations as positive agents of change, often inducing import substitution.47 This dissertation does not attempt to settle this controversy as to the overall effect of foreign exchange fluctuations on economic development. It does, however, evaluate the efficacy of foreign exchange fluctuations in inducing import substitution . 44For a brief review of the alleged adverse effects of export instability on economic growth see pages 10-12 of this chapter. For a more extensive discussion of this point, see MacBean, op. cit., pp. 23-33. 45Meier, op. cit., p. 392. 46MacBean, op. cit., p. 31. 47See Chapter III, pp. 63-65. 20 OUTLINE OF DISSERTATION Chapter I has been concerned with the general concept of import substitution and with the hypothesis that import substitution is induced by balance of payments pressures . Since this basic hypothesis is to be tested for Argentina, Chapter II dis- cusses the general economic situation in Argentina from an historical perspective. Chapter III examines in detail the hypothesis that balance of payments pressures in- duce import substitution and presents a method of analysis for testing this hypothesis . Chapter IV tests the basic hypothesis and discusses the structure of import substitu- tion that occurred in the late nineteen-fifties . Chapter V summarizes the main con- clusions and implications of the dissertation . CHAPTER II This chapter seeks to acquaint the reader with the fundamental characteristics of the Argentine economy . Accordingly, it begins with a brief examination of the factor endowment of Argentina . This is followed by an historical sketch of Argentine economic growth since 1900. The purpose is to explain recent Argentine economic stagnation and to indicate the options faced by Argentina when severe balance of payments pressures began to occur in the nineteen-fifties . THE FACTOR ENDOWMENT OF ARGENTINA Argentina is truly an enigma . A country with nearly all the prerequisites for growth, it has, nevertheless, stagnated for the past fifteen years . This stagnation is, at least, partially responsible for the political chaos and social confusion which have plagued the country since the overthrow of JuaniPero’n . Despite these problems, Argentina remains the most highly developed country in Latin America . Its 1965 per capita gross domestic product (at factor cost)I ranked second in Latin America IGross national product and gross domestic product (and their net variants) are used throughout the dissertation as measures of aggregate national income . Gross na- tional product "is identically equal to the sum of consumption expenditures and gross domestic capital formation, private and public, and the net exports of goods and ser- vices, plus the net factor incomes received from abroad." United Nations, Depart- ment of Economic and Social Affairs, Yearbook of National Accounts Statistics: 1965 (New York, 1966), p.xi . Gross domestic product is Emilar to the above except that net factor incomes received frommre excluded. If a nation is neither a net borrower nor a net lender, the two measures are equal. If a nation pays out more (in factor payments) to residents of other nations than it received from other countries, gross domestic will be greater than gross national product. 21 22 (excluding Puerto Rico and the Netherland Antilles), $783 versus $916 for Vene- zuela .2 In terms of other welfare indicators, however, Argentina for surpasses Venezuela and other Latin American countries . Argentina has the highest literacy rate (91 .4 percent)3 and the highest enrollment ratio (defined as the "number of students attending higher educational institutions for each 10,000 of the general population "), 93,4 in Latin America .5 The relative importance placed on higher education in Argentina is evidenced by the fact that worldwide Argentina's enroll- ment ratio ranks seventh behind the United States, Puerto Rico, the Philippines, Netherland, Australia and New Zealand .6 In terms of health indicators, Argentina also ranks high. The ratio of in- habitants per doctor, 670, and persons per hospital bed, 160, are the lowest in Latin America. Typically, per capita daily caloric intake is above 3,000, or, roughly, the same as that prevailing in the United States, and per capita meat consumption is 2United Nations, Department of Economic and Social Affairs, Yearbook of National Accounts Statistics, 1966 (New York, 1967), p. 726. 3Hubert Herring, A History of Latin America (3rd ed .: New York: Alfred A. Knopf, 1968), p. 961 . 4Harold R.W. Benjamin, Higher Education in the American Republics (New York: McGraw-Hill Book Company, 1965), p. 197. 5A partial reason for this high score may be the age distribution of the Argen- tine population . Nevertheless, in view of the large spread between the enrollment ratio of Argentina and second place Uruguay, 93 versus 48, it seems safe to conclude that Argentina is indeed the quantitative leader in higher education in Latin America . 6Bruce M. Russett et al ., World Handbook of Political and Social Indicators (New Haven, Conn.: Yale University Press, T964), p. 214. 23 slightly higher than in the United States .7 Partially for these reasons, life expec- tancy (females at age zero, 1955-1960) is long, 65.0 years . In Latin America this ranks second only to Uruguay where life expectancy is 66.5 years .8 Moreover, the crude death rate of 8.5 per thousand is not only the lowest in Latin America but is lower than the United States rate of 9.4, as well .9 Argentina is also bountifully endowed with natural resources . In area it is the eighth largest country in the world, behind the U.S.S.R., Canada, China, the United States, Brazil, Australia, and India.10 With approximately 21 million inhabi- tants, Argentina's population density per square mile is 19, compared with a ratio of 25 for Latin America as a whole, and 48 for the United States ." The climate ap- proximates that of the United States in its general temperate nature and its diversity.'2 Almost all minerals and fuels needed for development are to be found in abundance, with the exception of cool and iron ore . The fertility of the soil is legendary; indeed, T.W. Schultz has noted that "parts of Argentina are comparable to the best of Iowa ."'3 7Stephen Enke, Economics for Development (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1963fp. 20. 8Russett, op. cit., p. 197. 911313., pp. 40-41. "’11:qu p. 139. "Committee for Economic Development, Cooperation for Progress in Latin America (New York: Committee for Economic DeveBpment, 1961), pfl . '2Gilbert J . Butland, Latin America: A Regional Geography (2nd ed .; New York: John Wiley and Sons, Inc. , 1966), pp. 255-9i. ”Theodore W. Schultz, Transforming Traditional Agriculture (New Haven, 24 Knowledge about the quality and quantity of entrepreneurial ability in Argen- tina is scarce, often impressionistic, frequently contradictory, and, at best, highly tentative. David McClelland, a clinical psychologist, maintains that a high level of achievement motivation is closely associated with entrepreneurial behavior. On the basis of an analysis of such motivation in forty-one countries (including the United States and most of the developed world) Argentina ranks second worldwide and first in the Americas .'4 Moreover, Everett Hagen has noted that entrepreneurs are frequently drawn from the immigrant population. On the basis of sociological theory, Hagen argues that immigrants often suffer withdrawal 6f status reSpect and compensate for this by vigorous entrepreneurial effort. '5 And in view of the fact that, traditionally, a large proportion of the Argentine population (12 .8 percent in 1960)'6 has been foreign born, one would expect that this would tend to supply a steady 17 stream of entrepreneurs . Conn.: Yale University Press, 1964), p. 20. 14David C. McClelland, The Achieving Society (New York: The Free Press, 1967), pp. 461-62. '5Everett E. Hagen, On the Theory of Social Change (Homewood, Ill .: The Dorsey Press, Inc., 1962), pp. l90-92. '6Aldo Ferrer and E.L. Wheelwright, Industrialization in Argentina and Aus- tralia: A Comparative Study, Center of Economic Research, DiTella Institute (Buenos Aires: DiTella Institute,j966), 1.9. 7It is interesting to note that a recent study of Argentine entrepreneurs sup- ports Hagen 's contention on this point. According to Eduardo Zalduendo, Argentine immigrants have augmented the supply of entrepreneurs in far greater proportion than their number alone would suggest; see Eduardo Zalduendo, El Empresario Industrial en Argentina, Center of Economic Research, DiTella Institute (Buenos Aires: DiTella _,..___ InstItute, 1966). 25 Nevertheless, it is by no means certain that things are as sanguine as the above would tend to indicate. Toma’s Fillol suggests that latent entrepreneurial abil- ities are being stifled by certain unfortunate characteristics of the basic Argentine 8 national personality.' He argues that excessive achievement motivation has mani- fested itself in the form of high need-aggress ion (1 .e. , need for aggression) and that this, coupled with a predominant authoritarian personality type, has stifled the cooperative element needed for successful entrepreneurial effort. Thus Fillol con- cludes that Argentina's recent economic problems are, primarily, not due to economic variables, but rather are the result of unfortunate cultural and social forces . In this regard Fillol states: An analysis of the Argentine "national character, " based on a study of the value-orientation profile of the Argentine society, will demonstrate that some cultural traits of the bulk of the papu- Iation are inimical to the emergence of social relationships which would enable individuals to act concertedly in the pursuit of common goals and interests . Regardless of the social layer to which they belong, th problem is precisely that Argentines are 1unable to cooperate in the further- ance of their common interest. 9 Fillol's arguments are persuasive and many individuals would agree with him that cooperative ventures are not the forte of the Argentine peOple . Nevertheless, I reject the notion that Argentina's recent stagnation is due to social and cultural factors, narrowly defined. In a recent study, Irma Adelman and Cynthia Taft Morris '8Tomcis Roberto Fillol, Social Factors in Economic Development: The Argen- tine Case (Cambridge, Mass.: The M.I.T. Piess, 1961). '9Ibid ., pp. 3-4. 26 analyzed seventy-four underdeveloped non-communist countries and ranked them according to forty social, economic, and political indicators, which theoretically are significant in affecting economic development.20 Of the forty variables, Argen- tina received high rankings (1 .e ., the nature of the variable in Argentina was con- ducive to economic development) on twenty-five and low rankings on but eight; (1) the degree of social tension; (2) the degree of centralization of political power; (3) extent of leadership commitment to economic development; (4) rate of growth of per capita GNP 1950/51--I963/64; (5) improvement in agricultural productivity since 1950; (6) the degree of improvement in the tax system since 1950; (7) the degree of improvement in financial institutions since 1950; and (8) export diversification .2' On the basis of a composite index of all forty socio-economic variables, Argentina 22 These data suggest that the ranked first among the seventy-four countries studied. environment has permitted economic development although not without problems . Finally, it should be noted that Argentina's rate of capital formation also appears to have been satisfactory.2:3 From 1900 to 1961, investment as a percentage 20Irma Adelman and Cynthia Taft Morris, Society, Politics and Economic De- veIOpment: A Quantitative ALproach (Baltimore: Tlie Johns Hopkinsgfi'ess, 1967). 2'It should be noted that the low scores Argentina received on variables four through seven are misleading . Despite little recent improvement in these variables, their absolute magnitude remains high. For example, even though there has been little increase in agricultural productivity since 1950, the absolute level of produc- tivity remains high . 2211:111., p. 170. 23This statement is intended to apply only to the quantity of capital formation not the quality . 27 of gross national product has exceeded 20 percent in all but two periods: 1915-1919, when it was 15.0 percent, and 1940-1944, when it was 19.4 percent.24 In short, Argentina seems to have been endowed with the basic prerequisites for economic growth; large land area, diverse weather conditions, a healthy and educated labor force, abundant natural resources, a satisfactory rate of investment, and a sociological, political milieu not unfavorable to individual initiative and economic development. Yet the fact remains, Argentina has stagnated for fifteen years . An examination of the economic growth of Argentina since 1900 will enable the reader to understand the reasons for this stagnation. Following the lead of Di’az Alejandro I have divided the period into two parts, 1900 to 1930, when Argentina's development was chiefly agricultural and export-oriented, and 1930 to the present, when the country derived its main stimulus from industrialization.25 1900-1930: THE PERIOD OF EXPORT-ORIENTED GROWTH During this period several important structural changes occurred in the econ- 26 omy, changes which combined to establish the "preconditions for take-toff." First, 2‘lBalance de Pagos de la Argentina (Buenos Aires: Oficina de Estudios para la Colabomon Econo’mica lnternacional,1963). 5Carlos F . Di’az Alejandro, Stages in the Industrialization of Argentina, Cen- ter of Economic Research, DiTella Institute (Buenos Aires: DiTella Institute, 1966). 26The terms "take-off" and "preconditions for take-off" were coined by W.W. Rostow in his The Stages of Economic Growth (Cambridge: Cambridge University Press, 1960). This analysis of economic growth Iias proved to be controversial both from a theoretical and empirical standpoint. For an excellent summary of his views and of the criticisms they have fostered, see Gerald M. Meier, Leading Issues in Development Economics (New York: Oxford University Press, 1964), pp 73-47. In using these 28 the population increased enormously, particularly between 1895 and 1914, when it increased from 4,000,000 to 8,000,000;27 by 1930 the population had reached a level of 11,900,000.28 Much of this phenomenal increase was the result of immi- gration which had several important effects . Since rural land ownership was largely closed to immigrants, most of them chose or were forced to live in the cities . As a result, Argentina was transformed overnight from a rural to an urban society. In 1895, only 37 percent of the people lived in urban areas (defined as a town of 2,000 29 The or more in population) whereas by 1914 over 53 percent lived in urban areas . immigrants were particularly attracted to the port cities, and "by 1910 three out of every four adults in Buenos Aires were European-bom and the proportion was only slightly lower in Rosario and Bahi’a Blanca."30 This new influx of people affected Argentina's social structure decisively. Before 1880, only two classes existed: the upper, or wealthy, class, and the lower poor class . Vast numbers of immigrants, equipped with desire, talent, and even some savings, were soon able to form a terms I am following the approach used by DiTella and Zymelman in their analysis of Argentine economic growth. See Guido DiTella and Manuel Zymelman, Etapas del Desarrollo Economica Argentina, Center for Economic Research, DiTella Institute (Buenos Aires: DiTella Institute, 1961). This use does not necessarily imply accept- ance of the Rostow stage approach . 27James R. Scobie, Argentina: A City and a Nation (New York: Oxford Uni- versity Press, 1964), p.176. ’ I ImportacIones, IndustrIalIzaCIon, Desarrollo EconomIco en la Argentina (Buenos Aires: Oficina cle Estudios paraTa ColalaoraciBn Economica Internacional‘, 1963), Volume I, p. 222. 29Scobie, Ioc. cit. 3olbid., p. 134. 29 prOSperous new middle class and this new bridge greatly increased vertical social mobility. This new social mobility undoubtedly acted as a positive agent for change in Argentina, increasing the social reward for effort, thereby stimulating economic development. Immigrants served partially to alleviate the largely unsatisfied demand for labor (particularly manual labor) prevalent during this period .32 Immigrants were an important source of entrepreneurial effort.33 This should not be so surprising . Latin Americans generally view manual labor and business as unfitting and improper for a gentleman . The immigrant, rejected by. traditional society and holding few of the values of the traditional sector, was not so psychologically impeded in his quest for betterment and was, therefore, able to develop any latent entrepreneurial talents which he possessed.34 Finally, immigration provided the population base which is help- ful (in providing aggregate demand and labor supply) in stimulating industrialization . The second important structural change that occurred in this period was the rapid development of the railway system . Between I900-04 and 1910-14, the rail- road network increased from 17,700 kilometers to 31,100 kilometers35 and by 1917 3'Ibid., PP. 174-75. 3213131., p. 132. 33Zalduendo, loc. cit., and Di’az Alejandro, op. cit., pp. 15-20. 34Of course, this is only one of many explanations given for the large ele- ment of foreign born entrepreneurs in Latin America; see W. Paul Strassmann, "The Industrialist," Continuity and Change in Latin America, ed. John J . Johnson (Stan- ford, Calif.: Stanford University Press, 1964), pp. 161-85. 35Guido DiTella and Manuel Zymelman, Etapas del Desarrollo Econdmico 30 over 68 percent of the present system of railways had been constructed .36 It is clear that the building of the railroads was an important factor in help- ing Argentina to achieve export-oriented growth in this period and in establishing Buenos Aires as the economic center of the country, then and now . In this regard Scobie has noted: Railroads provided the single most effective force in focusing the Argentine economy on the production of raw materials and in draw- ing the whole country toward the coast and the city of Buenos Aires . The basic structure of the railroad system emerged during the period 1880 to 1910 and subsequent additions and modifications, even the nationalization of the lines in 1947, failed to change the orienta- tion of those formative decades . Foreign capital, mostly British, built the pampas system as a commercial venture and left to the Ar- gentine government the task of establishing and managing the un- profitable lines north of Tucumqgand south of Bahia Blanca needed for national unity and defense . It should be noted that the regional inequality of transportation facilities is partially responsible for the large regional income disparities which plague present- day Argentina. For example, "Metropolitan Buenos Aires generated 42 .6% of GNP (1959), and contained 34.6% of the 1960 total population in 0.13% of the total " geographic area in Argentina . Argentina, Center of Economic Research,DiTella Institute (Buenos Aires: DiTella In- stItute, 1961), p. 13. 36Argentina Econo’mica y Financiera (Buenos Aires: Oficina de Estudios para la ColabOIEE-i’on Econdmica Internacional, 1966), p. 260. 37Scobie, op. cit., p. 137. 38Maria S. Brodersohn, Regional Development and Industrial Location Policy in Argentina, Center of Economic Research, DiTella Institute (Buenos Aires: DiTella Institute, 1967), p. 107. 31 It seems clear that the present transportation system must be modified if re- gional income differences are to be narrowed . Patago’nia, for example, with "50% of the hydroelectric resources of the country, 99% of coal reserves, 70% of petro- 1139 leum reserves, 60% of natural gas reserves, 70% of iron reserves, is unable to develop these resources because of inadequate social overhead, particularly trans- portation . Thus Patago’nia with roughly one-third of the geographic area of the country, has only 2.7 percent of the papulation (1960) and receives only 3.1 percent of the gross national product (1959).40 Perhaps the most important structural change was the remarkable increase in investment during the period 1900-1910. The absolute volume of gross fixed invest- ment increased from 2.398 million pesos (1950 pesos) in 1900 to 10.230 million pesos in 1910.“ Gross fixed investment as a percentage of gross domestic product increased from 25 percent in 1900 to a phenomenal 54 percent in 1910.42 Of this amount 29 percent was generated domestically, and 25 percent from foreign investment.43 Thus, during the period 1900-1914, the capital base needed for subsequent economic growth 39lbid., p. 86. 4°Ib__1_d., pp. 86-88. 'Naciones Unidas, Consejo Economica y Social, Comision Econdmica para America Latina, El Desarrollo Economica de la Argentina: Anexo (Santiago de Chile, 1958), p. 81. 421bid. , p. 3 and p. 81 . My computations . It has been suggested that these investment ratIos are unrealistically high and that perhaps this is due to the poor qual- ity of data on Argentina for the early part of the twentieth century . This is possible since official national income accounts were not begun until 1945 and ex post recon- struction of such data is particularly hazardous . 43DiTella and Zymelman, op. cit., p. 64. 32 was established. Table 1 demonstrates the behavior of the investment coefficient for the period 1910-1935 . Several facts should be noted . First, although the coeffi- cient declined after 1914, it nevertheless remained relatively high . In subsequent years this investment habit has apparently remained and investment as a percentage of GNP has averaged around 20 percent .44 Secondly, the precipitous decline in foreign investment that occurred after 1914 should be noted. It is only recently (since 1958) that foreign capital has con- tributed substantially to Argentine economic growth. World War I, the world depres- sion of the nineteen-thirties, and World War II, were responsible for most of this de- cline in foreign investment. Moreover, the antagonistic attitude of the Pero’n regime, during the late nineteen-forties and early nineteen-fifties, scarcely provided a favor- able climate for foreign investment. As a final point, it should be noted that World War I created powerful national- istic forces,45 which later manifested themselves in a desire and demand for economic “For the period 1950-1959, gross domestic capital formation as a percentage of GNP averaged 19.3 percent in Argentina. This placed Argentina ahead of such developed countries as Denmark (18.9 percent), France (18.8percent), the United States (17.8 percent), Belgium (16.2 percent), ard the United kingdom (15.2 percent). In Latin America, Argentina was fourth (among 18 countries surveyed) behind Vene- zuela (30.4 percent), Peru (26. .6 percent), Jamaica (20.3 percent) and Costa Rica (20.0 percent). Russett, op. cit., pp. 168-69. 45Joseph Tulchin, "La Primera Guerra Mundial como Catalizador del Nacion- alismo Argentina." Unpublished Seminar Paper, DiTella Institute, May 5, 1967. 33 TABLE 1 INVESTMENT AS A PERCENTAGE OF GROSS NATIONAL PRODUCT Years Five Year Averages Total National Foreign Depreciation 1910-14 42.2 21.4 20.8 12.3 1915-20 13.0 9.6 3.4 16.1 1920-25 26.4 22 .8 3 .6 13.5 1925-30 33 .3 28.5 4.8 15 .7 1930-35 22 .2 19.0 3 .2 18.5 Source: Guido DiTella and Manuel Zymelman, Etapas del Desarrollo Econo’mico Argentina, Center of Economic Research, DiTeiIa Institute‘(Buenos Aires: DITella Institute, 1961), p. 13. 34 development and industrialization .46 All of the above factors helped to establish the preconditions for the Argentine "take-off. "47 Argentine economic historians have labeled 1900 to 1930, the period of ex- ternally oriented growth. During this period the driving force of the economy was the growth of export markets . Gross national product grew at a rate of 5 .4 percent and for the entire period export earnings accounted for 28 percent of the gross national product .48 Although the manufacturing sector grew at a faster rate than gross national product (5.4 percent vs . 