دو درهم پیچیدگی: توسعه مالی، بی ثباتی سیاسی و رشد اقتصادی در آرژانتین

This paper studies the impact of financial liberalization on economic growth. It contributes to this literature by using an innovative econometric methodology and a unique data set of historical series. It presents power ARCH estimates for Argentina for the period from 1896 to 2000. The main results show that the long-run effect of financial liberalization on economic growth is positive while the short-run effect is negative, albeit substantially smaller. Interestingly, we find that financial development affects growth only directly, that is, not through growth volatility.

Instability and performance are often inversely related. Financial crises are associated with growth decelerations and contractions, while political protest tends to disrupt productive activities, thereby negatively affecting economic growth. Such amplified uncertainties, driven either by economic or political events, have deleterious consequences in terms of economic performance, especially in the short-run. In the long-run, however, financial development and political stability may instead have positive effects on growth. For example, the supply of credit to the private sector and transitions from autocracy to democracy are often considered key determinants of long-run growth across countries. In this light, this paper tries to answer the following questions. What is the relation between financial development on the one hand and economic growth and its volatility on the other? Do the sign and intensity of such effects vary over time and do they vary with respect to short- versus long-run considerations? Is there a dynamic asymmetry in the impact of financial development and political instability (that is, is it negative in the short- and positive in the long-run)? This paper tries to tackle these questions using an innovative econometric framework and a unique type of data as it employs the power-ARCH (PARCH) framework and annual time series data for Argentina covering the period from 1896 to 2000. The “Argentinian puzzle,” according to della Paolera and Taylor (2003), refers to the fact that since the Industrial Revolution, Argentina is the only country in the world that was developed in 1900 and developing in 2000 (see Fig. 1).1As far as the literature on the finance-growth nexus is concerned, the present paper tries to contribute by offering econometric evidence based on historical data. Beck et al., 2000 and Levine, 2005 argues that the prevailing consensus favors a positive, lasting and significant effect from financial development to economic growth and that such effects are predictably stronger from measures of financial efficiency (for instance, the share in GDP of credit to the private sector) than from standard measures of financial depth (such as M3 over GDP). By using a range of financial development measures we can throw light on the impacts of these different dimensions over a much longer period of time than that normally considered in the literature. Doing so also allows us to investigate, inter alia, whether the impact of financial development on growth occurs directly or through growth volatility.2 An important issue we tackle is that of the contrasting short- versus long-run effects of finance on growth. Seminal papers are those by Kaminsky and Schmukler, 2003 and Loayza and Rancière, 2006. Despite the development of the financial system being robustly associated with economic growth, it is also often found to be the main predictor of financial crises. That is, while the long-run effect of finance on growth is positive, in the short-run it is negative. However, cross-country heterogeneity and business cycle synchronization issues may play an undesirably large role in generating this result and in particular regarding the relative magnitudes of these two effects. For instance, Loayza and Rancière (2006) report that the size of the effects is similar but the negative short-run effect is often larger than the positive long-run effect. In this paper we use data for a sufficiently long period of time and find supporting evidence for this asymmetric dynamic effect with the positive long-run effect being substantially larger than the negative short-run effect. Moreover, we try to shed light on important puzzles, such as the one regarding the duration of the political instability effects. While the conventional wisdom is that these effects are severe in the long-run, Campos and Nugent (2002)3 and Murdoch and Sandler (2004) argue that they are stronger in the short- than in the long-run. One last intended contribution is to try to bridge the literature on the macroeconomics of instability (based on cross-sectional and short-panels) with that on the relationship between growth and its volatility, which is mostly time-series based.4 The latter tends to downplay the potential dependence between growth and its volatility by assuming a linear relationship, what is usually called the Bollerslev GARCH specification. Another final puzzle we try to address is on the sign of the growth-volatility link: while Grier and Tullock (1989) argue that larger standard deviations of growth rates are associated with larger mean growth rates, Ramey and Ramey (1995) show that output growth rates are adversely affected by their volatility. Anticipating our main findings, we note the following in relation to the questions raised at the outset. The relationship between, on the one hand, financial development and political instability and economic growth on the other is not as straightforward as one may think at first. We find that it crucially depends on the type of political instability and of financial development, as well as short- versus long-run considerations. The short-run effect on economic growth of both informal instability (e.g., guerilla wars) and financial development is negative and direct and these results are robust to accounting for structural breaks, which are important in light of the long time span we cover in this study. Yet, while the long-run influence of finance is positive, that of informal instability remains negative. We also find that the impact of formal instability (e.g., constitutional changes) is mostly indirect and operates through growth volatility. These results suggest that the “severity” of the political instability effects in a sense ”dominates” that of financial development: while the short- and long-run finance effects work in opposite directions, the effects of political instability are both negative and seem to operate through different channels. In this paper, we show that formal political instability is detrimental to growth via the volatility channel and our results suggest that, together with informal instability, it may have played a truly substantial role in the decline of the Argentinian economy during the XXth century. The paper is organized as follows. Section 2 sets the context by showing how political instability and financial development contributed to the decline of Argentina from a position of a rich or developed country in year 1900 to that of a middle-income or developing country in year 2000. Section 3 describes the data. Section 4 details the econometric methodology. Section 5 discusses the main results. Section 6 concludes and suggests directions for future research.

Within a power-ARCH framework using data for Argentina from 1896 to 2000, we find that: (a) informal political instability (assassinations, guerilla warfare, strikes) have a direct negative effect on economic growth, while formal instability (e.g., cabinet changes and size, and constitutional changes) have an indirect impact on growth (through its volatility); (b) financial development affects economic growth positively; (c) the informal instability effects are substantially larger in the short- than in the long-run; and (d) the financial development effects are negative in the short- but positive and substantially larger in the long-run. These findings raise a number of new questions that we believe may be useful in motivating future research. Here we highlight two related suggestions: one on the role of finance and one on methodology. Regarding the role of finance in the process of economic development, our findings extend a large body of previous research in that we also show a strong, positive impact of financial development on growth in the long-run. However, the negative effects of political instability on growth might outweigh the positive influence of financial development. We find that different forms of political instability affect growth through different channels over different time windows, making up for a strong and rather resilient effect that seems very powerful vis-à-vis the benefits from financial development. Yet Argentina is unique: no other country in the world since the Industrial Revolution went from riches to rags. Put differently, Argentina is an outlier and further research should replicate our analysis using the historical experience of other countries (ideally in a panel setting). That is, future studies should focus on the relationship between political instability, financial development and economic growth in a panel of developing countries. Notice, however, that the data requirements are very heavy indeed, with most developing countries lacking historical data even on key figures, such as per capita GDP, going back to the beginning or middle of the XIXth century. This, of course, does not make this task less important. The second suggestion refers to a possible methodological improvement, namely the application of the bivariate PARCH model to the problem at hand (despite the relatively small number of observations). A joint estimation of the political instability-financial development-growth system in a panel of countries would clearly represent progress and is something we feel future research should try to address.