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What is the relationship between economic growth and its volatility? Does political instability affect growth directly or indirectly, through volatility? This paper tries to answer such questions using a power-ARCH framework with annual time series data for Argentina from 1896 to 2000. We show that while assassinations and strikes (what we call informal political instability) have a direct negative effect on economic growth, formal political instability (constitutional and legislative changes) has an indirect (through volatility) negative impact. We also find preliminary support for the idea that while the effects of formal instability are stronger in the long-run, those of informal instability are stronger in the short-run.

Argentina is the only country in the world that was "developed" in 1900 and "developing" in 2000. The various competing explanations highlight, mainly, the roles of trade openness, political institutions, financial integration, financial development, and macroeconomic instability. Yet no study has, to the best of our knowledge, attempted a quantitative assessment of the relative importance of each of these competing explanations. This paper tries to fill this gap. It investigates their individual effects on economic growth and volatility using the power-ARCH framework with annual data since the 1890s. The results indicate that financial development and institutional change are the two main factors that help understand the extraordinary growth trajectory of Argentina over the last century.

Argentina is the only country in the world that was 'developed' in 1900 and 'developing' in 2000. Although various underlying reasons have been identified (chiefly political instability, financial development, inflation, trade openness, and international financial integration), no study has quantitatively assessed their relative importance. This paper tries to fill this gap. We use the power-ARCH framework and annual data since 1896 to study how important are these factors vis-à-vis both growth and growth volatility. Our results suggest that financial development, trade openness and political instability are the main factors, with important differences in terms of their short versus long-run behavior.

This paper investigates the effects of financial development and political instability on economic growth in a power-ARCH framework with data for Argentina from 1896 to 2000. Our findings suggest that (i) informal or unanticipated political instability (e.g., guerrilla warfare) has a direct negative impact on growth; (ii) formal or anticipated instability (e.g., cabinet changes) has an indirect (through volatility) impact on growth; (iii) the effect of financial development is positive and, surprisingly, not via volatility; (iv) the informal instability effects are much larger in the short- than in the long-run; and (v) the impact of financial development on economic growth is negative in the short- but positive in the long-run.

AbstractArgentina is the only country in the world that was developed in 1900 and developing in 2000. Although there is widespread consensus on the occurrence and uniqueness of this decline, an intense debate remains on its timing and underlying causes. This paper provides a first systematic investigation of the timing of the Argentine debacle. It uses an array of econometric tests for structural breaks and a range of GDP growth series covering 1886–2003. The main conclusion is the dating of two key structural breaks (in 1918 and 1948), which we argue support explanations for the debacle that highlight the slowdown of domestic financial development and trade protectionism (after 1918) and of institutional development (after 1948).