4.5 percent), this was "not enough to make a significant dent in the ratio of imports to GDP, given an income elasticity in the demand for .149 manufacturing products of more than one. As a result, the import coefficient 46” should be noted that nationalism is not an unmixed blessing . Initially, it may be useful in stimulating sectionalIy-oriented groups to "pull-together" for the purpose of achieving national objectives such as economic development. If national- ism is excessive, however, antagonisms toward foreign investment may develop when it and its concomitant advantages may be a necessary or easily obtainable ingredient for growth. This appears to have happened in Argentina, particularly during the Peronist regime . For informative discussions of the general attitude toward foreign investment in Latin America and Argentina see Raymond Vernon (ed .), How Latin America Views the U.S. Investor (New York: Frederick A. Praeger, Publishers, 1966), andWlarvin D. Bernsteinjed.), Foreign Investment in Latin America:Cases and Atti- tudes (New York: Alfred A. Knopf, 1966). 47Guido DiTella and Manuel Zymelman classify the stages of Argentine econ- omic deveIOpment as follows: before 1853--the traditional period; 1853 to 1880--the transitional period; 1880 to 1914--the period in which the preconditions for develop- ment were established; 1914 to 1933--the period of procrastination or delay; 1933 to 1952--the period of self-sustained growth; 1952 to the present--the period of read- justment. See DiTella and Zymelman, 0p. cit., p. 23. Rostow places the date of take-off as 1935. See Rostow, op. cit.,—5738‘.- 48Brodersohn, op. cit., p. 8. I 49Diaz Alejandro, op. cit., p. 10. 35 (1.e ., imports to gross domestic product) declined only Slightly from 26 percent in 1900-04, to 25 percent in 1925-29.50 Export earnings also grew at a faster rate than gross national product (5 per- cent vs. 4.5 percent) .5' Exports were primarily agricultural; in fact, agricultural products accounted for over 96 percent of total export earnings . In this period, the agricultural sector employed 35 percent of the labor force and 25 percent of the existing capital .52 One of the striking characteristics of Argentine manufacturing during this I period was its rather unsophisticated nature . In this regard Diaz Alejandro has stated: Food processing, clothing, wood and leather-working represented 66 percent of all value added in manufacturing in l900-04 and 51 per- cent in 1925-29. Even within those branches of manufacturing which could be expected to provide the more technically complex plants (such as the metallurgical industries), the bulk of production gvas car- . . . . . . 3 rIed out In small establIshments (I .e ., raIIroad repaIr shops). The structure of the manufacturing sector can best be shown by Table 2 . As noted above, by 1925-29, the simpler branches of manufacturing still predominated although the relative importance of heavy industries increased. It is interesting to note that the growth of these industries does not seem to have been limited by demand 5°IbId. I 5'Aldo Ferrer, La Economia Argentina (Mexico City: Fondo de Cultura Economica, 1963), p. 115. 52 lbid., p. 122. 53 / DIaz Alejandro, op. cit., p. 14. 36 TABLE 2 STRUCTURE OF THE VALUE ADDED IN MANUFACTURING IN ARGENTINA TPercentages of total value added in manufacturing) 1900-02 1925-29 Food, Beverages and Tobacco 34.3 27.7 Textiles 4.1 4.5 Clothing 14.9 10.2 Wood Products 11 .4 7.7 Paper and Cardboard 2 .0 3 .0 Printing and Publishing 2 .2 8.6 Leather Products 5 . 1 5 .2 Rubber Products --- 0.1 Chemicals, Pharmaceutical and Petroleum Refining 6.7 9.4 Stone, Glass, and Ceramics 13 .9 8.6 Metals and Machinery, Equipment and Appliances 3 .4 12 .9 Other 2 .0 2 .1 I Source: Carlos F . Diaz Alejandro, Stages in the Industrialization of Argentina, Cen- ter of Economic Research, DiTelia Insiitute (Buenos Aires: DiTella Institute, 1966), p. 15. 37 factors . With the exception of foodstuffs, beverages, and tobacco, all branches of manufacturing were importing at least 26 percent of the total supply available domes- tically. Table 3 demonstrates this point succinctly. Given that demand factors did not seem to have stifled the growth of manu- facturing, why then did domestic industrialization not increase at a faster pace? The generally accepted answer is that the power structure, the landed aristocracy, dominant in the government, producing primarily for external markets, was not eager to see created a new "power class " which might compete with it for prestige and in- fluence. Thus, it is argued by some that "the tariff structure was such that its net effect was one of discouraging domestic manufacturing, as often the tariff rate applied to imports of raw materials and intermediate products was higher than that applied to the finished products embodying the heavily taxed intermediate products ."54 Such a view may be too extreme, but it is clear that the level of protection was low and "that the authorities showed very little enthusiasm for attempting to make of the tariff an instrument of industrial promotion, choosing to view it primarily as a pro- ducer of revenue regardless of its impact on industrialization."55 Guido DiTella and Manuel Zymelman come to much the some conclusions stating that "the history of the tariffs during this period is a clear indication of the anti-industrial attitude" of the I 54Ibid., p. 21 . In a recent study Diaz Alejandro has tested this assertion and has found ing-be generally invalid . To be sure, there were cases of negative effec- tive protection for certain goods, but such cases have been "grossly exaggerated" on were by no means representative of the overall level of protection . See Carlos F . Diaz Alejandro, "The Argentine Tariff, 1906-1940," Oxford Economic Papers, Vol . 19, No. 1, March, 1967. 55lbid., p. 24. 38 TABLE 3 IMPORTS AS A PERCENTAGE OF THE VALUE OF DOMESTIC PRODUCTION PLUS IM‘O—TT—P RT :5 LECWD UF CTURI o PRODUCTS 1900-04 1925-29 Foodstuffs, Beverages and Tobacco 6 5 Textiles and Clothing 55 42 Wood Products 39 34 Paper and Cardboard 25 31 Chemicals and Pharmaceutical Products 45 35 Petroleum Refining 100 52 Rubber Products 100 92 Stone, Glass and Ceramics 15 26 Metals 87 61 Machinery, Vehicles and Equipment Excluding Electrical 92 70 Electrical Machinery and Appliances 100 98 I Source: Carlos F. Diaz Alejandro, Stages in the Industrialization of Argentina, op. cit., p. 12. 39 government .56 GROWTH SINCE 1930 With the advent of the world depression in the nineteen-thirties(and subse- quently World War 11) Argentina suffered a precipitous decline in the demand for its exports . As export earning declined, its balance of payments position deteriorated and the country found itself without sufficient foreign exchange to finance the import of manufactured goods . Faced with this situation, the government, in an effort to protect its balance of payments, instituted various exchange controls and quantita- tive restrictions on imports .57 These measures, along with the depression and the war, served to protect domestic industries and this stimulated a process of import sub- stitution . Thus, after nineteen-thirty, Argentina changed from an open to a closed economy . By 1955, it had progressively become one of the most. highly protectionist countries in the world.58 It was this spurt of import substituting industrialization which generated the Argentine take-off. Thus, between 1932 and 1949, gross domes- tic product grew at an annual rate of 4.2 percent, population at a rate of 1 .8 percent, and per capita income at a rate of 2 .4 percent annually.59 56DiTella and Zymelman, op. cit., p. 15. 57Since 1931 (when controls were first established), the government has relied almost exclusively on exchange controls and quantitative restrictions as its instruments of protection; tariffs have played only a minor role. 58Ferrer and Wheelwright, op. cit., pp. 7.4-7.11. I 59Argentina Economica y Financiera, op. cit., p. 54. 40 By 1950, the structure of the Argentine economy was far different than it was in 1932. Exports, which had previously generated 25 percent of gross domestic prod- uct, were now generating less than 13 percent. The quantum of imports had declined more than 30 percent and imports as a percentage of gross domestic product had de- creased from 25 to 13 percent. By 1950, there was little doubt that manufacturing was the "leading sector" of the economy .60 It is important to note that the industrialization that occurred in this period was of a very special type. Generally the domestication of manufacturing centered upon those'industries which were technically simple and relatively non-capital in- tensive. These were the light primary consumer goods industries such as foodstuffs and beverages, tobacco, textiles, clothing, wood products, printing and publishing, and leather products . Together such goods accounted for 58.6 percent of the total increase in value-added manufacturing between 1927-29 and 1948-50.“ This domestication of light industries, as opposed to intermediate and capital-good industries, was pri- marily the result of a discriminatory system of protection, which allowed the importa- tion of inputs for already established industries at favorable rates of exchange. In this regard Dibz Alejandro has stated: The protectionist system developed before 1945-50 was not well suited to stimulate a smooth transition from one stage of industrial- ization to another. On the contrary, such a system in effect created powerful vested interests within the manufacturing sector which took a dim view of efforts of import substitution in branches of manufacturing I 60Diaz Alejandro, Stages in the Industrialization of Argentina, pp. 28-30. 6'Ibid., p.50. 41 which could provide domestically inputs which they were in the habit of importing at the favorable rate of exchange . Producers of "light" manufactured products feared, with very good reason, that the domes- tic production of previouslyggnported inputs would result in an increase In theIr costs of productIon . Thus, for much of the period under study, "existing or potential branches of manufacturing devoted to the production of intermediate products (basic metals, some chemicals, etc.) as well as other import subStituting activities not in manufacturing (such as oil extraction), were probably subject to negative rates of effective pro- tection . "63 Because the light industries, by definition, were non-capital-intensive, domes- tic investment was sufficient to initiate import substitution and provide the growth im- petus . Interestingly enough, the take-off occurred with only minor support from foreign investment. Foreign capital as a percentage of aggregate fixed capital declined from 41 .8 percent and 34.4 percent in 1920 and 1927, to 27.2 percent, 20.4 percent, and 5 .4 percent in 1934, 1940, and 1949, respectively!>4 The rapid decline that occurred between 1945 and 1949 resulted mainly from Pero’n's nationalization of foreign-owned railroads and public services . Thus, between 1945 and 1949, foreign fixed capital declined from $4.26 billion (1950 prices) to $1.74 billion.65 Unfortunately, by 1948-50, most of the potential import substitution that could be expected from simple 62Ibid., pp. 50-52. 631616., pp. 49-50. 64Aldo Ferrer, The Argentine Economy, trans . Marjory M. Urquidi (Berkeley, Calif.: University of CalIfornIa Press, 1967), p. 229. 65lbid. 42 branches of manufacturing had been exhausted . Further economic growth necessitated either the domestication of the heavy basic goods industries (i .e . , machinery, oil , steel, etc .) or a big push in the export sector . Although imports as a percentage of gross national product had declined from 25 to 13 percent, the Argentine economy was (and still is), if anything, even more dependent on the outside world. More than 90 percent of its imports were raw materi- als, intermediate, and capital goods, inputs for the Argentine manufacturing sector .66 In this situation, if the capacity to import (in the long run determined by export earnings) declines or does not keep pace with the growth of the manufacturing sector, then already established industries will be forced to "slow down" and an economic contraction will result. To repeat, if an economy's import bundle consists primarily of inputs, necessary for the continued operation of existing industries, a decrease in the capacity to import can adversely affect the economy, closing down industries not because of insufficient aggregate demand, but rather because of the inability to import strategic inputs in adequate quantities . This is what David Felix calls a quasi-Keynesian state; that is, there is excess labor and underutilized resources--what is lacking is the capacity to import.67 Unfortunately, a decrease in the capacity to import did occur in the late 66Plan Nacional de Desarrollo, 1965-69 (Buenos Aires: Consejo Nacional de Desarrollo, 1965), p.28. 67David Felix, "Beyond Import Substitution: A Latin American Dilemma," a paper presented to the Seminar on Strategy for the Foreign Sector and Economic Development, Buenos Aires, September 7 to September 10, 1966 (Buenos Aires: Center of Economic Research, DiTella Institute, 1966), p. 6. 43 nineteen-forties . During 1945-47, exports boomed, primarily due to the demand for / food from a war exhausted Europe. Encouraged by this boom, Juan Peron, in a burst of nationalism, dissipated foreign exchange reserves by purchasing the railroad and telephone systems from the British and by buying obsolete battleships and planes for the Argentine military. Thus, between 1946 and 1952, foreign exchange reserves fell 68 from a record high of $1.69 billion to a then record low of $0.18 billion. At the some time, as the agricultural economies of Europe revived, the price of agricultural commodities in world markets began to decline and consequently, so did Argentine export earnings . Export earnings which were $1,612 million and $1,624 million in 69 1947 and 1948 respectively, fell to $1,060 million in 1949. For the period 1951 through 1961, exports averaged only $908.5 million annually.70 Argentina, which heretofore had almost always had positive balances in the current account, now began 71 to have periodic and large deficits . Thus, the ability to create new industries was severely limited . New industries would have required extensive amounts of new capital imports and foreign exchange was just not available for such purposes . The small amount of foreign exchange that was generated by exports was needed to finance the importation of inputs (raw materials, intermediate goods, etc .) necessary for the continued operation of the already existing industries . Apparently, the heavy basic I 68Argentina Economica y Financiera, 0p. cit., p. 301 . 69United Nations, Department of Economic Affairs, Statistical Yearbook 1949-50 (New York, 1950), p. 365 . 70 Plan Nacional de Desarrollo, op. cit., p. 25. I 7'Argentina Economica y Financiera, 0p. cit., pp. 298-99. 44 goods industries could not have been established without foreign capital and the foreign exchange which it could provide . There was, of course, an alternative to direct foreign investment. If the gov- ernment could have somehow implemented a program to increase the productivity of the agricultural sector and if the generated surplus could have been exported, then the resulting increase in foreign exchange could have been used to finance capital imports for the n_e_vl industrial sector. And, in fact, starting in 1950, the government (and subsequent governments) did begin to realize the importance of the agricultural sector and instituted measures to stimulate it. The methods suggested and imposed were traditional and what I call "passive"; better prices, easy credit, favorable exchange rates for the importation of agricultural equipment and the encouragement of the immigration of foreign agricultural workers.72 Thus, beginning in 1950, the internal terms of trade (defined as the ratio of agricultural prices to industrial prices) began to move in favor of the agricultural sector. This trend is shown in Table 4. Although agriculture responded to this stimulus, nevertheless, by 1961, agricultural production (in physical terms) was scarcely above the 1946 level (see Table 5). In fact, between 1935-39 and 1960-64, agricultural output increased by only 0.4 per- cent per year; with an annual population increase of 1.8 percent, the result was an annual net decline in agricultural product per person of 1.4 percent.73 Many people have speculated as to the cause of this agricultural stagnation . Wheelwright and 72Javier Villanueva, The Inflationary Process In Argentina, 1943-60, Center of Economic Research, DiTella—Institute (Buenos Aires: DiTzrla Institute, 1966), p. 133. 73Ferrer and Wheelwright, op. cit., P- 5'3: 45 TABLE 4 INTERNAL TERMS OF TRADE (1950 = 100) 1943 97.0 1944 87.2 1945 101.6 1946 122.6 1947 106.5 1948 100.9 1949 91.3 1950 100.0 1951 111.3 1952 113.2 1953 128.2 1954 111.3 1955 104.0 1956 116.0 1957 125.1 1958 130.2 1959 147.3 1960 145.3 Source: Javier Villanueva, The Inflationary Process in Argentina, 1943-60, op. cit., p. 90. p.24. TAB LE 5 INDEX OF AGRICULTURAL PRODUCTION @ase: 1943: 100) Physical Volume of Year Agricultural Production 1943 100.0 1944 126.9 1945 104.0 1946 180.7 1947 154.0 1948 157.7 1949 126.0 1950 108.8 1951 122.6 1952 99.6 1953 173.9 1954 148.7 1955 152.4 1956 155.3 1957 177.7 1958 202.9 1959 196.2 1960 188.9 1961 184.0 Source: Javier Villanueva, The Inflationary Process in Argentina, 1943-60, op. cit., 47 Ferrer attribute it to multiple factors such as the "drastic and frequent changes in price relationships, the lack of a consistent policy on agricultural research and ex- tension . . . the low usage of fertilizer, pesticides, and mechanical equipment, inadequate marketing, and the land tenure system."74 Why then did the government not attempt a more vigorous agricultural program? It may be that economic reasons were the basis of this decision . From 1947 to 1957, there was an almost continual decline in the external terms of trade (see Table 6). This alone would tend to work against the success of a growth strategy based Upon a dominant agricultural sector . But more than likely, the reluctance to undertake radical agricultural reforms was based upon political factors as well. Any land reform program would have, of course, threatened the still powerful landed aristocracy and apparently Pero/n and subsequent presidents feared the political repercussions of such a challenge . On the other hand, a concentrated government research and extension effort would have enriched the landed class and this would not have been palatable to the strong labor movement that exists in Argentina.75 Whatever the logic, Argentine development strategy has not stressed the agricultural sector. Instead, prime emphasis has been placed upon the importance of a growing industrial sector, and as pointed out before, this could only have been accomplished with the aid of direct private foreign investment. Encouraging the entry of foreign investment is not an easy or papular task for 74lbid., p.5.14. 75The germs of these ideps were drawn from some observations of ngid Felix . See David Felix, Industrial izacion Sustitutiva de Importaciones y Exportacion Indus- trial en la Argentina ,Center of Economic Research, DiTella Institute (Buenos Aires: DiTella Institute, 1965), p. 6. 48 TABLE 6 INDEXES (1950 = 100) OF EXPORT AND IMPORT PRICES IN U. S. DOLLARS Terms of Trade Export Prices/ Year Export Prices Import Prices Import Prices 1943 49.1 58.5 83.5 1944 54.1 63.9 84.6 1945 59.7 68.1 87.7 1946 82.4 68.5 120.3 1947 122.1 84.9 143.8 1948 136.7 96.5 141.7 1949 126.2 107.1 117.8 1950 100.0 100.0 100.0 1951 132.1 120.6 109.5 1952 108.2 143.8 75.2 1953 110.7 110.7 100.0 1954 99.4 110.4 90.0 1955 98.8 112.3 88.0 1956 91.8 114.9 76.6 1957 82.4 113.6 72.5 1958 78.2 102.1 76.6 1959 77.1 95.2 81.0 1960 82.4 97.2 84.5 Source: Javier Villanueva, The Inflationary Process in Argentina, 1943-60, op. cit., 49 "im- an Argentine president. The people are intensely nationalistic76 and terms like perialism" and "foreign domination and exploitation" are freely tossed around, in all social and economic levels . So Pero’n was faced with the following dilemma. He could have instituted some sort of radical agrarian reform and, therefore, have in- curred the displeasure of urban labor or the landed aristicracy, or he could have en- couraged the entry of foreign investment and have incurred the wrath of all segments of the population . Faced with such a predicament, Pero’n did what any good politi- cian would have done--he vacillated and did nothing . Thus, during the period 1950-54, per capita gross domestic product was virtually constant, falling by three-tenths of one percent for the period as a whole . In September of 1955, Pero’n was relieved of his duties and a military govern- ment took control until May, 1958, when Arturo Frondizi was elected President. Upon assuming office, Frondizi found himself faced with nearly the some economic situation that had confronted Pero’n in 1949-50. In brief the situation was as follows: 1. Those industries of the manufacturing sector which technically could be established without imported inputs (i.e ., "light," non-capital intensive industries) had already been established and had exhausted their growth potential .78 2 . The remaining industries of the manufacturing sector which had not been 76Arthur P. Whitaker, Argentina (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1965), p. 3. 77Comments on Argentine Trade, September, 1966, p. 14. 78I have defined an industry with "growth potential" as being one that has a growth rate that exceeds that of the GNP. 50 established or exhausted their growth potential (i .e., the "heavy, " basic, capital intensive industries) required extensive amounts of imported inputs . 3. The domestication of the "input industry" (i .e., machines, special parts, etc.) required significant amounts of imported capital also. 4. The level of foreign exchange was low; that is, it was not sufficient to finance new imports on a large scale . 5 . The import bundle consisted overwhelmingly of raw materials, intermedi- ate goods, and other inputs needed for established industries . 6 . The foreign exchange generated by the export sector was only sufficient to finance the import needs of the already established industries . 7. The agriculture-export sector was stagnant and it was thought that it would remain stagnant, either for economic or political reasons .79 Given the above situation, foreign investment becomes the only source of growth and the attraction of it beomces a necessary but not a sufficient condition for further development. Once this fact is realized, the subsequent activities of Arturo Frondizi make sense . Arturo Frondizi was a life-long, left-wing radical who was known in the 7"Of course, it could be argued that even if it were not possible to stimulate agricultural exports, there remained the possibility of exporting "non-traditional" goods (i .e. , manufactured goods). Although lip-service was paid to the need for di- versification and although some efforts were made in this direction, such was not and has not been a primary objective of Argentine development efforts . Perhaps this is be- cause non-traditional exports have traditionally played such a small role in the export sector. For example in 1956, manufactured exports accounted for little more than 2 percent of total export earnings; see Plan Nacional de Desarrollo, op. cit., p. 26. 51 United States as "a caterer to Peronistas and communists."80 Needless to say, he was viewed with some skepticism and alarm in Washington . Frondizi was intensely nationalistic and was obviously influenced by Marxist thought. For example, he often "expressed the convictions that Argentina must be strong, independent, and sovereign; that the obstacles to this were the foreign imperialist nations and the grasping inter- national monopolies that were allied with Argentina's traditional oligarchy."8' Peter G. Snow gives the following description of the pre-1958, Frondizi social and econ- omic program: According to Frondizi, there should be three elements in the socio- economic revolution that he felt was necessary to bring Argentina into the community of world powers . The first was agrarian reform-”without agrarian reform there is no possibility of solving our economic problems." He was somewhat hesitant as to the shape this reform should take . On the other hand, he felt that "it is necessary to give access to the land immediately to whoever works it ," yet he was worried about the inef- ficiency of a multitude of very small farms . He seemingly would have preferred large cooperatives which should greatly increase production, but he did not want them forced upon the populace. The second step was to be industrialization . This, he thought, was the only way Argentina could defeat the designs of the imperialist nations which were trying to keep the country a producer of raw materials and a market for their industrial products. Frondizi talked a great deal about economic coop- eration among all Latin American nations in simultaneous development and industrialization . He believed that with sufficient planning and cooperation the continent could become virtually self-sufficient, and thus deliver itself from the clutches of foreign imperialists. In this in- dustrialization phase the government was to play an important role. He would have the state direct and/or regulate the nation's economy in whatever way was necessary. The third step Frondizi termed "democrat- ization of the economy." He would have immediate nationalization, 80Harold F. Peterson, Argentina and the United States, 1810-1960 (New York: University Publishers, Inc., 1964), p. 509.—— 8'Robert N. Burr, Our Troubled HemisPhere (Washington: The Brookings Insti- tution, 1967), p. 117. 52 with just compensation, of all the nation's public services and all monopolies, foreign or domestic . Except for these two areas, how- ever, Frondizi did not favor indiscriminate nationalization . He said it should be undertaken only if it would assure better services or greater production, for "nationalization is not a panacea." In general, the economic program advocated by Frondizi prior to 1958 was quite similar to that of Haya de la Torre, the Peruvian Aprista leader, whom he once referred to as the number one citizen of America .82 Nevertheless, within months of assuming the Presidency, Frondizi changed his economic philosophy, became a confirmed proponent of "laissez faire" capitalism, welcomed and encouraged foreign investment, and became "the most pro-American 'd - - . .183 preSI ent In ArgentIne hIstory. One of Frondizi's first acts as President was to sign petroleum exploration and exploitation contracts with the following foreign oil companies: Ohio Oil, Contin- ental Oil, Esso, Shell, Union Oil, Tennessee, Pan American and Banca Loeb.84 DeSpite the unpopularity of such a move, Frondizi, apparently, had little choice in the matter; something simply had to be done to alleviate the critical balance of payments situation. In 1957, the deficit in the merchandise account was $336 million and in 1958, $239 million .85 Moreover, the supply of foreign exchange was extremely law. For 1957, the end-of—year net supply of gold and foreign exchange was $34.8 mil- lion . By the end of 1958, the net supply of gold and foreign exchange had suffered 82Peter G. Snow, Argentine Radicalism (Iowa City, University of Iowa Press, 1965), p. 79. 83Arthur M. Schlesinger, Jr., A Thousand Days (Greenwich, Conn.: Favxcett Publications, Inc., 1965), p. 168. Villanueva, op. cit., p. 19. 85Plan Nacional de Desarrollo, op. cit., p. 25. 53 a net loss of $214.2 million for an end-of-year deficit of $179.4 million .86 Some sort of program of import substitution had to be undertaken to save foreign exchange and oil was an obvious candidate . For many years petroleum imports accounted for approximately one-fifth of the total import bill. By and large, the Frondizi contracts were successful in saving foreign exchange. In 1957, combustibles and lubricants accounted for 24.2 percent of the total import bill, but by 1963, this category accounted for only 5.8 percent. In absolute terms, between 1957 and 1963, the dollar value of such imports fell from 317.5 million to 57.4 million.87 It should be noted that even these impressive figures understate, in two ways, the import substitu- tion effort that occurred in petroleum. First, the category "combustibles ard lubicants" includes cool, the deposits of which are insignificant in Argentina, and which must, therefore, be imported. Secondly, "technically Argentina can never be self-suffi- cient in petroleum products, because the type of oil found in Argentina does not fur- nish some needed derivatives, and there will always be the need to import some Special kinds of crude oil (especially for lube oil and asphalt)."88 In December of 1958, Frondizi announced that the government was instituting a Stabilization Plan under the "aUSpices" of the International Monetary Fund. Basically, the Plan sought to end inflation89 by orthodox fiscal and monetary restraints .90 The I 86Argentina Economica y Financiera, op. cit., p. 301. 87 Plan Nacional de Desarrollo, op. cit., p. 27. 88Herring, op. cit., p. 774. 89The cost of living index had increased by 25% in 1957 and by 82% in 1958; see Villanueva, op. cit., p. 71. 90Eprime Eshag and Rosemary Tharp, "Economic and Social Consequences of 54 nucleus of the Plan was to be formed by the following measuresz9' 1 . A decrease in the rate of increase of the supply of money, defined as the total amount of currency bills, coin, and bank demand deposits . 2 . An abandonment of price controls (except on rents) and subsidies . This was to include also an increase in government owned railway fares, and other govern- ment utility rates . The purpose of this was twofold: to balance the federal budget, and to allow market forces a more important role in the allocation of resources . 3. A severe limitation on wage increases, including all cost-of—Iiving escalator clauses . 4. Devaluation of the peso and a return to a freely-fluctuating exchange market. Although all quantitative import restrictions were removed, the government did impose ad valorem surcharges on imports, which varied from zero to 300 percent. Those most essential to the continued Operation of the economy were charged either zero, 20, or 40 percent. All other imports were taxed at the rate of 300 percent. 92 In addition, export retentions were placed upon all exports, except manufactured Orthodox Economic Policies in Argentina in the Post-War Years, " Bulletin of the Oxford University Institute of Economics and Statistics, XXVII (February, 1965). 9'The following description of the Stabilization Plan was drawn primarily from two sources: Carlos F. Diaz Alejandro, Exchange-Rate Devaluation in a Semi-Indus- trialized Country (Cambridge, Mass.: The M.I.T. Press, 1965), pp. 145-48, and Villanueva, op. cit., pp. 17-20. The term "export retention " is an Argentine term for export taxes . During 1959-61, export retentions represented a little more than one-eighth of national government tax receipts . Source: Diaz Alejandro, Exchange Rate Devaluation in a Semi-Industrialized Country, p. 166. 55 goods. The retentions were either 10 or 20 percent and their purpose was to prevent windfall gains for the export sector. 5. The attraction of foreign capital . Special incentives for investment were to be provided to those industries which would "contribute toward the substitution of imports , the expansion of exports or . . . the rational and balanced growth of the national economy ."93 Although some of the specific goals of the Plan were realized, for the most part, the global objectives were not attained . To begin with, the inflationary pro- cess was scarcely halted: in 1959, the increase in the cost-of-living index was a phenomenal 115 percent and in 1960, 27 percent. It was not until 1961 that the rate of increase was brought down to a still high but tolerable 14 percent.94 Gross domestic product increased by a modest 7 percent for the period 1958-61, or by little more than 2 percent annually. This was followed by a recession and by 1963, gross domestic product was 4 percent below the level attained in 1958.95 The results according to the five points mentioned above were as follows . 1 . The expansion of the money supply continued at a high rate. In 1959, the rate of increase of the money supply was 43.8 percent, only slightly lower than the pre-Plan rate of 46.2 percent for 1958. In 1960, the rate of increase was 25 .7 93Quote from Argentine Law 14.780 (December 4, 1958) on Foreign Invest- ment and Industrial Promotion: see Henry W. Laurant, Factors Affecting Foreign In- vestment in Argentina (Menlo Park, Calif .: InternationaTDeveIOpment Center, 1963), p. 57. 94Villanueva, Op. cit., p. 71. 95Plan Nacional de Desarrollo, op. cit., p. 16. 56 percent and it was not until 1961 that it was brought down to 15 percent.% 2 . Price controls were lifted (except for rents) and public utility rates and fares were increased. These measures were not sufficient to balance the budget but they did help to trim the government deficit from 66.4 billion pesos (1960 pesos) in 1957, to 22.4 billion pesos in 1958, and 11.1 billion in 1959. Nevertheless, by 1962, the government deficit had once again increased to 50.7 billion pesos (1960 pesos).97 3. The program to limit wage increases was a success. It, along with the 100 plus percent increase in prices acted to lower labor's share of net domestic product from 57.0 percent in 1958 to 48.7 percent in 1959.98 4. The devaluation of the peso was achieved and the surcharges and retentions were instituted . 5. Most importantly, the Plan was successful in attracting foreign investment. By the end of 1960, the government had authorized $350 million of foreign investment in the petroleum industry alone. Of this amount, $205 million was authorized in 1958, and $67 in 1959.99 Foreign investment in other industries (excluding petroleum) was 96Villanueva, op. cit., p. 9. 97 Plan Nacional de Desarrollo, op. cit., p. 35. I 98Argentina: Sintesis Econo’mica y Financiera No . 1 (Buenos Aires: Oficina de Estudios para—la Colaboraci'bn Econcimica Internacionaifl 961),p.9. It is interest- ing to note the change in labor's share over time. From 1935 to 1946, labor's functional share was never more than 46.8 percent.Howeve r, with the advent of Peron and his pro- labor policies, labor's share increased to 52 .4 percent in 1948, and subsequently did not fall below 55 .9 percent until 1959. 99Laurant, op. cit., p. 18. 57 a direct result of the new Industrial Promotion Laws,ratified by Congress in December, 1958. These Laws (still operative in mid-1969) provide special incentives for foreign firms in certain areas of the economy . Enrique Garcia Vazquez gives the following succinct description of the main features of the Laws: The incentives include a series of tax exemptions on facilities and profits which are available to enterprises provided that their applica- tions are submitted prior to the year 1969. Preferential prices are also provided to enterprises for gas, electric power, fuel and transport. Capital equipment is given certain tariff and foreign exchange advan- tages . And authorization is extended for the entry of foreign perosonnel who are necessary to the development of the enterprises' plans . 0 Table 7 gives the break-down, by year and by industrial classification, of fore- ign investment authorizations (excluding petroleum) for the period 1958-63. The imme- diate effect of the new Laws are of interest. In 1958, when for the most part the Industrial Promotion Laws were not operative, foreign investment authorizations were but $16.9 million . In 1959, however, the authorizations were $269 million . It seems safe to conclude that this increase was due to the new Laws and the concomitant favor- able change in the entire investment climate . Total authorizations Including petro- leum) were $336 million in 1959; this represents 2 .6 percent of 1958 gross domestic product. '0' The industrial break-down of the authorizations for 1958-63, is interesting and 'OOEnrique Garcia Vazquez, "An Argentine View, " How Latin America Views the U.S. Investor, ed. Raymond Vernon (New York: FrederIck A. Praeger, PuhIEhers, 10'Source for gross domestic product, Yearbook of National Accounts Statistics, 1966, op. cit., p. 726. 58 TAB LE 7 FOREIGN INVESTMENT AUTHORIZATION (EXCLUDING PETROLEUM) FOR THE PERIOD l958-63, ACCORDING TO INDUSTRIAL CLASSIFICATIONS (In millions of U.S . dollars) Industry 1958 1959 1960 .1961 1962 1963 Total Livestock -- 4.7 -- -- 1 .0 -- 5 .7 Extractive -- -- 0 .5 -- 3 .5 -- 4 .0 Foodstuffs 8. Beverages 1 .2 2.7 0.7 -- 0.2 0 4 5.2 Textiles -- 2 1 -- 0.4 0.8 -- 3 3 Construction -- -- -- -- -- -- -- Wood Products -- 1.4 — -- -- -- 1.4 Paper 8. Cardboard -- 2 .5 0 2 1 .2 -- -- 3.9 Printing 8. Publishing -- 0.1 -- -- 0.3 -- 0.4 Pharmaceutical Products 8.2 3.2 0.4 0.5 1.3 0.5 14.1 Chemical Products 2 .5 127.4 0.9 31.6 6 .4 -- 168.8 Petroleum Derivatives -- 27.3 3.7 2.9 6.7 1.9 42.5 Rubber -- 1 . 7 1 .0 -- 0.9 -- 3 .6 Leather Goods -- -- -- -- -- -- -- Stone, Glass 8. Ceramics -- 0.9 -- 0.5 -- 0.3 1.7 Light Metallurgy -- 1.8 4.4 30.9 42.7 -- 79.8 Heavy Metallurgy 2.0 4.2 1.2 5.3 1.3 1.1 15.1 Automobiles 8. Trucks -- 68.1 1.5 28.0 0.8 5.6 104.0 Tractors -- 4.4 3.1 5 .8 2 .7 0 .2 16.2 Machinery (Non-electrical) -- 9.0 1.4 2 .1 2 .8 -- 15.3 Elec . Machines 8. Appliances -- 3.5 3.4 11. 6 1.6 2 .5 22 .6 Meat Packing -- -- -- 3.8 -- -- 3.8 Public Construction -- 0.7 0.5 0.3 9.4 -- 10.9 Marine Shipping 1 4 1.8 10.4 0.4 0.2 -- 14.2 Communications -- 0 .1 1 .4 0 .1 0 .2 -- 1 .8 Miscellaneous 1.6 1.4 0.2 0.2 1 .4 0.1 4.9 TOTAL 16.9 269.0 34.9 125 .6 84.2 12.6 543.2 I Source: David Felix, Industrializacion Sustitutiva de Importaciones y Exportacion I Industrial en la Argentina, Center of Economic Research, DiTella Institute (Buenos Aii'esziDiTello institute, 1965), pp. 59-60. 59 102 predictable. The bulk of it was for basic, heavy, capital intensive industries . Four categories, the two types of metallurgy, automobiles and trucks, and chemical products account for 67.7 percent of the total authorizations, and four other cate- gories, petroleum derivatives, electrical machinery and appliances, non-electrical machinery, and tractors, account for an additional 17.8 percent. On completion, this new investment basically changed the source of growth in the manufacturing sec- tor . Before 1948-50, the leading sector of the economy was the consumer goods in- dustries; after 1948-50, the leading sectors were the intermediate and capital goods sectors. Table 8 shows this quite clearly. Of the total increase in value added in manufacturing for the period 1948-50 to 1959-61, 86.1 percent of it was derived from the heavy industries sector. The structure of this investment and its effect on the Argentine economy will be discussed in greater detail in Chapter IV. Nevertheless, it should be noted that this new investment did not serve to alleviate Argentina's 103 economic problems . First, the new capital intensive industries did little to help 'ozBefore a foreign firm can invest in Argentina, it must obtain a permit or authorization, from the national government. This permit allows the foreign firm to invest in some specified sector of the Argentine economy. The fact that an authoriza- tion is granted does not necessarily mean that the proposed investment will take place; for, a firm can always decide to postpone the investment or to "scrap" the project en- tirely. Authorizations, therefore, are only a rough indicator of actual foreign invest- ment. There Is, nevertheless, a fairly close relationship between authorizations and subsequent foreign investment. In the period I958-63, authorizations totalled $543.2 million (see Table 7). In the some period, actual foreign investment equalled $482.7 million. Source: Argentina Economica y Financiera, op. cit., p. 305. '03This new investment was successful in establishing or enlarging the produc- tive capacity of many basic industries necessary for future economic growth. 60 TABLE 8 PARTICIPATION OF BRANCHES OF MANUFACTURING IN THE TOTAL INCREASE IN VALUE ADDED, 1927-29 TO 1959-61 (Expressed as percentages of the total increase 1h value added in manufacturing) 1 927-29 1 948-50 to to 1948-50 1959-61 Primarily Consumer Goods Industries 58.6 13.9 Foodstuffs 8 Beverages 21 .6 6.6 Tobacco 3 .2 1 .5 Textiles 23.5 2.5 Clothing 3.6 0.9 Wood Products 3 .1 0.1 Printing 8 Publishing -0.4 -0.2 Leather Products 2 .8 0.7 Other Manufacturing 1 .2 1 .8 Primarily Intermediate and Capital Goods Industries 41 3 86.1 Paper 8 Cardboard 1 .0 2.2 Chemicals 4.8 9.4 Petroleum Refining 9.0 12.0 Rubber 2 .5 2 .9 Stone, Glass 8 Ceramics 2 .4 2 .6 Metals 9.0 18.7 Vehicles 8 Machinery 10.3 26.7 Electrical Machinery 8 Appliances 2.3 11.6 / Source: Carlos F. Diaz Alejandro, Stages in the Industrialization of Argentina, op. cit., p. 43. 61 104 the unemployment situation in the constantly growing urban areas . Of course, this problem is also aggravated by the Slow growth in national product. Secondly, it ap- pears that the economy is now no less dependent on the capacity to import than it was in the early nineteen-fifties . In this regard, David Felix has calculated that it re- quired 16 percent more imports to "produce a given level of output in 1960 than in 1953."'05 Apparently, this was due to the fact "that there were sharp changes in the composition of demand favoring the newer import substitutes, and that these would have usually higher import coefficients than the industries whose share of total demand had fallen . " I 06 Fortunately, the export sector was somewhat healthier in the early nineteen- sixties than it was during the nineteen-fifties . The volume (in tons) of exports more than doubled from 1961 to 1965, increasing from 7,297 tons to 15,374 tons .'07 Most '04Jorge Katz and Ezequiel Gallo, "The Industrialization of Argentina," Latin America and the Caribbean, ed. Claudio Veliz (New York: Frederick A. Praeger, PUhlishers, 1968), p. 602. 'osDavid Felix, Did Impofiubstituting Iantrialization in Argentina Save Foreign Exchange in 1953-1960? A Report on Some Findings fenter of Economic Re- search, DiTelIa Institute TBuenos Aires: DiTella Institute, 1965), p. 19. 1061b1d., p. 20. Felix reiterates this point in the following statement. "The proposition that new activities have on balance higher import coefficients is, however, only an empirical hypothesis which could be negated . In our view, it is an almoSt inevitable occurrence if an import substituting strategy of development is carried on for a considerable length of time in a thin domestic market. For then the composition of output will have to change quite rapidly in order to sustain growth through import substituting types of investments, and this will in time require the introduction pro- gressively of technologically more complex activities which generally tend to have higher import coefficients . The findings of this paper support this hypothesis for Argen- tina, at least for the period, 1953-60." lbid ., pp. 20-21. '07Comments on Argentine Trade, op. cit., P- '7' of p11 lac mil llnI 62 of this increase was at the expense of the Argentine population . As the relative price of food increased and as the government introduced "meatless days " for two days per week, per capita food consumption fell, from an average of 3090 calories daily for the period 1957-59, to 2810 for the period 1960-62, and 2650 for 1962 .'08 At the some time, there was a favorable shift in the external terms of trade, after 1960. The net results of all this was a significant increase in export earnings . Exports which had averaged $908.5 million annually for the period 1951-61, averaged $1369.4 109 million yearly for the period 1962-65. Nevertheless, despite this increase, Argen- tina remains precariously dependent on the external sector. '08Ferrer and Wheelwright, op. cit., Statistical Appendices, p. 14. '09Comments on Argentine Trade, Ioc. cit. CHAPTER III METHOD OF ANALYSIS This chapter first examines in detail the hypothesis to be tested. This is fol- lowed by a discussion of the conceptual implications and problems associated with the test. Finally, I explain the techniques developed for dealing with these problems and for testing the hypothesis . THE HYPOTHESIS Albert Hirschman suggests that balance of payments pressures might induce import substitution .' He argues that a country confronted with balance of payments problems and unable to finance continued importation of a given poduct will begin to produce the previously imported product. The central task of this dissertation is to test this hypothesis by examining the relevant circumstances in Argentina during the period l945-61 . Since the late nineteen-forties Argentina has suffered continuous balance of payments difficulties 2 and thus is a suitable country for such a test. The initial year was chosen in order to eliminate at least some of the influence of the 'Albert O.Hirschman, The Strategy of Economic Development (New Haven, Connecticut: Yale University Press, 1967). 2Balonce of payments difficulties are evidenced by the large deficits that have occurred in the current account periodically since the late nineteen-forties (see Table 3, Chapter IV). For the period 1947-67, the current account showed an average 63 won meflx probl saves velor GSSUII ecom be vi tends andl view the; hde. take one of d: 501“ “no IOI Q dEiIc 64 war, and the terminal year was chosen partly because of data problems and partly for methodological reasons, to be explained later. I was not concerned here with other problems associated with import substitution, such as whether or not import substitution saves foreign exchange or if it is, in fact, as is often alleged, the most efficient de- velopment strategy. Rather I concerned myself only with its efficacy, eXplicitly assuming that import substitution does promote economic growth . It should be noted that Hirschman's views are somewhat contrary to traditional economic thinking in that he suggests that balance of payments problems might indeed be viewed benignly . He argues that the inability to import a previously imported good tends to set up inducement mechanisms (or forces) which might lead to local production and thus, stimulate economic growth . This is a superficial statement of Hirschman's views, particularly in that it conceals many of his assumptions . First, he assumes that the previously imported product has become part of a "normal" pattern of consumption. Indeed, this is a necessary, but not sufficient, condition for import substitution to take place. In fact, if the previously imported goods "are considered a windfall and an extravagance they will not be judged a firm enough foundation for the building up of domestic industry."3 Secondly, Hirschman assumes that the domestic market is of sufficient size, so that the production of the good can become economically profitable. Finally, he assumes that the local entrepreneurial propensity is sufficiently developed for domestic production to be undertaken . deficit of almost $137 million annually . 3151a,, pp. 173-74. 65 Hirschman's basic ideas on these points are expressed succinctly in the follow- ing passage . That fluctuations in foreign exchange availability may up to a point, accelerate economic development can be shown in the follow- ing way. Take first the years during which foreign exchange earnings are ample and import restrictions nonexistent. During this period an underdeveloped country expands its traditional imports and develops a taste, a market, and a need for a number of hitherto unknown and unappreciated commodities . As more imported incentive goods become available, backward-sloping supply curves of effort are being "unbent" and economic operators become more market-oriented in their work habits and production efforts . A number of "thresholds" are being crossed, but production is not started because of the opposition of the importing interests, the difficulties of competing with them, and the lack of interest of public authorities . Come the lean years and imports are restricted in one way or an- other; the entrepreneurs then know from the previous phase that the size of the home market for some of these imports warrants the build- ing up of domestic manufacturing, and such projects now are strongly supported by public opinion because the absence or high price of the previously imported commodities is felt as a deprivation; in fact, in this phase the domestic importers themselves, or the foreign exporting interests, often tujn producers of the goods they previously shipped into the country . The tools of conventional price theory may be used to clarify this hypothesis . In Figure 1, D and S represent domestic demand for and domestic supply of an inter- nationally traded commodity . Initially it is assumed that the international free trade price is OP] . Accordingly, domestic firms can and do supply OQ] of domestic demand, with the residual, Q1Q2' being filled by imports . It is then assumed that balance of payments difficulties occur and that the government implements a tariff of P1P2 in order to discourage imports and conserve scarce foreign exchange . The result is to 41bid. 66 eP--------------- P2 .-..-_.....-_....... PI -_........- |""-l "'|""'l|l'l ‘3 FIGURE 1: EFFECTS OF A TARIFF 67 increase the effective domestic price to 0P2 and to allow domestic producers to ex- pand their output to OQ3, with the residual of domestic demand, Q3Q4, being filled by imports.5 Here it is assumed that domestic productive capacity already exists and that the tariff allows local suppliers to increase their output. The establishment of an entirely new industry as the result of a tariff can be similarly demonstrated . In Figure 1, a free trade price of CPD, or below, would mean that potential domestic producers are unable to compete with the lower priced foreign imports and that as a result domestic production cannot profitably take place. A tariff which increases the effective domestic price above OPo would allow the profitable establishment of domestic productive capacity. A tariff which increases the effective domestic price to 0P3, or above, would eliminate all imports and would enable domestic producers 6 to supply entirely the local market. Fundamentally, a tariff is a passive governmental action which merely encour- ages the establishment of a new industry. Potential producers may or may not take advantage of the tariff induced domestic price increase and establish a new industry. 5Figure 1 can also be used to illustrate the effect of quantitative import restric- tions . Initially it is assumed that the free trade price is OP] , with domestic producers supplying OQ] and imports of QICQ filling domestic demand. If an import quota of Q3Q4 is imposed, excess domestic demand equal to QjQ3 + Q4Q2 will exist. This unsatisfied domestic demand will bid up the domestic price to 0P2 and domestic pro- duction will expand to OQ3; imports will equal Q3Q4, the amount of the import quota. In brief, the effect of an import quota of Q3Q4 is identical to the effect of a tariff equal to P] P2. 6The above treatment of protection-induced import substitution is taken from P.T. Ellsworth's The International Economy (Toronto, Canada: The MacMillan Com- pany, 1969), pp. 242-49. 68 Often a government cannot allow such decisions to rest solely with the private sector of the economy . If an imported good annually uses large amounts of scarce foreign exchange and if the imported good is necessary for the continued functioning of the economy, a government (beset by balance of payments problems) may be forced to take more direct action and to actively promote import substitution by means of sub- sidies to potential domestic producers .7 The effects of a subsidy are illustrated in Figure 2 . Here D and S represent the domestic demand for and supply of an inter- nationally traded commodity. Initially it is assumed that the free trade price is OP]. At this price, domestic producers supply 00] , with the residual of domestic demand, QIQZ' being satisfied by imports . A subsidy to domestic producers lowers their costs of production and shifts the supply curve to S' . Domestic producers now supply OQ3 and imports equal to Q3Q2 fill domestic demand. Here it is assumed that domestic producers already exist and that a subsidy allows them to expand their output. The subsidy-induced establishment of an entirely new industry may similarly be illustrated. At an assumed free trade price of OPO, potential producers are unable to compete and profitable domestic production cannot take place. Instead, imports equal to OQ5 satisfy domestic demand. A subsidy lowers costs of production to potential producers and shifts the supply curve from S to 5', thus allowing the establishment of domestic productive capacity . After a subsidy, domestic producers supply OQ4, with imports 7Oil assumed such strategic importance in Argentina during the late nineteen- fifties . Typically, one-fifth to one-fourth of total export earnings was used to import oil , a good clearly necessary to the continued functioning of the Argentine economy. Accordingly, the Argentine government, confronted with severe balance of payments difficulties, used subsidies to foreign producers in order to ensure successful import substitution . w ------- ------------ t I I ____--1-____ """"-'-'l """l"'|'l PI P 0 FIGURE 2: EFFECTS OF A SUBSIDY 70 of Q4Q5 filling domestic demand.8 In practice, both protection and subsidies are often used to stimulate import substitution . Although Hirschman's analysis seems, at first blush, rather simple and obvious, there are real conceptual problems which arise in attempting to test it. In brief, the variables dealt with in the analysis have to be, in some way, Operationally defined . Below I discuss these problems and outline solutions . DEFINING A BALANCE OF PAYMENTS PRESSURE One Of the more difficult facets was defining Operationally a "balance Of pay- ments pressure." One would be tempted to conduct this kind Of analysis entirely in terms Of foreign exchange availability. Indeed, this seems to be Hirschman's definition of a "balance Of payments pressure. "9 Using simple foreign exchange quantities, how- ever, still requires definition Of what is and what is not a "low level " Of reserves, i.e ., to what level do reserves have to fall before the government becomes concerned and 8Hirschman's treatment Of protection and subsidies here should be noted . That a government, confronted with severe balance of payments pressures, will resort to various protective devices, is clearly stated ("Come the lean years and imports are re- stricted in one way or another. " Hirschman, Op. cit., 173.) but not analyzed in de- tail . That this protection will tend tO induce import substitution is also clearly stated but again not analyzed in detail. In this regard he cites a 1952 Department of Com- merce study which "showed that two out of five companies had started their foreign Operations in order to maintain a market in which they had become established, main- ly when loss Of this market was threatened by tariffs or other import barriers ." (Italics mine, Hirschman, Op. cit., p.l7[.iThat governments will use subsidies to implement import substitution Is nowhere suggested by Hirschman. Nevertheless, the above brief discussion Of subsidies is warranted for the sake Of analytical completeness . 9Hirschman, Op. cit., pp. 173-74. 71 takes some form of remedial action . '0 Fortunately, Argentine institutional arrange- ments suggested a pragmatic solution to this problem. A discussion with Eduardo A. Zalduendo, a former vice president Of the Argentine Central Bank, disclosed that Argentine banking authorities generally do not become w concerned as long as the foreign exchange level (defined as the netsupply Of foreign exchange)" is suffi- cient to pay for three months Of annual imports .'2 Therefore, as long as the end-Of- year net supply Of foreign exchange equalled, at least, 25 percent of annual imparts, a 3.15329. pressure was not felt by the authorities and, hence, did not exist. This is not to say that there were no balance Of payments difficulties in these years . In fact, from 1948 to the present, Argentina has suffered continuous balance Of payments problems, in terms of declining foreign exchange reserves, deficits in the current and capital accounts, etc., but such problems. do not necessarily create s_t_r_c_>_r_1_g pressures . For example, a declining level Of foreign exchange is not a strong pressure if the absolute '01 am assuming that other means of financing imports are not available; that is, that the net inflow of private and Official capital is negative, small, nonexistent and/or erratic, and that the export sector is stagnant. (This seems to be a fairly ac- curate description Of the Argentine balance Of payments picture in the nineteen-fif- ties .) In this situation, the absolute amount of foreign exchange on hand becomes the key determinant of the "capacity to import" and, therefore, it is movements in this variable which will induce government action . For a good but brief definition of the "capacity to import, " see Pan American Union, General Secretariat of the Organ- ization of American States, Latin America: Problems and Perspectives of Economic Development, 1963-64 (Baltimore: The Johns Hopkinsfihress, 1966), p. 33. "The net supply of foreign exchange is defined as the algebraic sum of Central Bank holdings Of gold, foreign exchange, and assets convertible into foreign exchange minus claims on foreign exchange. For a more complete definition, see Table 1 in Chapter IV . ”In Argentina, foreign exchange reserves at the end Of the year are typically higher than at other times of the year. This is primarily the result Of the uneven timing GIT C0 WE d1: me 511; ci pe WQCJQ 72 amount of foreign exchange is high. By the same taken, a deficit in the current or capital account is not as_tron_g pressure if foreign exchange is plentiful. What we were looking for were 5.1329. pressures which virtually compelled some sort of reme- dial action by the government which might give rise to import substitution inducement mechanisms . In order to Obtain a measure Of such pressure, I divided the end-Of-year net supply of foreign exchange by total imports for the same year. This yielded a coeffi- cient which indicated a period Ofm pressure whenever it dipped below the 25 percent level .'3 It would have been clearly unwise, however, to have slavishly applied the "25 percent rule"; that is, to have labelled a year with a 24 percent coefficient as a year Of strong pressures and one with a 26 percent coefficient as a period Of weak pressures would have been excessively arbitrary. Accordingly, it was helpful to develop another measure Of balance Of payments pressures in order to test the first measure . Agreement Of the two measures gives greater confidence in the "labelling system " for years of strong and weak pressures . Clearly, such items as the merchandise account balance, Of export sales . Foreign exchange from meat exports is forthcoming throughout the en- tire year. But export income from wool and grain is mainly received in the Argentine spring and summer, respectively. Thus, experience has demonstrated that year-end foreign exchange reserves should be equal to at least 25 percent Of annual imports in order to insure sufficient foreign exchange during the lean months of June, July and August when export earnings are at their lowest level . 1"Certainly, the use of monthly foreign exchange data instead of year-end data would have resulted in greater precision in the timing of the "pressure periods . " Gener- ally, such data (in pesos only) are published in the monthly Statistical Bulletin of the Central Bank. Unfortunately, this publication did not appear from August, 1948 to January, 1957--a lapse covering the greater part of my period Of interest. Since results are not expected to be precise, the use of year-end data is acceptable. 2. SU 1111 cu 01E SUI 9’6 510. hot. InclK This 73 the current account balance and the capital account balance were, and Ought to have been, Of some interest, as they are all indicative of balance of payments pres- sures . Therefore, I have compared the current account balance with the year-end foreign exchange level . I chose the current account for two reasons . First, the cur- rent account includes the merchandise account, and the latter is, therefore, not overlooked . I did not examine the capital account mainly on the advice Of Eduardo Zalduendo, who explained that the Argentine banking authorities typically do not use the capital account as a basis for their decision-making . The capital account includes autonomous capital movements and it has been found that in Argentina such movements are too erratic to be used as a basis for prediction and meaningful economic analysis . Once again I was faced with the problem of delineating between strong pres- sures (capable of inducing import substitution) and weak pressures (supposedly incap- able Of inducing such substitution). Certainly, the occurrence Of an active (positive) balance on the current account posed little difficulty . This would not contribute to a pressure and is, in fact, indicative of a lack Of pressure. The difficulty arose in trying to determine the relative strengths Of passive (negative) balances . For example, at first blush, a deficit Of $200 million is more serious than one Of $20 million. Suppose, how- ever, that the $200 million deficit occurs in a year in which the foreign exchange stock is $400 million and that the $20 million deficit occurs when foreign exchange holdings are $15 million. Which is the more serious situation? Which is more likely to induce some sort of governmental action which would encourage import substitution? This somehow had to be decided. As a solution to this problem, I labelled those years in which the deficit was maintainable, as years of weak balance of payments pressures, whc her for ing the mil out occ act act for QUE Wh pol '90-: Car. 81 In 74 and those years in which the deficit was flmaintainable, as years Of strong pressures . If, for example, the annual deficit were $200 million and if year-end foreign exchange reserves were equal to or in excess of this figure, then this would mean that the coun- try could have endured a deficit of the same magnitude the following year, without obliterating foreign exchange holdings; thus strong pressures did not exist. (Here again, what I was looking for was not just pressures but rather m pressures .) On the other hand, it would seem that when a negative current account balance is 251 maintainable for another year, M pressures can be said to exist. Stating this another way, assume that in year 1, the deficit in the current account is $200 million and that the remain- ing reserves (i .e., after financing the deficit) are $220 million. This would mean that the year 1 deficit could be maintained in year 2 and that at the end of year 2, $20 million in reserves would remain . It may be asked what would be the reaction Of the authorities at the end of year 1? Will they allow another $200 million deficit to occur or will they take action immediately? It is indeed quite possible that remedial action will be taken immediately. But the point is that they do not have to take action now, whereas, when the deficit is greater than year-end reserves, they are forced to take action. It is well known in Argentina that political factors are fre- quently more important than economic factors when such decision making takes place. When the deficit is not maintainable, however, economic factors assume more importance, political considerations notwithstanding .'4 TO reiterate that which has been said before, ”My approach assumes that authorities wait for pressures to develop and then react to eliminate them . On the other hand, it could be argued that the authorities carefully examine trends in the external sector, anticipate pressures, and act to eliminate them before they in fact occur. The later behavioral hypothesis does not the 511: $011 COL m0 Ihr sel sul 5111 105 tio- 75 the analysis attempts to isolate not just periods of pressure, but rather, periods Of 2% pressure that force action on the part of the government. Import substituting industrialization is Often undertaken for a number of rea- sons. For example, in the late nineteen-forties and early nineteen-fifties, Pero’n en- couraged substitution in an attempt to increase job Opportunities for the "shirtless" masses in order to solidify and expand his political power base. Other governments, throughout Latin America, have stimulated import substitution in the belief that "in- dustrialization" is the some thing as "economic growth.” What I tried to do was to select those periods in which the economic forces predominated, and in which the re- sulting pressures were of such a magnitude as to force government action toward a sub- stitution policy, justified not as just a political desire, or expediency, but rather justified because of economic contingencies . This attempt at defining pressures Opera- 15 tionally leads us into as yet uncharted areas . seem acceptable for several reasons . First, it assumes an ability to predict that is very likely beyond the capability of contemporary social scientists . Secondly, if such be- havior were common in Argentina, then it would be difficult to account for the large deficits in the current account that periodically occurred in the 1947-61 period. Finally, such a behavioral assumption overlooks the political ramifications of such actions . A decision-maker who acts on the basis of a yet-to-be-evident balance of payments pressure opens himself to political attacks from those individuals adversely affected by his actions; and, since the balance Of payment pressure is not yet evident, their attacks may seem warranted and place the decision-maker in a difficult position. On the other hand, a decision-maker who simply reacts to an already overt balance Of payments pressure is in a much less precarious position since clearly something must be done to alleviate the situation . '5My techniques are related to Fritz Machlup's descriptive discussion Of the difference between the "need" for monetary reserves and the "desire" for reserves . As Machlup notes, banking authorities typically "desire" as many reserves as it is possible to Obtain. In my model which seeks to quantify Machlup's descriptive approach, the 76 MEASURING IMPORT SUBSTITUTION In order to measure import substitution I relied on the following equation from Alfred Maizels' Industrial Growth and World Tt‘ade.'6 dM = 0] (m1 - mo) '1' mo (0] - 00) Here "dM" is the change in imports between two points in time. Physical units were used to avoid valuation problems . "O" is total supply (i .e ., the sum Of imports and domestic production Of some good, "m" is the import component of total supply ex- 11 Ill pressed as a percentage, and subscripts and "O" refer to time periods . In this equation, mO (OI - 00) measures the total increase in imports that would have occurred, from the increase in domestic use, if the import coefficient had remained constant. On the other hand, 01 (ml - mo)shows the decrease in imports arising from gross import substitution . When this term is divided by the former term, an index number is obtained which can be used to ascertain whether or not there has been 2e_t import substitution . A simple numerical example will clarify this technique. Assume that in year "0" total supply is 100 units (1 .e ., 00 = 100) and that Of this amount, 50 units are authorities would desire a level of reserves many times greater than annual imports. But if reserves were only 100 percent Of imports no dire consequences would result. A "need," on the other hand, implies that an undesirable consequence will result if the need is not fulfilled. In my model, the Obtaining of foreign exchange equal to at least 25 percent Of annual imports is necessary to prevent the undesirable conse- quence of not being able to pay for imports in the lean months of June, July and August. For a discussion Of the difficulties of measuring the "need" for reserves, see Fritz Machlup, "The Need for Monetary Reserves," Reprints in International Finance, No. 5 (October, 1966), Princeton University Press. '6Alfred Maizels, Industrial Growth and World Trade (Cambridge: Cambridge University Press, 1963), p.15i. 77 imported (thus, m o = .50). Further assume that in year I total supply increases to I20 units (i .e., O] = I20) and that of this amount, 54 units are imported (note: mI has declined to a value of .45). Placing these values in the equation we obtain the following: dM = I20 (.45 - .50) + .50 (I20 - 100) = I20 ( — .05) + .50 (80) +4 = -6 + IO Thus, if the import coefficient had remained constant, imports would have increased by I0 units . In fact, imports only increased by 4 units . Thus -6 is the amount of import substitution that occurred in physical terms between years "0" and "I ." Dividing -6 by I0, a ratio of -60 percent is obtained; which is to say that 60 percent of the increase in imports (which would have occurred if the import coeffi- cient had remained constant) was replaced by domestic production. Referring to a -.6 coefficient as being indicative of positive import substitution is mathematically correct, but needlessly confusing . Therefore, in subsequent use, I have changed the sign and have used a positive coefficient to indicate positive import substitution. (This procedure is analogous to the convention of ignoring signs when computing price elasticity of demand coefficients .) Where negative import substitution occurred, no attempt was made to measure it and it is simply denoted by the word "negative ." There are certain characteristics of this method which are explained more fully below. I. When the substitution coefficient has surpassed I00 percent, not only has the import ratio declined, but the absolute volume of imports has declined as well. In other words, it is only when the ratio exceeds I00 percent, that net import sub- stitution has occurred . {11 fl 78 2 . A negative ratio signifies that the import ratio has risen and, therefore, negative import substitution has occurred . 3. If the total supply has declined between year "0" and year ”I," it is economically meaningless to calculate a substitution coefficient. An example will explain why. Assume that in year ”o,‘ imports = 60 units, domestic production = 40 units, and total supply = I00 units . Thus, our equation values are Co = I00 and m0= .60. Now assume that in year "I" domestic production stays constant at 40 units, imports decline to I0 units and that total supply is 50 units . Here our equation values are 01 = 50 and rnI = .20. Note that although the import coefficient has fallen, there has been no increase in domestic production and, therefore, no "real" import substitution has occurred. Thus, when there was a decrease in supply from year "o" to year "I , " no attempt was made to measure substitution. Rather, the substitution coefficient was computed for a longer period of time during which the supply in- creased. For example, if total supply were I00 for year "0," 50 for year "I , " and IIO in year "2, " then I did not compute the substitution coefficient for period "0 - I, " and instead, "bridged" year "I " and computed the coefficient for the period "o-2 ." 4. This index of substitution is subiect to certain biases inherent to all index numbers . Of crucial importance are the base and terminal year values . Taking first the problem of terminal year values, it can be shown that this measure of substitution is not independent of the level of domestic demand prevailing in the terminal year . Assume that the values (for some good) for the base year variables are Oo = I00, and m0 = .55. Assume that in the terminal year the domestic industry is producing at cap- acity and that at capacity I08 units are produced . If a high level of domestic demand 79 requires the importation of 72 additional units, the relevant terminal year values are 01 = I80 units, and m] = .40. Placing these values in the equation we obtain the following: dM = I80 (.40 - .55) + .55 (I80 - I00) = I80( - .I5) + .55 (80) = -27 + 44 Dividing the first term by the latter yields a substitution coefficient of 6l .36 percent. If, however, the terminal year demand had been less buoyant so that only 52 imported units were required, then the relevant terminal year values are 01 = I60, and m] = .325. With these values we obtain: dM = I60 (.325 - .55) + .55 (I60 - I00) = I60 ( - .225) + .55 (60) = -36 + 33 These values yield a higher substitution coefficient (I09.09 percent) despite the fact that domestic production is the same in both cases . Neither is the substitution coefficient independent of the level of demand in the base year. Assume that in the base year domestic production (at cqaacity) is 45 units and that 55 units are imported . Base year values are now 00 = I00, and m0 = .55. Let the terminal year values be CI: 220, and m] = .40. Placing these val- ues into the equation we obtain the following: dM = 220 (.40 - .55) + .55 (220 - I00) = 220 ( - .I5) + .55 (I20) = ~33 + 66 Dividing the initial value by the latter yields an index of substitution of 50 percent. Now suppose that in the base year domestic demand had been much higher so that 80 7 The imports were I35 units (domestic production is still assumed to be 45 units).1 terminal year values are the same as above and the "new" base year values are Oo = I80, and mo = .75. These values yield the following results: dM = 220 (.40 - .75) + .75 (220 - I80) = 220 ( - .35) + .75 (40) = - + 30 This yields a higher substitution coefficient, 257 percent, despite the fact that in both cases domestic production is the same . Finally, it should be noted that, other things equal, the magnitude of the index of substitution is determined by the relative change in the import coefficients. If, for example, in industry A the relevant values are 00 = I00, 0] = 200, rno = .90, and m] = .45, the resulting index of substitution would equal I00 percent. If in indus- try B the values are 00 = I00, 0} = 200, m0 = .02, and m] = .0I, this too yields a substitution coefficient of I00 percent, despite the small absolute decline in the import coefficient in the latter case. As the import coefficient approaches zero, the greater is the percentage change associated with a given decrease in the import coefficient. The lower the import coefficient in the base year, the greater will be the magnitude of the substitution coefficient, if substitution does in fact occur. Thus, as the import coefficients approach zero, the less meaningful is the resulting index of substitution .18 17In these examples, it has been assumed that import fluctuations result from changes in aggregate demand. It should go without saying that import fluctuations can also result from governmental import restrictions . This latter case may be the more relevant case for Latin America in general and Argentina in particular. IBBecause of the biases discussed above, substitution data for all sample prod- ucts were presented in their entirety, along with the indexes of substitution . 8I The above equation was used to compute import substitution, year by year, for the industries (and/or products) included in the sample. In this manner, I sought to determine if extensive import substitution did occur in Argentina during or near years of strong balance of payments pressures . SELECTING THE INDUSTRIES This analysis required domestic production and import statistics, for a variety of products, for a series of years . Argentine import statistics are relatively easy to I I obtain; the Direccion Nacional de Estadistica y Censos published such data in its Comercio Exterior. Production data, however, were another matter . Unfortunately, such data are only available at widely scattered sources . Moreover, there was the problem of reconciling the different methods of classification used in compiling the import data and the production data. Finally, since time restraints did not permit an examination of all the nearly 2,000 Argentine imports, it was necessary to choose only the more important imports for analysis . Fortunately, these problems were partially alleviated by the publication of a work which gives time-series production and import data for a large group of products .19 Using this publication, I chose for study those products whose import coefficients (i .e. , imports as a percentage of domestic production plus . 2 . Imports) were 20 percent or more . 0 I chose 20 percent, rather than a lower figure . C O 0’ I O I I9lmportacuones, IndUSlTIOlIZOCIOD, Desarrollo Economtco en la Argentina (Buenos Aires: Oficina de Estudios para la ColaboracifiofEcondmica InternacionaT, I963) . 20 One might well ask what criteria were used by the O.E‘.C.E .I . in selecting 82 because Hirschman is primarily interested in the kind of import substitution that dras- tically changes the local economy . The higher the original import coefficient, the greater is the impact upon an economy of any successful import substitution . For example, assume that of the total domestic supply of a product, 90 percent is produced domestically and I0 percent is imported. If total imports are then curtailed, total domestic supply can remain constant, with only an II percent increase in domestic production . On the other hand, if domestic production is 80 percent and imports 20 percent of total supply, then a curtailment of imports necessitates a 25 percent in- crease in domestic production if total supply is to remain constant. Obviously, the choice of 20 percent is arbitrary and it could be argued that a higher "dividing-line" import coefficient would be more desirable . those products for which production and import data were given. According to Dr. Raul Beranger, an associate director of the O .E .C.E.l ., no systematic criteria were used; instead, the O .E.C .E.|. attempted to include all import productsrfor which domestic production figures were available. For some products no production data were avail- able because of the prosaic fact that no domestic production took place-~bananas being an example of such products . For those products produced in Argentina, data were often not available for three reasons . First, some entrepreneurs are simply too lazy to record their production statistics . Other entrepreneurs do not record such data in an effort to avoid business and personal income taxes . Still other companies do not make public such data because of a somewhat understandable disinclination to divulge their mar- ket position to competitors . An example of the latter case is the typewriter industry. In I967, only two companies produced typewriters in Argentina: Olivetti and Reming- ton-Rand, and these companies simply refuse to divulge their production statistics . Nevertheless, it would seem that the O .E.C.E.I. study does include production and import statisties for the more important imports . My sample alone accounts for 52 percent of the I957 import bill (in dollars) and the sample does not include all the products listed in the O.E’.C.E.l . study. 83 DETERMINING ADEQUATE MARKET SIZE, ENTREPRENEURIAL PROPENSITY AND WNS Professor Hirschman qualifies his hypothesis in several ways. He asserts that substitution will not be forthcoming if the size of the market is thought to be inade- quate to permit profitable production, or if the entrepreneurial propensity is weak, or if the product in question has not become part of "normal" consumption patterns . Ascertaining the "minimum economic size plant" for a number of products presents for- midable problems, since this type of data is often lacking for developed countries, let alone for semi-industrialized countries . Moreover, such concepts as "entrepreneurial propensity" and "normal consumption patterns'I are difficult if indeed not impossible to quantify . Therefore, it was felt that the easiest way to handle these problems was to examine them from an ex-post point of view. Thus, if domestic production had oc- curred historically, then it was assumed that Hirschman's stipulations were satisfied; i.e . , that the good had become part of normal consumption patterns, that the entre- preneurial propensity was sufficiently strong to promote domestic enterprise, and that the domestic market was viewed as being of sufficient size to allow profitable produc- tion . Since my task is to explain why substitution has occurred and not why it has not occurred, this method seems satisfactory . CORRELATION AND CAUSATION After periods of strong pressure were identified, I studied the substitution that occurred in the selected industries to see if it were suggestively correlated with those periods. I use the word "suggestively" for several reasons . First, one would not expect the substitution to occur in the same year as the pressure or, perhaps, even in the 34 following year. For example, suppose year I is a year of strong pressures . From our model, we might expect the government to take action in year 2 . Even if import sub- stitution is induced, however, the investment may not come to fruition until year 3 or 4. Moreover, suppose that the government does take some form of passive remedial action in year 2 (examples include higher tariffs, lower quotas, higher exchange rates, etc .), and that such action does not induce substitution in years 3 or 4. Then, one might well expect stronger government action in year 4 or 5; such action as the encouragement of foreign investment, subsidization, etc . , this investment to reach fruition in year 5 or 6 . As the above comments indicate, l have to be somewhat free in interpreting the data; however, I try not to infer more than the data warranted. Even assuming, however, that substitution is positively correlated, in a lag manner, with years of strong pressures, it would not be iustifiable to assume that the substitution was ml by pressures . To infer this, one would have to examine some of the changes in economic institutional arrangements which, in all probability, could induce import substitution. These changes would include an increase in the general level of protection and a more receptive posture toward foreign investment. If such changes did occur during or shortly after years of strong pressure, then it would be more reasonable to infer that balance of payments pressures do in fact induce import substitution . Because of time constraints, it was not possible to examine the general level of protection in any more than a cursory manner, but the Industrial Promotion Laws and their effects were studied in detail. One of the maior conclusions of this dissertation is that these laws were responsible for the massive effort of import substitution which 85 occurred in the late nineteen-fifties and early nineteen-sixties .21 It might seem that the lack of precise data on the level of protection is a seri- ous methodological weakness. This, however, is not the case for two reasons . First, on a prosaic level, it can fairly be asserted that it is not the intent of this disserta- tion to analyze the separate governmental policies that were critical in inducing import substitution . My basic thesis simply states that strong balance of payments pres- sures will induce some sort of governmental action which will in turn induce import substitution . For Argentina the induced governmental action is easily identifiable as the Industrial Promotion Laws. These laws were complex but basically they provided a combination of a high level of protection,22 special tax incentives and subsidies, and a favorable investment climate . Which of these variables were critical in induc- ing import substitution is an important question but one which goes far beyond the intended scope of this work . Secondly, it is my view that by the nineteen-fifties changes in the level of protection had ceased to be of critical importance as an inducement mechanism for promoting further import substitution in Argentina. When the level of protection is already extreme, further increases are of negligible importance in promoting import replacement. This kind of situation is typical of pre-I955 Argentina; that is, a high degree of protection prevailed long before strong balance of payments pressures were ”It should be noted that a high level of protection was invariably one of the inducements offered to foreign capital by the Industrial Promotion Laws . 22Indeed, a high level of protection already existed before the institution of the Industrial Promotion Laws. 86 first felt. This view is supported by Din Aleiandro, who labelled the entire I940-65 period, one of "extreme protection."23 Similarly, Aldo Ferrer has stated that the I945-55 period was one of "substantial and increasing protection."24 Bela Balassa obtained similar results in an analysis of I958 Argentine tariff levels .25 Typical of these views is the following quote by Di’az Alejandro: During I950 to l95I , imports of goods and services amounted to 9 percent of the gross domestic product. In the same period, the domestic manufacturing and mining sectors, which accounted for 33 percent of the gross domestic product, were given a high degree of protection from foreign competition, either through quantitative restrictions on imports or through nearly prohibitive exchange surcharges and similar devices . The degree of protection was sufficiently high to break the direct links that may have existed among the domestic prices of most of these goods, world prices, and the exchange rate, although the indirect link pro- vided by imported intermediate products and raw materials remained .26 Accordingly, an examination of changes in the level of protection was felt to be unnecessary. By and large, post-I955 import substitution did not result from changes in the degree of protection but rather from the Industrial Promotion Laws . 23Carlos F . Di’az Alejandro, "The Argentine Tariff, I906-I940, " Center Paper No. I24 (New Haven, Conn.: Economic Growth Center, Yale University, I968), p. 90 and p. 98. 24Aldo Ferrer and E.L. Wheelwright, Industrialization in Argentina and Aus- tralia: A Comparative Study, Center of Economic Research,7§iTella InstituteTBuenos Aires: DiTella Institute, I966), 7.6. 25Bela Balassa, "Integration and Resource Allocation in Latin America," a paper presented to the Seminar on Strategy for the Foreign Sector and Economic De- velopment, Buenos Aires, September 7 to September I0, I966 (Buenos Aires: Center of Economic Research, DiTella Institute, I966). 26Carlos F. Di’az Aleiandro, Exchange-Rate Devaluation in a Semi-Indus- trialized Country (Cambridge, Mass.: lhe M.I.T. Pfess, I965), p. 45. CHAPTER IV THE ANALYSIS I begin by defining years of s_t_r_o_n_g_ and weak balance of payments pressures according to the two methods described previously. Table I gives the gross and net reservesI of gold and foreign exchange for the period I945-I963. It demonstrates the well-known decline in reserves that occurred after I946. In Table 2, l have compared net reserves of foreign exchange with annual imports and have computed the first vari- able as a percentage of the latter for each year in the period . Note that although net reserves fell precipitously in the period I946-50, the coefficient (net reserves as a percentage of imports) remained well above the 25 percent level; not until I95I-52 and again in I955-63, did the coefficient "dip" below the 25 percent plateau . Thus, using this measure alone, the years I95I-52 and I955-63 would be classified as years of strong pressure. As previously explained, however, two methods are to be used in defining pressure years . By the second method, a strong pressure IGross reserves are defined as the sum of gold, foreign exchange, and assets convertible into foreign exchange . Assets convertible into foreign exchange include Treasury credits from the United States and the United Kingdom, loans from the Inter- national Bank for Reconstruction and Development, time deposits and bank acceptances. Net reserves are defined as gross reserves minus claims on foreign exchange . Claims on foreign exchange include short and medium term credits, stabilization loans from the International Monetary Fund, consolidated debts, and bilateral agreements. My thanks to Percy D. Warner for this explanation . 87 Ye: IE I94 I94 I94 I94 I95 I95 I95 I95 I95- I95. I95. I95: I95 I95 I961 I96 I96: I96 COIL mlm Sour 88 TAB LE I GROSS 8: NET RESERVES OF GOLD 8. FOREIGN EXCHANGE I945-63 Gn millions? dollars) Gross reserves Assets con- Net reserves of gold and fore- Foreign vertible in Claims on of gold 8: Year ign exchangeI Gold Exchange foreign foreign foreign (at year end) exchange exchange exchange (I) (2) (3) (4) (5) (6) " I945 I,639.2 I,I9I.8 447.4 -- 73.9 I,6I5.3 I946 I,733.4 I,090.3 643.I -- 46.8 I,686.6 I947 I,I75.9 337.9 838.0 -- I2.8 I,I63.I I948 772 .3 I42 .6 629.7 -- 98.7 673.6 I949 664.6 2I0.3 454.3 -- ”0.7 523.9 I950 843.2 2I0.3 632.9 -- I52.7 690.5 I95I 707.6 266 .7 440.9 -- 350.6 357 .0 I952 608 .0 286 .7 32I .3 -- 423 .8 I84 .2 I953 633.4 37I .5 26I .9 -- 256.3 377.I I954 654 .3 37I .5 282 .8 -- 283 .4 370 .9 I955 509.2 37I .5 I37.7 -- 390.2 ”9.0 I956 433 .6 224.I 209.5 -- 334.I 99.5 I957 333 .2 I25 .7 207.5 -- 298.4 34.8 I958 I79.I 59.5 ”9.6 -- 358.5 -I79.4 I959 396.5 56 .I 334.I 6.3 392 .2 4.3 I960 702 .9 I03 .5 I94 .2 405 .2 480 .0 222 .9 I96I 50I .9 I89.6 MI .3 WI .0 397.5 I04.4 I962 I95 .8 60.6 94.2 4I .0 360.I -I64.3 I963 326.9 77.6 I09.2 I40.I 3I4.I I2.8 IColumn I (gross reserves of gold and foreign exhange) is equal to the sum of columns 2, 3 and 4. 2Column 6 (net reserves of gold and foreign exchange) is equal to column I minus column 5 . Sources: I I945- 58, Banco Central de la Republica Argentina, Memoria Anual: I958 (Buenos Aires, I959), p. 5. I959-63, Banco Central de la Republica Argentina, Memoria Anual: I963 (Buenos Aires,I964), p. 55. This data may also be found In Argentina Economica y Financiera (Buenos Aires: Oficina de Estudios para la CoraboraCIon Econcfmica Internacional, I966), p. 30I . 89 TAB LE 2 NET SUPPLY OF GOLD AND FOREIGN EXCHANGE AS A PERCENTAGE OF IMPORTS, I945-63 NefSuppTy of Gold and Foreign Exchange Imports Gold and Foreign (at year end) (in millions of Exchange as a Year (in millions of dollars) dollars Percentage of Imports I945 I,6I5.3 294.9 548% I946 I ,686 .6 588 . I 287 I947 I,I63.I I,340.5 87 I948 673 .6 I ,56I .5 43 I949 523.9 I, I79.6 44 I950 690 .5 964 .2 72 I95I 357.0 I,480.2 24.I I952 I84.2 I,I79.3 I6 I953 377 .I 795 .I 47 I954 370 . 9 979 .0 38 I955 II9.0 I,I72.6 I0 I956 99.5 I, I27.6 9 I957 34.8 I,3I0.4 3 I958 -I79.4 I,232.6 -I5 I959 4.3 993.0 0.4 I960 222 .9 I,249.3 I8 I96I I04.4 I,460.4 7 I962 -I64.3 I,356.5 -I2 I963 I2 .8 980.7 I / Source: Foreign Exchange, see Table I. For imports, Direccion Nacional de Esta- distica y Censos de la Republica Argentina, Comercio Exterior, I95I-63 (Buenos Aires: I955-64). 90 year is defined as one in which any deficit occurring in the current account is not maintainable . These data are summarized in Table 3. Note that the deficit was not maintainable in I952, I955-58, and I96I-62. Unlike the previous method, I95I is not defined as a year of strong pressures .2 Because the two measures did not agree, I95I was n_o_t_ classified as a year of strong pressures . For similar reasons, neither did I classify I959-60 as years of strong pressure .3 Without doubt, I952 was a year of strong pressures--net foreign exchange reserves fell to I6 percent of annual imports and the deficit in the current account was not maintainable. Nevertheless, it can be argued that I952 was not the type of "pressure year" which would tend to induce import substitution . The balance of pay- ments pressures in this year were primarily the result of a 5I percent decline in export earnings which in turn was the result of one of the worst droughts in Argentine history . Such a decline in export earnings is not indicative of structural weaknesses in the capacity to import but rather is a stochastic variation occurring as a result of adverse and unusual climatic factors . Such a pressure would probably not induce import 2It is interesting to note that using the first method, I95I "barely qualified" as a strong pressure year. The coefficient, net reserves to imports was 24.I percent, only slightly below the 25 percent level. 3Obviously, the reiection of I959-60 as years of strong pressure is open to more criticism than is the rejection of I95I . During I959, net reserves were down to $4.3 million, less than I percent of annual imports, and although the current account was positive, it was so by only $I5 .2 million. In a like manner, I960 was a year of heavy pressures . Although net reserves had increased to $222.9 million, or I8 percent of the annual import level, they were still well under the 25 percent level . Moreover, the negative current account balance of -$I97.3 million was large and only "barely" maintainable. Nevertheless, from an ex post View it seems clear that no harm is done by rejecting these years; for, by the end of I958, the Argentine authorities had al- ready taken the necessary legislative steps toward transforming the Argentine economy and relieving the balance of payments pressures . 9I TABLE 3 CURRENT ACCOUNT BALANCE AND THE NET SUPPLY OF GOLD AND FOREIGN EXCHANGE, I945-63 (in millions of doIIars) Current Accounts Net Supply of Gold Year Balance 'and Foreign Exchange I945 368.4 I,6I5.3 I946 425.I I,686.6 I947 -29.2 I,I63.I I948 54.3 673.6 I949 -I38.0 523.9 I950 II2.2 690.5 I95I -324.2 357.0 I952 -445.0 I84.2 I953 335.6 377.I I954 60.I 370.9 I955 -238.8 II9.0 I956 -I29.I 99.5 I957 -300.5 34.8 I958 -256.0 -I79.4 I959 I5.2 4.3 I960 -I97.3 ' 222.9 I96I -572.0 l04.4 I962 -268.0 -I64.3 I963 234.0 I2.8 Sources. For Net Supply of Gold and Foreign Exchange, see Table I, Current Ac- count Balance, Argentina Economica y Financiera, op. cit. ., pp. 298-99. 92 substitution . Entrepreneurs would tend to view any cessation of imports as being short-term in nature (lasting only until more favorable climatic factors reestablish traditional agricultural output levels) and therefore not a sufficient basis for entre- preneurial effort. Thus I do not classify I952 as a year of strong pressures; instead the period I955-58 is classified as such (because of production data limitations the period I96I-62 is not examined). Therefore, if the Hirschman substitution method is correct, one would expect to find a significant amount of import substitution begun during the period, although perhaps not to come to fruition until three or four years later.4 Using the O.E.C.E.I. study as a source, I examined those industries (or prod- ucts) listed in the study whose import coefficients were 20 percent or more, in I955 or thereafter. This yielded a sample of twenty-nine products: I) asbestos, 2) antimony, 3) newsprint, 4) electric meters, 5) yerba mate, 6) diesel oil, 7) kerosene, 8) sulfur, 9) acetic acid, I0) bismuth, II) hops, I2) edible oils, I3) graphite, I4) wood paste (for he fabrication of paper and cellulose), I5) cigarette paper, I6) cellophane, I7) workpaper and writing paper, I8) cast iron, I9) steel ingots, 20) laminated steel, 2I) crude petroleum, 22) fuel oil, 23) gas oil, 24) airplane fuel, 25) oil lubricants, 26) automobiles, 27) trucks, 28) tractors, and 29) combustible mineral solids . The relevant data for each of these products are presented in Tables I through 29 in the Appendix . Between I955 and I96I , all of the above products, except the first seven, 4For a review of my measure of import substitution, see pages 76 and 77 , Chapter III. 93 experienced a decline in their import coefficients . (The seven products whose import coefficients increased, accounted for 3.30 percent of total I956 imports in dollars.)5 The change in the import coefficient of each of these products between I945 and I96I, is shown in Figure I. Since these products experienced no import substitution between I955 and I96I , when strong balance of payments pressures were present, they are not discussed further. The remaining twenty-two products did experience import substitution between I955 and I96I . These twenty-two products whose import coefficients decreased ac- counted for 48.0I percent of I956 imports in dollars . Moreover of the twenty-two products experiencing substitution, fourteen experienced_n_e_t_ import substitution (i .e ., not only did the import coefficient decline, but the absolute volume of imports declined as well). These products included crude petroleum, fuel oil, oil lubricants, combust- ible mineral solids, cast iron, hops, edible oils, graphite, bismuth, cigarette paper, workpaper and writing paper, tractors, automobiles, and trucks . In order to analyze better this process of import substitution, I divided the twenty-two substituted products into six groups . Group I, I have labeled, for want of a better name, the "easy to substitute products, ” all of which could have been developed without foreign capital. This group includes sulfur, acetic acid, bismuth, hops,edible oils, and graphite . Groups II-Vl encompass the remaining sixteen products, whose substitution necessitated foreign capital . Group II, Paper Products, 5Actually, the figure must be somewhat higher than 3.30 percent. Since I was unable to find a comparable listing for asbestos in the Comercio Exterior, the above figure excludes the amounts spent on asbestos import; f 94 s e; .o .m Jim .N 4 $33 .5282 8m "853 zozacmmam Eons. ozazmaumxm Bz $252... _ w m D 0 _ u am. . 3.... . s... . 3.; . a... . a... . e... . e... . e... «93> osmmoin .\.IVl/XIMHWJ/ .\\I!/I.I.I .. . \ .. . .\I. . .\ \ \Vf/\\th..qfllolol\ .\.. .5 335.. . {.\.. ..,..vA!!I..I. . a $322 6586 x .. III 832 383‘. w mammocmxil. . 3 . 3 r . a. 2:3sz III .\..Uu/ . mommaSWItnl .IIu.r....v.....l..IltlI....r\.. rex...— >coEZc< atoms. 2...... casuaooi ozmoEoo Co 32:35.; a mm 359:. 95 includes wood paste, cigarette paper, cellophane, and workpaper and writing paper. Group III, Steel and Iron Products, is composed of cast iron, steel ingots, and lam- inated steel. Group IV, Petroleum and Petroleum Products, includes crude petroleum, fuel oil, gas oil, airplane fuel, and lubricants . Group V, Automotive Products, in- cludes automobiles and trucks . Group VI, is a residual category composed of tractors and combustible mineral solids . The change in the import coefficient of each of these products between I945 and I96I is shown in Figures 2 through 7. Note particularly the decline in the import coefficients after I955 when strong balance of payments pressures first were felt in Argentina . It seems clear that the successful import sub- stitution of these products was closely related in-point-of-time to these strong balance of payments pressures, thus tending to confirm Hirschman's hypothesis. The relation- ship between severe balance of payments pressures and import substitution is further summarized in Table 4. Here substitution coefficients were computed for each of the sample products for the period I955-6I , a period in which strong balance of payments pressures generally were operative and a period in which import substitution should have occurred if Hirschman's hypothesis is valid. Note that twenty-two of the twenty-nine sample products experienced positive import substitution . Significantly, fifteen products had substitution coefficients of over I00 percent, indicative of net import substitution . Two more products, cellophane and airplane fuel, had substitu- tion coefficients of 99 percent, indicating that they very nearly experienced net im- port substitution . Here again the data support Hirschman's hypothesis . The magnitude of this import substitution effort is revealed by Table 5 . Here I have presented the import cost of these twenty-two products, as a percentage of total .mH new. .3 .2 .2 .m .m $.an mPQDQOmm whabzbmam O... >m>\ new .5338? Emma 303.... s... .2 new .3 .3 .3 $33 .5232 8m .858 whoaoomm mun—(a n__ macaw m maze...— e}. a... . s... . 2.2 . c... . e... -IIIII--I- .e Ezra“. mid :ozoapoi ozmmEoQ Co mmmucmocmd m mm 259:. .om new 9 .9 $33 .5332 wow "mozzom ”roan—01m ZOE oz< .595 "_= cacao v 550.... Bra: 3.2. . 5.: . 3.2. . 3.2 . 5.: . 3.2 . S2 . 3.2 r m. mm> 233.1 s. :0: ammo .’ I , I .N I ’ I / .\.." \\I0 0 ~~ II 8 swam {”43. .I/ .\.s If... s s. o e. 3 9 3| . II \ ll. 5 Dmumc._EmI_ / .III\L./\ .a ~. I 00 Q , C .. - flame. Beam / \ I .... .. ... so \ x o s\\\ It!!! Q r\\ a\\ I ~ /(\\ l/ .f ll; \.. l // \‘ // III lllll .\s\\\) .- l \I \ / I 359.5 mid sonoauoi 62888 8 $8528 m mm 839:. 99 .3 Es .8 .mm .mm .m 83$ .5282 8m 528m 9.800%. SSSOKE oz< EDMJOmHua H>_ anomo m w «30.... am. . e2. . a... . 5.: . 2.2 . s... . e... . =2 . a... . :o .63“. // {56> 05$th ........... E3225. / . I 255 x / z/ [I I .N I 358.53 Iiir. . t (II .\.A... ,.<...... . 3 . mm .. .......... .5’ . ......... III II _.o o ./ .......\-I...I.... I/n..- -vo/ \ . .63“. 95.92 / Ix / / . . 8 . 8 h.\....— mtoacz mar. c9833.... ozmmEoo .8 mmficmocmn. m mm mtan. 100 .R. 2; mm 838 mkozoomm makes—0:2 H> macaw m wane... £6522 mow 68:8 F: . am; _ s... . £2? a... _ 5.: ram. # 32 2... P 342mm; 23.3th arx , 8.02.: 3.505022 ' a I .022 3:55. min. 5:262; 3388 he $3.528 m mm 359:. .mN Ucm mm 33E. .x_Ucwaa< mom "350w wofiom ._ mDOmo N. manor. 3.2 . an: . 5.2 _ 3:. 3.2 _ 3.2 . 3.2 . E: p E: «33> 2:305: 338; r - a - S m , 8 8:8 I 6552 I .- m_n:m:oEoo// ’\\\o'"."-l”"nl ' . .l {II/1-}, $0.: 389:. m2; :ozuzuoi EmoEoo ho owficoemn. a mm 389:. 102 TABLE 4 SUBSTITUTION COEFFICIENTS FOR SAMPLE PRODUCTS, 1955-61I Period Period Substitution Coefficient 1 Asbestos 1955-6T negative 2 Antimony 1955-61 negative 3 Newsprint 1955-61 negative 4 Electric Meters 1955-61 negative 5 Yerba Mate 1955-60 negative 6 Diesel Oil 1955-61 zero 7 Kerosene 1955-61 negative 8 Sulfur 1956-61 126% 9 Acetic Acid 1957-61 27% 10 Bismuth 1955-61 165% 11 Haps 1955-59 483% 12 Edible Oils 1955-61 306% 13 Graphite 1954-59 3361% 14 Wood Paste 1956-61 60% 15 Cigarette paper 1956~61 321% 16 CeIIOphane 1956-61 99% 17 Workpaper 8: Writing Paper 1956-61 269% 18 Cast Iron 1955-61 163% 19 Steel Ingots 1955-61 54% 20 Laminated Steel 1955-61 26% 21 Crude Petroleum 1955-61 190% 22 Fuel Oil 1955-61 1295% 23 Gas Oil 1955-61 14% 24 Airplane Fuel 1955-61 99% 25 Oil Lubricants 1955-61 310% 26 Automobiles 1955-61 103% 27 Trucks 1955-61 103% 28 Tractors 1955-61 296% 29 Combustible Mineral Solids 1955-61 111% Source: See Appendix, mes 1-29. For certain products substitution coefficients could notbe carculated for the 1955-61 period. Data for paper products were not available for the year 1955; thus sub- stitution coefficients for these products were calculated for the 1956-61 period. Simi- larly, lack of 1961 data for yerba mate necessitated that the substitution coefficient be computed for the 1955-60 period. Hops and graphite did not experience an increase in total supply between 1955-61. Since the substitution coefficient is computed only for periods in which total supply increased, the periods 1955-59 and 1954-59 were used for hops and graphite respectively. In the case of sulfur and acetic acid, 1955 was iudged to be an atypical year in regards to the volume of imports; accordingly, more typical base years were chosen for computing the substitution coefficients for these products. 103 imports (in dollars and pesos) for the period 1955-62 . Table 5 demonstrates the high degree of import substitution experienced by these products; in 1956, they accounted for 48.01 of total dollar imports; however, by 1962 they accounted for only 17.30 percent of total dollar imports .6 It should be noted that part of this apparent decline is specious. Between 1956 and 1962, there was a 20.3 percent increase in total dol- lar imports . If the dollar import values of the twenty-two products had remained con- stant, then this 20.3 percent increase in the denominator of the coefficient which measures the import value of these products, would serve to decrease the value of the coefficient itself to 40.0 percent. As stated above, it actually declined to 17.30 percent, indicating still a startling degree of import substitution in a‘relatively short period of time. In absolute terms, the dollar value of imports of these twenty- m products decreased from $541,305,994 in 1956 to $234,729,708 in 1962.7 The degree of import substitution seems even more remarkable when it is recalled that by 1955, easy import substitution was no longer possible . By and large, any future sub- stitution had to take place in consumer durables and/or basic industries . Both groups required complex and highly technical production processes, and therefore, required 6The relevant figures for 1956 and 1962, in pesos, are 49.14 percent and 16.55 percent, respectively . 7This is not to say that there was an equivalent savings of foreign exchange; in fact, there was not. Many of the domesticated industries initially had very high im- port components, particularly the automobile industry which in its early stages was doing little more than importing parts and assembling them locally . However, it seems likely, at least in the case at the automotive industry, that backward linkages were and are operative which will probably result in foreign exchange savings in the future . 104 TABLE 5 VALUE OF IMPORTS OF VARIOUS PRODUCTS As A PERCENTAGE OF THE TOTAL IMPORTS IN W LLAR D PESOS: PERIOD 1935-37 Name of Product Value 1955 1956 1957 l958 1959 1960 I961 1962 Sulfur Peso .01% .16% .23%.17% .09% .07% .05% .05% Dollar .01 .08 .14 .10 .08 .07 .05 .06 Acetic Acid Peso .01 .01 .03 .02 .02 .03 .04 .01 Dollar .01 .01 .04 .03 .02 .03 .04 .02 Bismuth Peso .02 .01 .01.01 .02 .01 .01 .01 Dollar .02 .01 .01.01 .01 .01 .01 .01 Hops Peso .07 .07 .09 .14 .I4 .02 .01 .01 Dollar .07 .06 .06 .10 -13 .02 .01 .02 EdibleOils Peso .90 2.19 -- -- -- — -- -- Dollar .911.97 -- -- -- -- -- -- Graphite Peso .02 .01 .01 .01 .01 .01 .01 .01 Dollar .02 .02 .01 .01 .01 .01 .01 .01 Wood paste for fabrication Peso 2.72 1.77 1.29 1.76 1.49 .86 1.27 .92 of paper 8. cellulose Dollar 2.75 1.77 1.67 1.51 1.33 .86 1.27 .95 Cigarette Paper Peso .05 .01 .02 .01 -- .01 .01 .01 Dollar .05 .01 .02 .01 -- .01 .01 .01 Cellophane Peso .01 .01 .02 .12 .02 .01 .01 .01 Dollar .01 .01 .01 .07 .02 .01 .01 .01 Workpaper 8. Peso 1 .00 .47 .31 .22 .18 . 11 .32 .22 Writing Paper Dollar .83 .52 .38 .15 .16 .11 .32 .22 Cast Iron Peso .98 .31 1.05 .72 .92 .87 .58 .07 Dollar .99 .41 1.36 .94 .95 .86 .58 .08 Steel lngots Peso 4.88 3.35 3.19 3.45 4.60 3.30 4.47 1.4 Dollar 4.95 4.80 4.23 5.02 4.50 3.29 4.47 1.8 Laminated Steel Peso 8.71 7.56 6.2410.48 9.29 8.32 8.75 6.53 Dollar 8.81 9 13 7.3911.04 9.43 8.31 8.75 6.84 105 TABLE 5 (cont'd) Name of Product Value 1955 1956 1957 1958 1959 1960 1961 1962 Crude Petroleum Peso 5.02% 8.69%10.10%7.96%1 1 .54%5.81%2.85%1 .80% Dollar 7.63 9.06 13.2312.32 11.43 5.80 2.85 1.75 Fuel Oil Peso 2.72 6.67 3.90 1.44 2.61 .53 .01 -- Dollar 4.13 6.40 5.11 2.25 2.71 53 .0I -- Gas Oil Peso .74 1.07 1.02 .58 1.28 1.24 1.401.56 Dollar 1.12 1.11 1.34 .90 1.311.23 1.401.57 Airplane Fuel Peso .22 .30 .17 .19 .29 .21 .18 .18 Dollar .25 .29 .22 .29 .27 .21 .18 .20 Lubrication Oils Peso .34 .78 .26 .29 .32 .40 .29 .76 Dollar .35 .78 .34 .46 .40 .40 .29 .72 Automobiles Peso 1.68 2.76 2.28 3.15 .91 .44 .40 .33 Dollar .91 1.31 1.34 1.78 .86 .43 .40 .34 Trucks Peso 1.06 8.33 13.80 1.22 .02 3.43 .81 1.60 Dollar .58 3.96 8.10 .86 .02 3.43 .81 1.71 Tractors Peso 2.96 1.31 .54 .58 .05 .29 .48 .22 Dollar 3.00 2.80 1.09 1.49 .10 .29 .47 .22 Combustible Mineral Peso 1.89 3.29 2.12 186 2.42 2.04 1.47 .79 Solids Dollar 2.85 3.51 2.77 2.93 2.67 2.03 1.47 .74 TOTAL1 Peso 36.01 49.14 46.67 34.34 36.20 27.96 23.3816.55 Dollar 40.23 48.01 48.87 42.23 36.41 27.90 23.3817.30 ]Details in this table will not necessarily add to totals because of rounding . z I I Source: My computations, Direccion Nacional de Estadistica y Censos de la Repub- lica Argentina, Comercio Exterior, 1955-62 (Buenos Aires: 1958-63). 106 large amounts of capital and "know-how ." Thus, as a first approximation, Hirsch- man's mechanism seems to work; i.e ., balance of payments tend to induce import substitution . There is, nevertheless, a curious facet to this spurt of import substitution . In Table 5, it can be seen that little import substitution occurred from 1955 to 1958; in fact, as far as total figures are concerned, negative import substitution occurred . Not only did the import value of the twenty-two products as a percentage of total dollar imports increase from 40.23 percent in 1955 to 42 .23 percent in 1958, but the abso- lute level increased as well, from $471,723,914 in 1955 to $520,650,715 in 1958; thus, apparently the entire process of substitution was concentrated in the period 1959-62. This indeed seems strange . One would think that in the period 1955-58, during which balance of payments pressures were progressively more severe, positive import substitution would have occurred . Several explanations of this phenomenon immediately suggest themselves . It is possible that my methodological approach is wrong and that l have not accurately definedm pressure years . A second explan- ation is that entrepreneurs were exceedingly timid during the 1955-58 period of "care- taker" governments and were waiting to see the attitude of the new government toward private enterprise, in general, and venture capital, in particular, before attempting expansion or new business ventures . Still another explanation is that import substi- tution wgsbegun in this period (that is, initial investments were made during the period 1955-58) but did not reach the "pay-of " stage until later, 1959-62 . All of the above explanations, except possibly the first, have some degree of validity . It is my belief, however, that they offer only a partial and limited explanation 107 as to why import substitution was delayed until 1959-62 . The preponderant reason seems to have been the character of the Argentine economy itself, as it existed in the late nineteen-fifties. By and large, by 1955, any additional substitution had to occur in industries which required large capital investments, and apparently domestic production in these fields was not feasible without foreign participation . Below I examine this import substitution process, analyzing the six categories listed previously. GROUP 1: THE EASY TO SUBSTITUTE PRODUCTS The 1955 import cost of Group 1 products, excluding edible oils, was $1,476,687. If a 3.37 capital-output ratio is assumed8 for these products, it follows that $4,976,435 was necessary in new capital investment in order to domesticate the production of these products . Now, as a limiting case, assume that all such capital goods had to be imported from abroad. Then it follows that $4.98 million in foreign exchange was necessary to finance these imports . This amount represents just .42 percent of total 1955 imports and it seems likely that such a small amount could al- ways be obtained by a slight decrease in the other components of the import bundle and that foreign investment would, therefore, not be necessary for substitution to take place. lndeed, even the small amount estimated above seems unduly high . First, it is probably unrealistic to assume that all machinery, etc., had to be pur- chased abroad. Secondly, the capital-output used is probably too high: the 1955 I 8The capital-output ratio data are taken fro’m Naciones Unidas, Conseio Economica y Social, Comision Economica para America Latina, El Desarrollo Econ- omico de la Argentina: Anexo (Santiago de Chile, 1958). 108 sectoral capital-output ratios for agricultural and industry were 3.05 and l .80, re- spectively. In any event, it seems clear that foreign participation was not necessary for the domestication of these products . Edible oils constituted a much larger proportion of total 1955 imports . 1n absolute terms, $10,693,940 was spent, in 1955, for edible oil imports . Assuming a capital-output ratio of 3.37, it is calculated that slightly more than $36 million in foreign exchange would have been necessary to finance new capital imports for this industry (assuming that all such capital goods had to be imported). This represents 3.07 percent of total 1955 imports and obviously, this amount would be more diffi- cult to "squeeze out" of the import bundle than was true in the previous example. Here again, it can be argued that this figure overstates the foreign exchange needed to domesticate the industry. If a capital-output ratio of 1.89 is used in the calcula- tions, then the necessary foreign exchange is reduced to $19.25 million, or 1 .64 per- cent of 1955 imports . Also the assumption that all capital-goods had to be imported can be attacked . The best case for the "easy to substitute" assertion, however, lies in the fact that the edible oils "industry" was already firmly established in Argentina, and that very likely, there was excess capacity. Table 14 in the Appendix demon- strates this point. Note that 1955 and 1956 were years of unusually high imports and that even in these years, domestic firms provided 75-80 percent of domestic needs . Moreover, note that in 1950, domestic production very nearly equalled the domestic consumption in 1955 . In brief, it seems reasonable to assume, therefore, that there 9Ibid. 109 was sufficient productive capacity and potential in Argentina in 1955, and that the need for new capacity expansion was not pressing and that neither was the need for L10 foreign capita GROUP 11: PAPER PRODUCTS In 1955, the products in this group accounted for 3.36 percent of total imports. Of the total amount Spent, $42.56 million, over three-fourths, or $32.27 million, was accounted for by the importation of one product, wood paste (i .e ., wood pulp). Two of the four products, cellophane and cigarette paper, were almost completely substi- tuted by 1961 . Whereas in 1955, $618,792 was spent on the importation of these products, by 1962 only $55,757 was so spent. While this savings of foreign exchange was certainly welcome, the amounts involved were not of sufficient size to have much impact on the Argentine economy or balance of payments . The substitution perform- ance of wood pulp and workpaper and writing paper was far more impressive in terms of foreign exchange savings but less so in terms of remaining substitution potential. The absolute amounts spent on the importation of these products decreased from $41.94 million in 1955 to $15.81 million in 1962. Between 1955 and 1961, domestic produc- tion of wood pulp and workpaper and writing paper increased by 48 percent and 6 '01 am not arguing here that foreign capital did not participate in the domes- tication of these products; it is possible that it did . What I am saying is that these products could have been substituted without foreign participation . I was unable to uncover eVIdence that the development of these products was left to foreign enter- prises . This, however, does not mean that foreign venture capital did not aid in the substitution of these products; it simply means, in all probability, that the importance of these products was so small, that such figures did not show up in the typically highly aggregated Argentine data . 110 percent, respectively. By 1961, the import coefficients were a high 61 percent for the former product and 24 percent for the latter . It is interesting to note that the bulk of the substitution of these two products that occurred between 1955-61 was attained without the benefit of foreign capital . Foreign capital, in the paper industry, was not even authorized until 1959 and cer- tainly did not reach the "pay-of " stage until at least 1960. Nevertheless, between 1956 and 1959 (before foreign capital entered) the firms producing wood pulp increased their output by 43 percent; between 1959 and 1961, output increased by only a little over 3 percent. The same relationship holds true for workpaper and writing paper. Between 1956 and 1958, domestic output increased 5 percent; between 1958 and 1961 it grew by less than .5 percent. What these data suggest is that the Hirschman hypo- thesis does seem to operate even within the confines of the constraints peculiar to the Argentine economy . Nevertheless, the further domestication of the paper industry re- quired foreign investment and special tax concession programs for local industrialists . The government legislated this program specifically to realize foreign exchange sav- ings .11 Foreign investment authorizations were begun in 1959 and by 1963 had reached $3.9 million (see Table 7 in Chapter II). The tax concession program for local businessmen was instituted in late 1961 .12 These programs were, by and large, successful in stimulating the expansion of the wood pulp industry: output increased HPan American Union, General Secretariat of the Organization of American States, Economic Survey of Latin America, 1962 (Baltimore, The Johns Hopkins Press, 1964), p.154. lzlbid. 111 rapidly from 89,215 tons in 1961 to 99,289 tons in 1963 and 133,684 in 1965.13 It 14 Although the capi- is estimated that by 1966, production exceeded 140,000 tons . tal cost of this expansion is not known (or at least, not readily available), a reason- able estimate of its magnitude may be made . A recent study by the United Nations' Economic Commission for Latin America (ECLA) estimates that the minimal capital needed to produce a ton of paper pulp is $257.13.]5 Assuming a 50,000 ton increase in production between 1961 and 1966, it follows that the necessary investment to achieve this expansion (assuming that the industry was already operating at or near 16 Although data are lacking, it seems capacity) was approximately $12,856,500. reasonable to assume that foreign capital was necessary to finance the import compon- ent of this investment. The role of foreign investment in the pulp and paper industry, however, should certainly not be overemphasized .17 The paper industry is relatively atomistic, with ninety-four producers of cardboard and paper and twenty-seven of 13Argentina Econo’mica y Finmciera (Buenos Aires: Oficina de Estudios para la Colaboraa’on Econo’mica Internacional, W66), p. 197. 14 p. 41. ”United Nations, Economic Commission for Latin America, Economic Survey of Latin America, 1965 (New York, 1967), pp. 336-37. "The Paper Industry, " Comments on Argentine Trade, December, 1966, 6If less efficient plants are used, ECLA estimates that the capital cost per ton would be $383.76. If this figure is used in the above calculations, the total capital cost increases to $19,238,000. I7United States firms represent slightly over 50 percent of the dollar value of foreign investment in Argentina . Since data for other countries were not readily available, 1 use only United States investment figures and generalize from them. 112 cellulose and wood pulp, and the number of U.S . firms is not large . In fact, the United States Chamber of Commerce in Argentina lists only five U.S. paper firms in Argentina.‘8 In conclusion, it should be noted that the pulp and paper industry is not one of the more important ones in Argentina, with an annual employment of iust twelve thousand .19 GROUP III: STEEL AND IRON PRODUCTS20 The products in this group represent one of the more successful examples of government import substitution policy in the recent history of Argentine industrial development. Between 1955 and 1962, the amount expended on the importation of these products declined from $172.9 million to $119 million. This performance is even more impressive when it is realized that during the same period the automobile industry was established, a factor which greatly increased the demand for iron and steel. The individual performances of these three products (see Tables 18, 19 and 20 in the Appen- dix) are discussed below . Cast iron showed the most rapid and the most complete substitution of the three products . From 1955 to 1961, the import component of total domestic consumption fell from 85 percent to 14 percent, and between 1955 and 1962, dollar imports fell from 18IIThe Paper IDdLlSi'ry," 0P- 5110! PP' 39-41' '9Ibid., p. 41. 20The products in this group comprise the entire output of the Argentine steel and iron industry . These data are highly aggregatea and there are, in fact, far more than iust the three products, as Tables 18, 19 and 20 in the Appendix would suggest. The "product" laminated steel actually consists of twenty-two sub-products . Ccst iron consists of three sub-products . 113 $11.6 million to $1.07 million. It is interesting to note that no substitution occurred until 1960 (see Table 18 in the Appendix). The increase in domestic output between 1959 and 1961, however, was more than tenfold. This amazing rate of expansion continued in the early nineteen-sixties, and by 1965 domestic output was at an annual rate of 1,368,000 tons,21 a truly amazing increase over the 1959 rate of 32,000 tons. The source of this growth was neither domestic nor foreign private capital but rather was entirely the result of new state-owned enterprises .22 At first blush, this fact would seem to refute one of the basic themes of this dissertation, the need for foreign investment as a growth source in Argentina . In fact, it does not. It is true that the government was able to establish,23 without foreignw capital, 0 vig- orous and viable iron and steel industry . Foreign government loans, however, played a vital role in the establishment of this industry. As explained previously, in late 1958, the Argentine government instituted a Stabilization Plan under the auspices of the International Monetary Fund. As part of this program Argentina received $329 million (an amount equal to one-third of the than annual export earnings) in foreign I IArgentina Economica y Financiera, op. cit., p. 212. 22State-owned entities account for 192 percent of cast iron production . Source, "The Metal Industry, " Comments on Argentine Trad—e, December, 1966,p.31. 23Actually, the industry was established before 1960. Local production began as early as 1896, but was of a very small scale until 1947, when the government cre- ated "Sociedad Mixta Siderurgia Argentina " (SOMISA), a state-owned enterprise for the production of all three products included in this group: pig iron, rolled steel, and steel ingots. This entity was completely reorganized in early 1961, old plants were modernized and integrated, and new plants were established. Source, Argentina Economica y Financiera, op. cit., pp. 210-12. 114 loans .24 These reserves, doubtlessly, were significant in allowing the government to finance the import component of the to-be-expanded iron and steel industry . The recent expansion of laminated (i .e., rolled) steel output is also impres- sive. Between 1955 and 1961, domestic output increased some 38 percent (see Table 20 in the Appendix). This trend continued thereafter, and by 1965, domestic produc- tion was 1,543,000 tons,25 an increase of 134 percent over the 1955 level . This in- crease in domestic production caused the import coefficient to decline from 50 percent and 47 percent in 1955 and 1961, respectively, to only 27 percent in 1965 .26 Here again the Argentine government played an important role in the development of this industry, and at the present time state-owned enterprises account for 33 percent of the annual production of rolled steel .27 Steel ingot production shows much the same pattern as occurred with rolled steel and cast iron. Between 1955 and 1961, domestic output more than doubled (see Table 19 in the Appendix). By 1965, domestic production was 1,368,00028 an increase 24The sources of these loans were as follows. "The International Monetary Fund, the leading external influence behind the stabilization plan, provided $75 million; the United States Treasury pledged to purchase pesos for dollars up to $50 million; the Export-Import Bank provided $125 million, and the United States Development Loan Fund lent $25 million. Ten private, United States banks and one Canadian bank lent $54 mill ion." Source: Carlos F. Diaz Aleiandro, Exchange-Rate Devaluation in a Semi-Industrialized Country, op. cit., p. 148. , . 25Argentina Economica y Financiera, op. cit., p. 213. 26Ibid. 27"The Metal Industry," op. cit°l P- 31- I _ 8Argentina Economica y Financiera, op. cit., p. 212. 115 of 518 percent over the 1955 level. Nevertheless, because of the large increase in the demand for steel, the import component of steel ingot consumption fell only mod- estly, from 74 percent and 62 percent in 1955 and 1961, respectively, to 50 percent in 1965 .29 As with the other two products in this group, state-owned enterprises were important, accounting for 57 percent of all crude steel domestically produced .30 Above 1 have described the importance of foreign loans in allowing the Argen- tine government to finance the imports needed for the expansion of the iron and steel industry . It should be noted that directm foreign investment also played a role in this expansion . Although disaggregated data are not readily available, it is known that, during the period 1958-63, the Argentine government authorized foreign invest- ment of $94.9 million for the metallurgical industries (see Table 7 in Chapter 11). GROUP IV: PETROLEUM AND PETROLEUM PRODUCTS The large amount of foreign exchange expended for the importation of petro- leum products in the nineteen-fifties, made this industry a prime candidate for import substitution. The five petroleum products in this group (see Tables 21, 22, 23, 24, and 25 in the Appendix) alone had a 1957 import cost of $265,378,685 (a little over 20 percent of total 1957 imports). Because of this drain on foreign exchange, one of the first acts of the Frondizi administration was to sign contracts with foreign enter- prises for the exploration and extraction of petroleum . During the period 1958-63, 29lbid. 30"The Metal Industry,'I Op. cit., P- 31- 116 the Argentine government authorized $348 million in foreign petroleum investment, and 31 it is estimated that 70 percent of this amount was actually invested. The immediate impact of this investment may be seen in Table 21 in the Appendix. Domestic crude petroleum production increased 150 percent between 1958 and 1961, and by 1962, it had reached an annual rate of 15,542,000 cubic meters .32 The net result of all this was a significant increase in foreign exchange savings and a sharp decline in the import coefficient. Whereas in 1957 crude petroleum imports were $173,427,281, by 1962 such imports amounted to only $23,800,034.33 In a like manner, the import coefficient declined from 57 percent in 1958 to 14 percent and 5.5 percent in 1961 and 1963,respectively. Unfortunately, in November of 1963, the new Argentine President, Arturo Illia (inaugurated in October, 1963), fulfilled his campaign prom- ise and cancelled the foreign oil contracts. Although foreign countries continued to operate, pending court settlement, further expansion plans were quickly scuttled and domestic output stagnated. By 1965 the annual production of crude petroleum was 15,408,921 cubic meters, down slightly from the 1962 level of 15,542,103 cubic meters .34 During the same period (1962-65) the economy's consumption of petroleum increased by a little over 16 percent. This, combined with domestic output stagnation, 31"Petroleum, Energy and TranSport, " Comments on Argentine Trade, Decem- ber, 1966, p. 29. 32 ’ Argentina Economica y Financiera, op. cit., p. 203. 33For Group IV Products as a whole--imports declined from $265 ,378,685 in 1957 to only $57,635,625 in 1962 . The former figure represents 20.3 percent of total 1957 imports and the later figure, 4.3 percent of total 1962 imports. I . 34Argentina Economica y Financiera, op. cit., p. 203. 117 necessitated a sharp increase in petroleum imports and by 1965, Argentina was import- ing 4,086,075 cubic meters of crude petroleum, or 21 percent of total domestic con- sumption.35 Obviously, the cancelling of the foreign oil contracts has cost the country much in foreign exchange36 and is indicative of the strong anti-foreign- investment sentiment in Argentina. Fortunately, the still newer Argentine President, Juan Carlos Ongania (inaugurated June 28, 1966), in 1967 expressed interest in re- negotiating the oil contracts with foreign firms .37 Economically, this would appear to make excellent sense, saving the country large amounts of foreign exchange which could better be used elsewhere . GROUP V: AUTOMOBILES AND TRUCKS The rationale for the domestication of the automotive industry was the same as that given for the domestication of the steel and petroleum industries: such indus- tries were viewed as necessary components of a strong industrial base and, domestica- tion offered the promise of significant foreign exchange savings . In the case of the automotive industry, however, still another factor was operative and that was the 35IbId. 36The Illia regime was costly in other respects as well . In the presidential cam- paign Illia made two key promises: the annulment of the foreign oil contracts and the severing of all ties with the International Monetary Fund and the World Bank . Both of these promises he immediately kept, the result of which was to curtail drastically Ar- gentine external financing. For example, during the period 1960-62 (i.e., before III ia), net external financing averaged $393.3 million per year; during the period 1963-65 (i .e., after Ill ia assumed office), net external financing averaged -$107.7 million annually. Source: Economic Survey of Latin America, 1965, op. cit., p. 12. "Petroleum Policy: Back to Sanity," The Review of the River Plate, Janu- ary 21, 1967, p. 59. 118 horrendous condition and relatively small number of vehicles operating in Argentina. In 1959, Argentina enioyed the dubious distinction of being the only country in the world to have had more vehicles per inhabitant in 1929 than it did in 1959. An ECLA study revealed that in 1939, there were twenl'Y'three vehicles for every thou- sand inhabitants while the average age of each vehicle was seven years . By 1959, the situation had so deteriorated that there were only nineteen vehicles per one thousand inhabitants, with the average age of each vehicle now being twenty years .38 Clearly something had to be done . Therefore, the Frondizi administration opted to 39 Thus, during the use private foreign investment in order to expand the industry. period 1959-63, foreign investment authorizations for the industry totalled $104 mil- lion. By1965, the total investment, including "plowed-back profits," was $500 mil- lion .40 As a result, the number of firms increased from four to twenty-two and, domestic production increased rapidly and by significant amounts . All together, the number of automotive vehicles (i .e ., trucks and cars) domestically produced increased from 27,834 in 1958 to 136,184 units in 1961 (see Tables 26 and 27 in the Appendix). After 1961 this trend continued and by 1965, domestic production was 196,754 units .41 38Buenos Aires Herald, May 23, 1967: P- 4- 39The Argentine automotive industry was first established in Argentina in 1950. Nevertheless,until the entry of foreign firms in 1959, the quantities produced were far short of the needs of the Argentine economy . This small scale of production, before 1959, is shown in Tables 26 and 27 in the Appendix . 40Buenos Aires Herald, op. cit., p. 2. I 4IArgentina Economica y Financiera, op. cit., p. 216. 119 As a result of this expansion, the import cost of these products declined, from $123,791,288 in 1957 to $27,899,288 in 1962. By 1965, the import cost of trucks, buses and cars was only $9.2 million.42 It should be noted, however, that this decline in imports did not represent "pure" foreign exchange savings . Many of the inputs used in making vehicles had to be imported. For example, in 1965 General Motors of Argentina produced 25,212 vehicles, the cost of which would have been $62,796,000 had-they been imported instead of being produced locally. It is estim- ated that imported foreign inputs required to produce these vehicles domestically cost $9,283,000.43 Although precise industry data are lacking, it seems clear that the net foreign exchange savings attributable to the domestication of the automobile in- dustry are, nevertheless, substantial . The automobile industry has had a beneficial impact upon Argentina in other respects as well . The number of vehicles on the road has almost trebled since 1955 and in 1967 was close to 1,800,000.44 This has served to increase the mobility of the population and the overall efficiency of the tranSportation system (both freight and passenger). Moreover, in 1965, the twelve firms in the industry directly employed 37,000 workers,45 and it is estimated that directly and indirectly 300,000 families I 4lérgentina Economica y Financiera, op. cit., p. 216. 42"The Automotive Industry, " Comments on Argentine Trade, December 1966, p. 31. Buenos Aires Herald, op. cit., p. 8. Mlbid” p. 4. 45lbid., p.2. 120 depend on the industry for their livelihood.“ Unlike the steel and petroleum industries, the automobile industry suffers from excess capacity, high unit costs, and very heavy taxation . (In 1965, for example, the price of a small car was equivalent to the wages of a skilled worker over a period of 29 months .) Because of this, the number of firms has progressively declined, from twenty-two in 1959 to eleven in 1966. This trend seems likely to continue in the future as the top six producers progressively increase their market share (in 1964 they accounted for 85 percent of industry sales).47 Actually a decrease in the number of firms would be beneficial in lowering unit costs . Annual sales seemed to have stag- nated at less than 200,000 units, and at this output level only two or three firms would be economically viable .48 Of course, if sales increase, then more firms could be supported . Increasing sales would result if the Latin American Free Trade Area ever 49 becomes effective . I Argentina Economica y Financiera, op. cit., p. 215. 47In 1964, the top 6 producers in Argentina were Kaiser, Chrysler, Ford, Gen- eral Motors, Fiat, and Siam DiTella. The first four, all U.S. subsidiaries, accounts for 71 percent of total sales . Source: Economic Survey of Latin America, 1965, op. cit., p. 321 . 48The minimum economic size for an automobile firm is not accurately known. Usual estimates are in the range of 200,000 to 300,000 units per year . The Mexican authorities, however, consider 100,000 units per year to be the minimum economic size. Source, I_b_i_d_., p. 318. 49In 1964, Argentina accounted for 35 percent of the total Latin American production of automobile vehicles. Source, Ibid ., p. 317. 121 GROUP VI: TRACTORS AND COMBUSTIBLE MINERAL SOLIDS As mentioned above, this group is a residual category and the two products have no common characteristics . Therefore, each product is discussed separately below . Domestic production of combustible mineral solids was not begun until 1950 (see chle 29 in the Appendix) and until 1956 was sufficient to provide only 5 percent or less of domestic consumption. During the period 1955-61, however, domestic out- put more than trebled . As a result the import cost of this product declined from $33,395,525 in 1955 to $10,014,393 in 1962. Nevertheless, in 1961, the import co- efficient was still a high 84 percent. Production expansion continued at a slower rate after 1961; nevertheless, by 1965, domestic production was 374,000 tons, or approx- imately 35 percent of domestic consumption.50 It appears as if this is about as far as the substitution process can go . For one thing, domestic demand is continually declin- ing as petroleum derivatives are increasingly substituted for combustible solids .51 Obviously, this decreases the financial attractiveness of further expansion . Secondly, most of the better reserves are located in Patagonia and the serious lack of social overhead capital (mainly transportation) in that region vitiates against commercial development. Finally, it should be noted that data concerning the financial source of the post-1955 expansion were generally lacking, but what there were, indicatal I 5OArgentina Economica y Financiera, op. 611-: P- 242- 5Iln the period 1935-39, combustible mineral solids were the source for 23.6 percent of total energy consumption . In I950-54, their relative share was 9.1 per- cent and by 1965, only 3.4 percent. 122 no foreign participation . Tractor production did not begin in Argentina until 1956, the second year of strong balance of payments pressures . At the time Argentina was spending large quan- tities of foreign exchange on the importation of tractors and it was felt that domestica- tion of the industry could affect significant foreign exchange savings . Moreover, a plentiful supply of good quality tractors was viewed as a necessary condition for the mechanization of the agricultural sector .52 The government, therefore, authorized foreign investment, totalling $16.2 million during the period 1959-63 (see Table 7 in Chapter II).53 The result of this investment was a marked increase in output (see Table 28 in the Appendix) and a significant decline in imports . By 1961, Argentina was virtually self-sufficient in the production of tractors . This substitution resulted in significant foreign exchange savings, as dollar imports declined from $35,171,753 in 1955 to $2,974,656 in 1962 . Although some parts are imported, most are produced locally . John Deere and Company, for example, estimates that only 10 percent of its raw materials are imported .54 The low percentage of imported parts is due in part to governmental policy . AS a part of the original investment contracts, tractor firms 52Roughly 40 to 50 percent of total export earnings are derived from the agri- cultural sector (this excludes animal products). Mechanization and the concomitant increase in productivity of this sector would, therefore, tend to increase export earn- ings and the availability of foreign exchange . 53It is interesting to note that John Deere and Company (a U.S. firm), one of the five local producers, was established before this period. The company was tempor- arily established in June of 1957 and permanently established in January of 1958. Source, Comments on Argentine Trade, April, 1967, p. 75. 54 Ibid. 123 agreed to import progressively less and less component parts, and imports above the agreed upon levels were to be subiect to high surcharges .55 This provision served to stimulate the vertical integration of the tractor industry and to minimize foreign exchange expenditures .56 551n 1967, 7 percent of component parts were allowed to be imported without surcharge, 2 percent with 150 percent surcharge, and 2 percent with 300 percent sur- charge. 56A similar provision has had much the same effect upon the automobile industry. CHAPTER V SUMMARY AND CONCLUSIONS SYNTHESIS OF FINDINGS An examination of the relationship between Argentina's balance of payments pressures and import substituting industrialization has demonstrated that the former has had a pronounced effect on the latter during the period I945-61. Thus the Hirschman hypothesis that balance of payments pressures induce import substitution has been supported by the Argentine experience of the late nineteen-fifties and early nineteen-sixties . Successful import substitution, by and large, required large-scale foreign investments . To be sure, certain products were substituted without foreign partici- pation. These products were quantitatively unimportant, comprising a small share of total imports . Significantly, their domestication required little or no capital. In brief, for these products the foreign exchange bottleneck was not an impossible hurdle . The more important products and groups of products studied (i .e., automobiles, trucks, oils, paper and paper products, iron and steel, and tractors) did require fore- ign participation in the import substitution process . This resulted from the basic structure of the Argentine economy when balance of payments pressures were first evidenced and import substitution felt to be necessary . By the late nineteen-forties, the stage of easy import substitution, involving technologicallysimple, labor-intensive 124 125 industries, was completed. Remaining to be substituted were the technologically complex, capital-intensive industries, which required for their establishment large amounts of imported capital. Given the prevailing low level of foreign exchange and a stagnant export sector, foreign investment was necessary in order to overcome the foreign exchange bottleneck . FUTURE INVESTIGATIONS In the course of analyzing such a broad subject as contained in this study, several related research topics have been uncovered. For reasons of continuity, these topics have been set aside for future study. Attracting Foreign Investment It seems clear that balance of payments pressures were an important considera- tion in the promulgation of the Industrial Promotion Laws, the purpose of which was the attraction of foreign investment. Indeed, in order to qualify for the special bene- fits under the Laws, foreign firms, generally, had to contribute to export expansion and/or import substitution. What is less clear is why foreign investment was attracted to Argentina. High levels of protection, tax incentives, subsidies, and a favorable investment climate all were important, but which variables were critical is not known. Examination of this issue would provide data that could be of considerable relevance to underdeveloped nations desiring foreign investment. 126 Foreign Investment as a Necessary Condition for Growth By the mid-nineteen-fifties, the structure of the Argentine economy was such that the attraction of foreign investment became a necessary condition for growth . This resulted from Argentina's post-1930 growth strategy that emphasized techno- logically simple, labor-intensive import substitution to the exclusion of technolog- ically complex, capital-intensive import substitution. When this stage was complete, it was Argentina's misfortune to be beset by balance of payments problems and a con- comitant sharp decline in the level of foreign exchange. Since the establishment of the remaining industries required large amounts of imported capital, the lack of fore- ign exchange became a bottleneck and recourse to foreign investment was necessary . It seems likely that this pattern is relevant to other Latin American countries. Many countries in Latin America also have, since 1930, stressed "easy" import substitution. Will these countries, if beset by balance of payments difficulties, also have to rely on foreign capital in order to domesticate the technologically complex, capital- intensive sector of the economy? A cursory examination of Brazilian data suggests that similar pressures induced the Brazilian authorities to accept large amounts of foreign investment in the late nineteen-fifites and early nineteen-sixties. The type of analysis deveIOped in this dissertation should be applied to an examination of other relatively well-deveIOped countries in Latin America . A careful analysis, country by country, of the process of import substitution and its pitfalls, would be particularly valuable to the lesser deveIOped countries now embarking upon indus- trialization efforts . BIBLIOGRAPHY SELECTED BIBLIOGRAPHY BOOKS Adelman, Irma, and Morris, Cynthia Taft. Society, Politics and Economic Develop- ment: A Quantitative Approach. Baltrmore: The Johns Hopkins Press, 1967. I Balassa, Bela. Economic Development and Integration. Mexico: Centro de Estudios Monetarios Latinoamericanos , 1965 . Baronyai, L., and Mills, J.C. International Commodity Agreements. 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Hirschman, Albert O. Th_e Strategy of Economic Development. New Haven, Conn.: Yale University Press, 1967. Laurant, Henry W. Factors Affecting Foreign Investment in Argentina. Menlo Park, Calif.: InternationalDevelopment Center, 1963. Mac Bean, Alasdair 1. Export Instability and Economic Development. Cambridge, Mass.: Harvard University Press, 1966. Maizels, Alfred. Industrial Growth and World Trade. Cambridge: Cambridge Uni- versity Press, 1963. McClelland, David C. The Achieving Society. New York: The Free Press, 1967. McGann, Thomas F. Argentina: The Divided Land. Princeton: D. Van Nostrand, Inc., 1966. Meier, Gerald M. Leading Issues in Development Economics. New York: Oxford University Press, 1964. I , I Oficina de Estudios para la Colaboracion Economica International. Argentina Econom- ica y Financiera. Buenos Aires, 1966. I . Argentina: Sintesis Econo’mica y Financiera No. 1. Buenos Aires, 1961. . Balance de Pagos de la Argentina. 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Economic Survey of Latin America, 1962 . Baltimore: The Johns Hopkins Press, 1964. . Latin America: Problems and PerSpectives of Economic Development, 1963- 6_4_._ Balfimore: The Johns Hopkins Press, 1966. United Nations. The Economic Development of Latin America in the Post-War Period. New York: 1964. . Towards a Dynamic Development Policy for Latin America. New York: W63 . . Department of Economic Affairs. Statistical Yearbook, I949-50. New York: 1951 . . Department of Economic and Social Affairs. Yearbook of National Ac- counts Statistics: 1965. New York: 1966. . Yearbook of National Accounts Statistics: 1966. New York: 1967. . Economic Commission for Latin America. El Desarrollo Econo’mico de la Argentina. 3 Volumes . Mexico: 1959. I . El Desarrollo Economico de la Argentina: Anexo . Santiago de Chile: 1958. . The Economic Development of Latin America and Its Principle Problems. L—ake Success, New York: 1950. . Economic Survey of Latin America, 1965. New York: 1967. . The Process of Industrial Development in Latin America. New York: 1966. 131 ARTICLES Chenery, Hollis B. "Patterns of Industrial Growth," American Economic Review, September, 1960. I Diaz Aleiandro, Carlos F. "The Argentine Tariff," Center Paper No. 124, New Haven, Conn.: Yale University, Economic Growth Center, 1968. . "On the Import Intensity of Import Substitution, " Center Paper No. 72, New Haven, Conn.: Yale University, Economic Growth Center, 1965. Eshag, Eprime, and Thorp, Rosemary. "Economic and Social Consequences of Ortho- dox Economic Policies in Argentina in the Post-War Years," Bulletin of the Oxford University Institute of Economics and Statistics, February, 1965. Felix, David. "Monetarists, Structuralists, and Import Substitution Industrialization: A Critical Appraisal, " in Inflation and Growth in Latin America. ed. Werner Baer and Isaac Kerstenetsky. Homewood, ITE: Richard D. Irwin, Inc., 1964. Katz, Jorge, and Gallo, Ezequiel. 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APPENDIX 134 TABLE 1 PRODUCTION AND IMPORTATION OF ASBESTOS, I945-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 173 9, 810.2 9,983.2 98% 1946 209 4,879.6 5,088.6 96% cannot compute 1947 334 7,233 .7 7,567 .7 96% zero 1948 126 7,699 .1 7,825 .1 98% negative 1949 340 5,918.1 6,258.1 95% 1948-50 6% 1950 271 9,298 . 9 9,569 .9 97% negative 1951 261 18,332 .6 18,593 .6 99% negative 1952 212 4,409.6 4,621 .6 95% cannot compute 1953 37 9,722 .6 9,759.6 99% negative 1954 152 2,977.7 3,129.7 95% 1953-55 42% 1955 1,252 11,205 .5 12,457.5 90% 7% I956 216 5,245 .4 5,461 .4 96% 1954-56 negative 1957 289 9, 088 .6 9,377 .6 97% negative 1958 259 8,886 .6 9,145 .6 97% 1956-58 negative 1959 -- 7,794.4 7 ,794.4 100% 1958-60 negative 1960 -- 19,727.9 10,727.9 100% zero 1961 200 9,522 .7 9,722 .7 98% 1959-61 10% O O O 0’ l O O Source: Importacrones, lndustrralrzacIon, Desarrollo Economrco en la ArgentIna (Buenos Aires: Oficina de Estudios para la C3aborac7’on Econ6mica Inter- nacional, 1963), p. 78. 135 TABLE 2 PRODUCTION AND IMPORTATION OF ANTIMONY, I945-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 22 .0 535 .6 557.6 96% -- 1946 -- 772 .7 772 .7 100% negative 1947 -- 582 .4 582 .4 100% I945-47 negative 1948 1 1 450.3 461 .3 98% 1947-49 43% 1949 95 712 .9 807 .9 88% 24% 1950 28 1 , 375 .9 1,403 .9 98% negative 1951 -- 510 510 100% 1948-51 negative 1952 30 741.6 771.6 96% 12% 1953 -- 245 .0 245 .0 100% cannot compute 1954 24 590.9 614.9 96% 7% 1955 12 569.6 581 .6 98% 1953-55 3% 1956 -- 538.5 538.5 100% 1955-57 zero 1957 1 1 680 691 98% 9% 1958 25 1,391.4 1,416.4 98% zero 1959 -- 662 .1 662 .1 100% 1956-59 zero 1960 -- 300.6 300.6 100% cannot compute 1961 -- 621.0 621.0 100% zero . C O 0’ I O O Source: lmportacrones, Industrralrzacron, Desarrollo EconomIco en la Argentrna, op. 21., p.78. 136 TABLE 3 PRODUCTION AND IMPORTATION OF NEWSPRINT, 1941-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1941 -- 134,849 134,849 100% 1946 1,792 142 ,576 144, 368 99% 15% 1948 2,937 121,347 124,284 98% cannot compute 1950 2,799 101 ,269 104,068 97% cannot compute 1954 11,850 43,337 55,187 79% cannot compute 1956 18,963 94,210 113,173 83% negative: I950-56 179% 1957 13, 777 125 ,394 139, 171 90% negative 1958 11,516 160,827 172 ,343 93% negative 1959 5,707 127,291 132,998 96% negative: 1957-61 negative 1960 9,324 161,732 171,056 95% 5% 1961 9,292 213,706 222,998 96% negative . O O 0’ I C O Source: lmportacrones, IndustrIalIzaCIon, Desarrollo Economrco en la Argentma, op. cit., p.132. 137 TABLE 4 PRODUCTION AND IMPORTATION OF ELECTRIC METERS, I945-61 (in thousands of units) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 -- 46 .7 46 .7 100% -- I946 -- 46 .7 46 .7 100% zero 1947 -- 68 .0 68 .0 100% zero 1948 -- 198.2 198.2 100% zero 1949 -- 127 .8 127 .8 100% zero 1950 -- 53 .8 53 .8 100% zero 1951 -- 168.8 168.8 100% zero 1952 -- 188 .2 188 .2 100% zero 1953 -- 28 .6 28 .6 100% zero 1954 58.0 8.8 66.8 13% 152% 1955 80 .5 19 . 1 99 .6 19% negative 1956 128.6 16.9 145.5 12% 284% 1957 130 .2 26 .6 156 .8 17% negative 1958 141 .0 49.7 190.7 26% negative 1959 136 .5 6 .9 143 .4 5% 1955-59 241% 1960 188.0 27.0 215 .0 13% negative 1961 236 .0 73 .7 309 .7 24% negative ’ I Source: Importaciones, Industrializacion Desarrollo Economica en la Argentina, op. 51, p.238. 138 TABLE 5 PRODUCTION AND IMPORTATION OF YERBA MATE, I945-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 84,000 24,800 108,800 23% -- 1946 99,400 27,000 126,400 21% 62% 1947 121,300 31,300 152,600 21% zero 1948 112,000 29,400 141,400 21% 1946-48 zero 1949 117,300 19,800 137,100 14% 1946-49 427% 1950 103,300 10,300 1 13,600 9% I945-50 454% 1951 100,700 17,200 117,900 15% negative 1952 137,000 12,400 149,400 8% 237% 1953 127,900 9,100 137,000 7% 1951-53 382% 1954 109,500 15,800 125,300 13% 1953-55 negative 1955 1 15,300 27,200 142,500 19% negative 1956 92,100 20,500 112,600 18% 1955-57 negative 1957 109, 800 32 , 700 142 , 500 23% negative 1958 112,900 43,100 156,000 28% negative 1959 99,400 25,500 124,900 20% 1956-59 negative 1960 110,000 41,100 151,100 27% negative 1961 -- -- -- -- 1958-60 negative . O C C, I O C Source: ImportaCIones, IndustnalrzaCIon, Desarrollo EconomIco en la Argentrna, op. cit., p. 92. 139 TABLE 6 PRODUCTION AND IMPORTATION OF DIESEL-OIL, I945-61 (in tons of petroleum) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 216,097.2 18,876.8 234,974 8% -- 1946 288,213 56,291 .5 344,504.5 16% negative 1947 297,205 .7 66, 694 363, 899 .7 18% negative 1948 395,242.4 76,892.8 472,135.2 16% 48% 1949 402 , 322 .3 96,084 .5 498,406 .8 19% negative 1950 523,545] 52,168.2 575,713.9 9% 395% 1951 583 , 800 47 , 249 631 , 049 7% 342% I952 578 , 257 102 , 694 680, 951 15% negative 1953 630,578 146,959 777,537 19% negative 1954 631,958 129,731 761,689 17% I952-54 negative; ——19-53-55 zero I955 777, 988 187, 905 965 , 893 19% negative 1956 975,420 206,457 1,181,877 17% 58% 1957 1, 125, 185 259,683 1,384,868 19% negative 1958 1,267, 159 389,882 1 ,657,041 24% negative 1959 1,208, 116 405,467 1,613,583 25% 1957-59 negative 1960 992,065 283,360 1,275,425 22% 1956-60 negative 1961 970,342 227,584 1, 197, 926 19% 1956-61 negative ’ I Source: Importaciones, Industrializacion, Desarrollo, Economico en la Argentina, op. at” p. 320. 140 TABLE 7 PRODUCTION AND IMPORTATION OF KEROSENE, I945-61 (in tons of petroleum) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 183,410 183.1 183,593. 1% -- 1946 264,521 .5 12 ,260 .6 276,782 . 4% negative 1947 283,358 0 .9 283,358 . 0% 283% I948 303,303.7 44,971 .2 348,274. 13% negative 1949 290,218 .4 35,953 .8 326,172 . 11% 1947-49 negative: —1948-50 459% 1950 417,079 9,866 .8 426,945 . 2% 347% 1951 527, 279 10 , 248 537 , 527 2% zero 1952 515,925 37, 186 553,11 1 7% negative 1953 634, 913 -- 634,913 0% 776% 1954 643,368 33,776 677, 144 5% negative 1955 673 ,295 179,433 852 , 728 21% negative 1956 783 , 407 1 12 , 936 896 , 343 13% 783% 1957 885,847 115,057 1,000,904 1 1% 84% 1958 983,471 153,919 1,137,390 14% negative 1959 1,029,260 263,661 1,292,921 20% negative 1960 898,221 507,478 1 , 405 ,699 36% negative 1961 918,919 557,780 1,476,699 38% negative I I . Source: ImportaCIones, IndustrIaIIzaCIon, Desarrollo Economrco en la Argentina, op. cit., p. 321. 141 TAB LE 8 PRODUCTION AND IMPORTATION OF SULFUR, I945-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 9,635 31,048 40,683 76% 1946 12,414 24,174 36,588 66% I945-47 negative 1947 I I , 990 48,241 60,231 80% negative 1948 8,740 28,829 37,569 77% 1946-48 negative 1949 10,669 27,511 38,180 72% 412% 1950 8,284 23,056 31,340 74% negative 1951 5,900 11,316 17,216 66% 1950-52 77% 1952 10,519 23,782 34,301 69% negative 1953 31,100 31,983 63,083 51% 41% 1954 31,118 1,405 32,523 4% 1951-54 200% 1955 30,090 67 30,157 ( 1% 1954-56 negative 1956 27, 982 21 ,658 49,640 44% negative 1957 20 , 367 44 , 033 64, 400 68% negative 1958 36, 378 39, 257 75 , 635 52% 159% 1959 38,000 26,257 64,257 41% 1956-59 30% 1960 40, 000 30, 222 70 , 222 43% negative 1961 40,000 20,617 60,617 34% 1956-61 125% 1957-60 445% I I Source: ImportaCIones, IndustrIalIzaCIon, Desarrollo Economica en la Argentina, op. cit., p. 74. 142 TAB LE 9 PRODUCTION AND IMPORTATION OF ACETIC ACID, 1951-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1951 I, 970 590 2 ,560 23% 1952 1,750 190 1,940 10% cannot compute 1953 2,200 210 2,410 9% 51% 1954 2,930 830 3,760 22% negative 1955 3,270 370 3,640 10% 1953-55 negative; I954-56 9188% 1956 3 , 570 220 3 , 790 6% 1008% 1957 3,370 1 ,710 5,080 34% negative 1958 2,650 1,020 3,670 28% 1955-58 negative 1959 3,400 620 4,020 15% 533% 1960 3,600 1 , 120 4,720 24% negative 1961 3 , 800 1 , 902 5 , 702 33% negative ’ I Source: Importaciones, Industrial izacion, Desarrollo Economico en la Argentina, op. cit., p. 145. 143 TABLE 10 PRODUCTION AND IMPORTATION OF BISMUTH#I945-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 64 .0 2 .1 66 .1 3% 1946 3 .3 0.7 4 .0 18% negative 1947 12.7 0.5 13.2 4% 111% 1948 2 .9 5 .6 8 .5 66% negative 1949 1 .6 23 .1 24 .7 94% negative 1950 0 .1 16 . 9 17 .0 99% negative 1951 0.3 9.0 9.3 97% cannot compute 1952 -- 20 .2 20 .2 100% negative 1953 1.2 19.3 20.5 94% 410% 1954 40 . 2 26 . 9 67 . 1 40% 83% 1955 13 . 9 13 .8 27 .7 50% negative 1956 15.0 1.6 16.6 10% 1951-56 204% 1957 90.4 1.0 91.4 1% 110% 1958 57 .2 2 .5 59 .7 4% negative 1959 60.0 1 .6 61 .6 3% 1956-59 96% 1960 40.0 1 .6 41 .6 4% negative 1961 50.0 5 .0 55 .0 9% negative / I Source: lmportacrones, Industrializacion, Desarrollo Economico en la Argentina, op. fl, p.70. 144 TABLE 1 1 PRODUCTION AND IMPORTATION OF HOPS, 1945-61 (in tons) Import . Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 No statistics 418 No statistics -- 1946 45 597 642 93% 1947 1 1 491 502 98% 1946-48 negative 1 948 15 732 747 98% zero 1949 40 441 481 92% cannot compute 1 950 43 1 32 1 75 75% 1949-51 4% 1951 59 589 648 91% negative 1952 77 701 778 90% 7% 1953 80 281 361 78% I950-53 negative 1954 79 671 750 89% negative 1955 67 662 729 91% 1953-55 negative 1956 86 296 382 77% 1953-56 23% 1957 125 284 409 69% 157% 1958 141 322 463 70% negative 1959 173 580 753 77% negative 1960 150 129 279 46% I950-60 104% 1961 -- 146 -- .. Source: Importaciones, lndustrializacibn, Desarrollo Econo’mico en la Argentina, op. cit., pfi. 145 TABLE 12 PRODUCTION AND IMPORTATION OF EDIBLE OILS, I945-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 239,904 29,638 269,542 11% -- 1946 221,391 18,571 239,962 8% cannot compute 1947 228,451 9 228,460 0% cannot compute 1948 259, 161 63 259,224 0% zero 1949 269,407 1 1 269,418 0% zero 1950 305 , 777 5 , 978 31 1 , 755 2% negative 1951 276,055 34 276,089 0% 1949-51 zero 1952 302 , 644 -- 302 , 644 0% zero 1953 166,292 -- 166,292 0% cannot compute 1954 133,734 11,893 145,627 8% cannot compute 1955 144 , 983 35 , 454 180, 437 20% negative 1956 240,317 71,310 311,627 23% negative 1957 256,752 -- 256,752 0% 1956-58 203% 1 958 327 , 752 -- 327 , 752 0% zero 1959 231,261 -- 231,261 0% zero 1960 295,293 -- 295,293 0% zero 1961 268 , 039 -- 268 , 039 0% zero Source: Importaciones, Industrializacibn, Desarrollo Econo’mico en la Argentina, op. cit., p. 36. 146 TABLE 13 PRODUCTION AND IMPORTATION OF GRAPHITE, I945-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 333.0 342.7 675.7 51% 1946 250 .0 243 . 1 493 . 1 49% cannot compute 1947 151 .0 873 .1 1,024 .1 85% negative 1948 159.0 394.8 553.8 71% 1946-48 negative 1949 177 .0 453 .4 630 .4 72% negative 1950 3 .0 369 .3 372 .3 99% negative 1951 215.0 1,237.1 1,452.1 85% 19% 1952 4 .0 1 ,484 .4 1,488 .4 99% negative 1953 32 .0 302 .5 334.5 90% cannot compute 1954 93 .0 708.3 801 .3 88% 38% 1955 87 .0 812 .6 899 .6 90% negative 1956 519 .0 408 .3 927 .3 44% 1704% 1957 409 .0 626 .2 1 ,035 .2 60% negative 1958 476 .0 252 .3 728 .3 35% 1953-58 113% 1959 500 .0 314 .8 814.8 39% negative 1960 520 .0 72 .6 592 .6 12% cannot compute 1961 550 .0 125 .8 675 .8 19% negative I Source: Importaciones, Industrializacion, op. cit., p. 71. / Desarrollo Economrco en la Argentrna, 147 TABLE I4 PRODUCTION AND IMPORTATION OF WOOD PASTE FOR THE FABRICATION OF PAPER AND CELLULOSE, 1941-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1941 32 , 546 40, 022 72 ,568 55% -- 1946 34, 798 49, 892 84, 690 59% negative 1948 38,721 45,120 83,841 54% 1941-48 13% 1950 38 , 038 70 , 434 108 , 472 65% negative 1954 52 ,693 167,177 219, 870 76% negative 1956 60,235 130,632 190,867 68% 1950-56 negative 1957 68,240 147, 814 216,054 68% zero 1958 78,688 126,757 205,445 62% 1956-58 124% 1959 86,199 112,685 198,884 57% 1956-59 401% 1960 72,909 86,222 159, 131 54% cannot compute 1961 89,214 141,170 230,384 61% negative ’ I Source: lmportacrones,Industrializacion, Desarrollo Economica en la Argentina, op.cit., p. T32. 148 TABLE 15 PRODUCTION AND IMPORTATION OF CIGARETTE PAPER, 1941-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1941 -- 488 488 100% 1946 126 770 896 86% 31% 1948 287 452 739 61% 1941-48 115% 1950 -- 486 486 100% cannot compute 1954 633 475 1 , 108 43% 101% 1956 1,056 31 1,087 3% 1950-56 175%; "TfiZ-57 222% 1957 1, 079 286 1 , 365 21% negative 1958 1,236 8 1,244 < 1% 1956-58 436% 1959 1, 382 -- 1 , 382 0% 3633% 1960 1,245 23 1,268 2% 1958-60 negative 1961 1,190 23 1,213 2% 1956-61 321% ’ I Source: Importaciones, Industrializacion, Desarrollo Economico en la Argentina, op. cit., p.132. 149 TABLE 16 PRODUCTION AND IMPORTATION OF CELLOPHANE, 1941-61 (in tons) Tmport Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1941 -- 601 601 100% 1946 -- 867 867 100% zero 1948 -- 2 , 422 2 , 422 100% zero 1950 -- 22 22 100% zero 1954 1,422 13 1,435 < 1% 101% 1956 -- 10 10 100% cannot compute 1957 896 113 1,009 11% 90% 1958 2,010 736 2,746 27% negative 1959 1,969 167 2,136 8% 1957-59 52% 1960 2,395 19 2,414 < 1% 189% 1961 3,183 34 3,217 < 1% 1959-61 260% Source: Importaciones, Industrializaci’on, Desarrollo Econgmico en la Argentina, op. cit., p. T32. 150 TABLE 17 PRODUCTION AND IMPORTATION OF WORKPAPER AND WRITING PAPER, 1941-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1941 27,601 14,302 41,903 34% 1946 31 , 908 34, 860 66,768 52% negative 1948 32,236 25,408 57,644 44% 1941-48 negative 1950 43,889 31,931 75,820 42% 19%: 1946-50 160% 1954 20,385 10,021 30,406 33% cannot compute 1956 54 , 761 18, 974 73 , 735 26% 36% 1957 57, 936 18 , 057 75 , 993 24% 300% 1958 57,805 7,471 65,276 11% 1954-58 119% 1959 54,754 6,062 60,816 10% 1954-59 139% 1960 45,479 5,027 50,506 10% 1954-60 176% 1961 58,052 17,853 75,905 24% negative: 1959-61 negative I I Source: Importaciones, Industrializacion, Desarrollo Economico en la Argentina, op. cit., p. 132. 151 TABLE 18 PRODUCTION AND IMPORTATION OF CAST IRON, I945-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 3,213 25,190.1 28,403.1 89% 1946 12,317 38,049 .5 50,366 .5 76% 35% 1947 15, 735 68, 860 .5 84,595 .5 81% negative I948 17,348 118,025 .8 135,373 .8 87% negative 1949 18,559 85,184.0 103,743 82% 1947-49 negative 1950 17,834 96,709 .1 114,543 .1 84% negative 1951 19,021 82,081.5 101,102.5 81% 1947-51 zero 1952 31,764 59,187.4 90,951 .4 65% 1947-52 283% 1953 36,332 93, 828 .2 130, 160 .2 72% negative 1954 39,596 32 ,690 .7 72 ,286 .7 45% 1946-54 134% 1955 35,000 191 ,232 .1 226,232 .1 85% negative 1956 28,751 58,935 .2 87,686 .2 67% 1954-56 negative 1957 33 , 792 157, 242 191 , 034 82% negative 1958 29,163 113,012 .4 142,175 .4 79% 1956-58 negative 1959 32 , 023 147, 362 .0 179 , 385 82% negative 1960 180,112 145,199.8 325,311.8 45% 188% 1961 398,511 66,531.9 465,042.9 14% 229% I I Source: lmportacrones, Industrializacion, Desarrollo Economico en la Argentina, op. cit. , ppfi%-%. 152 TABLE 19 PRODUCTION AND IMPORTATION OF STEEL INGOTS, I945-61 (in tons) I111port Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 130,000 700 130,700 1% 1946 133,043 17,428 150,471 12% negative 1947 125,214 55,447 180,661 31% negative 1948 122,321 46,396 168,717 27% cannot compute 1949 124, 743 63 , 578 188 , 321 34% negative 1950 130,266 163 ,566 293 , 832 56% negative 1951 131,592 180,531 312,123 58% negative 1952 126,410 193,641 320,051 61% negative 1953 174,376 79,868 254,244 31% 1949-53 34% 1954 186,115 460,351 646,466 71% negative 1955 217, 678 605 , 875 823 , 553 74% negative 1956 202,481 445,278 647,759 69% 1954-56 1409% 1957 221,475 422,263 643,738 66% cannot compute 1958 244, 267 641 , 066 885 , 333 72% negative 1959 214 ,237 568 , 056 782 , 293 73% negative 1960 277,045 449,825 726,293 62% 1957-60 53% 1961 441,486 732,115 1,173,601 62% zero Source: meortaciones, Industrializacion, Desarrollo Econo’mico en la Argentina, op. cit., pp. 186-190. 153 TABLE 20 PRODUCTION AND IMPORTATION OF LAMINATED STEEL, I945-61 (in tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 124,005 75,849 199,854 38% -- 1946 126,250 329,879 456, 129 72% negative 1947 152,217 528,649 680,866 78% negative 1948 162 ,646 581,589 744,135 78% zero 1949 212,629 504,941 717,570 70% 1947-49 199% 1950 264 , 02 1 463 , 315 727, 336 64% 623% 1951 296 ,527 673 , 063 969,590 69% negative 1952 294,551 261,089 555,640 47% 1946-52 195% 1953 274,623 193,980 468,603 41% 1946-53 I615% 1954 526,013 567,399 1,093,412 52% negative 1955 658,855 659,410 1,318,265 50% 22% 1956 613,031 506,347 1, 119,378 45% 1954-56 579% 1957 683,260 474,414 1,157,674 41% 270% 1958 876,243 777, 623 1 ,653, 866 47% negative 1959 776,009 547,791 1,323,800 41% 1957-59 zero; 1956- “2:838 ‘— 1960 771 ,569 620, 825 1 ,392,394 45% negative 1961 908, 354 801 , 081 1 , 709, 435 47% negative Source: Importaciones, Industrializaci’on, Desarrollo Econo’mico en la Argentina, op. 5.1.1.: , pp 386% 154 TABLE 21 PRODUCTION AND IMPORTATION OF CRUDE PETROLEUM, I945-61 (in thousands of cubic meters) Import Domestic Total Coeffi- Substitution Year Production Importation SDpply cient Coefficient 1945 3,637.5 168.4 3,805.9 4% 1946 3,307.2 1,071 .6 4,378.8 24% negative 1947 3,473 .2 1,373 .5 4,846 .7 28% negative 1948 3,692 .5 2,049.0 5,741 .5 36% negative 1949 3,591 .4 1,870.9 5,462 .3 34% 1948-50 negative 1950 3,630 .0 3,559 .4 7,189.4 50% negative 1951 3,889.6 3,432.4 7,322.0 47% 377% 1952 3,946 .0 3,865 .2 7,811 .2 49% negative 1953 4,531.4 3,890.1 8,421.5 46% 84% 1954 4,701 .6 4,354 .2 9,055 .8 48% negative 1955 4,849.8 4,621 .4 9,471 .2 49% negative 1956 4,930.5 4,752 .7 9,683 .2 49% zero 1957 5 , 397 .8 6, 698 .0 12 ,095 . 8 55% negative 1958 5,668 .9 7,555 .3 13,224.2 57% negative 1959 7,087.4 5,943.8 13,031.2 46% 1958-60 1189% 1960 10,152.9 3,684.6 13,837.5 27% 709% 1961 13,403.0 2,082.0 15,485.0 13% 487% Source: Importaciones, Industrializaci’on, Desarrollo Econdmico en la Argentina, op. cit., p. 314. 155 TAB LE 22 PRODUCTION AND IMPORTATION OF FUEL OIL, I945-61 (in tons of petroleum) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 1,568,277.1 364,440 1,932,717.1 19% 1946 1,488,484.8 2,185,968.9 3,674,453.7 59% negative 1947 1, 630,907 .5 2 ,430,246 .7 4,061 , 154 .2 60% negative 1948 1,970,722 .6 2,624,454] 4,595,177.3 57% 68% 1949 2,072,732 .2 2,457,958 .1 4,530,690.3 54% 1947-49 97% 1950 2,599,894.1 2,387,195 .5 4,987,089.6 48% 122%: 1948-50 201% 1951 2,568,370.0 2,628,049 5,196,419 51% negative 1952 2,777,811.0 2,774,442 5,552,253 50% 31% 1953 3,188,033.0 2,089,606 5,277,639 40% 1951-53 1406% 1954 3,616,617.0 2,119,907 5,736,524 37% 94% 1955 3,755,908.0 2,605,358 6,361,266 41% negative 1956 3,594,638.0 3,342,777 6,937,415 48% negative 1957 5,139,324.0 2,028,717 7,168,041 28% 1300% 1958 5 ,656,385 .0 1,575,663 7,232,048 22% 2405% 1959 5,665,871 .0 1,439,922 7,105,793 20% 1956-59 258% 1960 6,330,451.0 347,766 6,678,217 5% 1955-60 1852% 1961 6,876,584.0 3,027 6,879,611 1% 2750% I I Source: lmportacrones, Industrializacion, Desarrollo Economico en la Argentina, op. cit., p. 318. 156 TABLE 23 PRODUCTION AND IMPORTATION OF GAS OIL, I945-61 (in tons of petroleum) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 51,636.8 2,491.4 54,128.2 5% -- 1946 69,445.7 2,584.3 72,030 4% 80% 1947 71 ,823 6,307 78, 130 8% negative 1948 121,714 14,702 136,416 11% negative 1949 173,630 .9 25 ,233 .7 198,864 .6 13% negative 1950 257 , 779 36 , 574 294 , 353 12% 24% 1951 270,663 42,393 313,056 14% negative 1952 333 , 378 81 , 602 414, 980 20% negative 1953 413,407 80,714 494,121 16% 125% 1954 419,049 271,763 690,812 39% negative 1955 419, 045 408 , 05 1 827 , 096 49% negative 1956 422,039 332,571 754,610 44% 1954-56 negative; _T955-57 zero 1957 460, 413 438, 694 899, 107 49% negative 1958 606, 171 336,477 942 ,648 36% 575% 1959 461,469 386,394 847,863 46% 1958-60 negative 1960 666,034 519,914 1,185,948 44% 15% 1961 766,793 666, 336 I ,433 , 129 46% negative ’ I Source: lmportacrones, Industrializacion, Desarrollo Economica en la Argentina, op. (fly p. 319. 157 TAB LE 24 PRODUCTION AND IMPORTATION OF AIRPLANE FUEL, I945-61 (in tons of petroleum) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 1 1,374 -- 11,374 0% 1946 12,717 17,687 30,404 58% negative 1947 9,493 17,987 27,480 65% I945-47 negative: W-48 negative 1948 9, 966 39, 963 49, 929 80% negative 1949 10,382 37,200 47,582 78% 1947-49 negative 1950 6, 237 43, 157 49, 394 87% negative 1951 8,776 37,336 46,112 81% 1947-51 negative 1952 9,590 42,364 51,954 82% negative: 1950-52 117% 1953 9,069 47,008 56,077 84% negative 1954 6 , 697 54, 000 60, 697 89% negative 1955 7,834 50, 383 58,217 87% 122152 negative 1956 34,786 47,955 82,741 58% 114%; n_e_g_at_iv£ 130% 1957 45,279 51,152 96,431 53% 61% 1958 43,641 55,475 99, 1 16 56% negative 1959 59 , 802 43 , 523 1 03 , 325 42% 655% 1960 55 , 955 48, 554 104, 509 46% negative 1961 51, 374 51,056 102,430 50% 1958-61 332% . C C 0’ I O C Source: lmportacrones, Industrrahzacmn, Desarrollo Economrco en la Argentma, op. c1t., p. 324. 158 TABLE 25 PRODUCTION AND IMPORTATION OF OILS FOR LUBRICATION, I945-61 (in tons of petroleum) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 93,411 2,710 96,121 3% -- 1946 86 , 473 8 , 783 95 , 256 9% negative 1947 98,710 14, 964 113,674 13% negative 1948 1 14 , 206 34 , 1 19 148 , 325 23% negative 1949 109,429 27,61 1 137,040 20% 1947-49 negative 1950 94,333 50,592 144,925 35% negative 1951 117,714 46,997 164,711 29% 143% 1952 1 19, 833 77,522 197 , 355 39% negative 1953 95,815 58,759 154,574 38% 1950-53 negative 1954 104,538 39,469 144,007 27% 1953-55 negative 1955 120 , 879 80, 303 201 , 182 40% negative 1956 148,424 58,355 206,779 28% 1 107% 1957 153,836 45,522 199,358 23% 1956-58 negative 1958 169 , 679 71 , 297 240, 976 30% negative 1959 149, 808 107 , 688 257 , 496 42% negative 1960 161 ,557 62,544 224,101 28% 1957-60 negative 1961 156,866 63,898 220,764 29% 1957-61 negative ’ I Source: Importaciones, Industrializacion, Desarrollo Economico en la Argentina, op. cit., p. 325. 159 TABLE 26 PRODUCTION AND IMPORTATION OF AUTOMOBILES, I945-61 (in units) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 -- 95 95 100% zero 1946 -- 6,699 6,699 100% zero 1947 -- 30,738 30,738 100% zero 1948 -- 7,456 7,456 100% zero 1949 -- 3,137 3,137 100% zero 1950 -- I, 925 1, 925 100% zero 1951 -- 15,147 15,147 100% zero 1952 -- 2 , 339 2 , 339 100% zero 1953 5 1,898 1,903 99% I945-53 11% 1954 127 3,154 3,281 96% 7% 1955 21 1 4,927 5, 138 96% zero 1956 300 8, 932 9, 232 97% negative I957 465 10,778 11,243 96% 6% 1958 3,715 14,989 18,704 80% 42% 1959 6,746 6,090 12,836 47% 1958-60 198% 1960 30,335 3,251 33,586 10% 126% 1961 71,989 2,877 74,866 4% 109% Source: Importaciones, Industrializaci’on, Desarrollo Econo’mico en la Argentina, op. cit., p. 220. 160 TABLE 27 PRODUCTION AND IMPORTATION OF TRUCKS, 1951-61 (in units) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1951 108 no data -- -- -- 1952 969 no data -- -- -- 1953 3,069 no data -- -- -- 1954 3,232 no data -- -- -- 1955 6,180 1,615 7,795 21% -- 1956 5 , 643 7, 906 13 ,549 58% negative 1957 15 , 170 33, 465 48, 635 69% negative 1958 24,119 3,455 27,574 13% 1956-58 153% 1959 26,206 83 26,289 < 1% cannot compute 1960 59,003 28,841 87,844 33% negative 1961 64,195 1,543 65,738 2% 1958-61 146% / I Source: Production data, Importaciones, Industrializacion, Desarrollo Economica en Ia Argentina, op. cit., p. 220. Import data, Comercio Exterior, 1955-61 (Buenos Aires, 1958-62). 161 TAB LE 28 PRODUCTION AND IMPORTATION OF TRACTORS, I945-61 (in units) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 -- -- 1946 -- 800 800 100% 1947 -- 3 , 300 3 , 300 100% zero 1948 -- 10,200 10,200 100% zero 1949 -- 2 ,600 2 ,600 100% zero 1950 -- 3 , 800 3 , 800 100% zero 1951 -- 6,600 6, 600 100% zero 1952 -- 7,300 7,300 100% zero 1953 -- 10,100 10,100 100% zero 1954 -- 3 , 900 3 , 900 100% zero 1955 -- 10,100 10,100 100% zero 1956 10,001 10,600 20,601 51% 96% 1957 10,878 4,200 15,078 28% 1955-57 218% 1958 11,083 5,500 16,583 33% negative 1959 12,566 300 12,866 2% 1955-59 470% 1960 20,958 400 21,358 2% Zero: 1958-60 426% 1961 14,730 1,200 14,730 7% negative I I Source: Importaciones, Industrializacion, Desarrollo Economica en la Argentina, op. cit., p. 225 and pp. 460-461. 162 TABLE 29 PRODUCTION AND IMPORTATION OF COMBUSTIBLE MINERAL SOLIDS, I945-61 (in thousands of tons) Import Domestic Total Coeffi- Substitution Year Production Importation Supply cient Coefficient 1945 -- 798 . 9 798 .9 100% -- 1946 -- 1,151.9 1,151.9 100% zero 1947 -- 1,251.8 1,251.8 100% zero 1948 -- 2,254.7 2,254.7 100% zero 1949 -- 1,380 .2 1,380 .2 100% zero 1950 30. 5 1,467.3 1,497.8 98% 25% 1951 22 .5 2,218 .6 2,241.1 99% negative 1952 46.1 1,783.8 1,829.9 97% 1950-52 6% 1953 45 .2 1,228.2 1,273 .4 96% 1947-53 231% 1954 78.6 1,551.9 1,63 .5 95% 5% 1955 68 .3 1,274.5 1 ,342 .8 95% 1953-55 20% 1956 93.3 1,505 .8 1,599.1 94% 7% 1957 115.7 1,296.4 1,412.1 92% 1955-57 43% 1958 142 .6 1,456 .5 1,599.1 91% 9% 1959 156.3 1,390.3 1,546.6 90% 1957-59 22% 1960 119.5 1,472 .2 1,591.7 92% negative 1961 238.5 1,260.8 1,499.3 84% 1957-61 148% I Source: Importaciones, Industrializacion, Desarrollo Economico en la Argentina, ap. cit., p. 46. 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