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Income Distribution and Investment in Argentina

Published online by Cambridge University Press:  24 October 2022

Laura Randall
Laura Randall*
Affiliation:
Hunter College, CUNY
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The most politically sensitive question in studies of economic growth is: What is the optimal relationship for the distribution of income and wealth to economic growth? The rich often diversify their assets, and thus it is not easy to know the total wealth of an individual, or the distribution of wealth for a nation. For this reason, the analysis presented here for Argentina from 1914 to 1969 makes only brief reference to the influence of the distribution of wealth and focuses instead on the relationship between income distribution and economic growth. Income distribution in other nations also is discussed in order to evaluate the possibility of utilizing their experience to judge the Argentine case. The relationship between increases in workers' and entrepreneurs' income and those in investment is also examined, for an economy will grow only if investment takes place. Moreover, because funds spent on private consumption cannot be invested and much past economic analysis has studied the relationship between changes in income and in consumption, this relationship must be considered in the Argentine case. We will look at several categories of income, taking into account the effects of inflation and of ownership of selected categories of wealth.

Type
Research Reports and Notes
Information
Latin American Research Review , Volume 12 , Issue 3 , 1977 , pp. 136 - 153
Copyright
Copyright © 1977 by the University of Texas Press

References

Notes

1. Simon Kuznets, “Quantitative Aspects of the Economic Growth of Nations, Part 8, Distribution of Income by Size,” Economic Development and Cultural Change (January 1963), pt. 2).

2. The estimates for 1914–35 are derived from the indices of salaries and occupation for Buenos Aires and are linked to the 1935 wage figure provided by the Ministerio de Asuntos Económicos. For 1935–69, wage data are from the Ministerio de Asuntos Económicos, ECLA/CONADE worksheets, and from Economic Commission for Latin America, Statistical Bulletin for Latin America, vol. 9.

3. Morris A. Horowitz, “High Level Manpower in the Economic Development of Argentina,” in Frederick Harbison and Charles A. Myers, Manpower and Education (New York: McGraw Hill, 1965), pp. 1–36, and Organization for Economic Cooperation and Development, Education, Human Resources and Development in Argentina (Paris, 1967).

4. Matthew Edel, “Regional Integration and Income Distribution: Complements of Substitutes?,” in Ronald Hilton, ed., The Movement towards Latin American Unity (New York: Praeger, 1961), pp. 185–202.

5. See Appendix.

6. Samuel A. Morley and Gordon W. Smith, “The Effect of Changes in the Distribution of Income on Labor, Foreign Investment and Growth in Brazil,” Program of Development Studies Paper No. 15, Rice University (Summer 1971).

7. Economic Commission for Latin America, Economic Development and Income Distribution in Argentina (New York: United Nations, 1969), p. 7.

8. For full data, see Laura Randall, An Economic History of Argentina in the Twentieth Century (New York: Columbia University Press, 1977).

9. The regressions are cast in a form such that only the conditions of a current year influence current spending; various studies indicate that the adjustment period in Argentina is less than one year. The most recent statement is R. Lucas, Jr., “Some International Evidence on Output-Inflation Tradeoffs,” American Economic Review 43, no. 3 (June 1963).

10. See Irwin Friend, The Propensity to Consume and Save in Argentina (Buenos Aires: Instituto Torcuato Di Tella, Centro de Investigaciones Económicas, 1965), p. 4.

11. The revisions were based on the use of 1935–39 price weights. Detailed adjustments were made using data provided in Victor Elias, “Estimates of Value Added, Capital and Labor in Argentina Manufacturing, 1935–1963 (Ph.D. dissertation, University of Chicago, 1969).

12. Simon Kuznets, National Product since 1869 (New York: National Bureau of Economic Research, 1946).

13. Randall, “Personal Income Distribution and Investment in Argentina, 1950–1969,” Paper presented at the meeting of the Latin American Studies Association, 15 November 1974.

14. The same is true when the logarithm of inflation was introduced into the estimates.

15. Milton Friedman, A Theory of the Consumption Function (Princeton, N.J.: Princeton University Press, 1957).

16. Gregory King's estimate was used as the basis of the calculations. King's estimate is reprinted in Peter Mathias, The First Industrial Nation, An Economic History of Britain, 1700–1914 (New York: Charles Scribner's Sons, 1961), p. 24.

17. Ryutaro Komiya, “The Supply of Personal Savings,” in Ryutaro Komiya, ed., Postwar Economic Growth in Japan (Berkeley: University of California Press, 1966), pp. 157–81.

18. Edwin Burmeister and Paul Taubman, “Labour and Non-Labour Saving Propensities,” Canadian Journal of Economics 2, no. 1 (February 1969): 78–89.

19. Economic Commission for Latin America, Economic Development. Estimates are presented in this study of the effect of changes in prices of various categories of goods on real income by quintile, and of various government policies on redistribution of family income. There was, however, not enough data to incorporate these effects into this article. We also note that evidence for the United States is that “a large proportion of savings to finance private (and other) capital formation originates not in the income from assets (too often viewed as the only source of national savings) but in compensation of employees and income of entrepreneurs, particularly the former. Indeed, judging by the estimates for recent years, no more than half of the household savings to finance capital formation can be credited to household income from assets net of taxes” (Simon Kuznets, Modern Economic Growth: Rate, Structure and Spread [New Haven: Yale University Press, 1966], pp. 175–76).

20. Note that this result was obtained using a behavioral equation. The net domestic capital formation variable was obtained by subtracting amortization at historic cost as a percent of net remuneration of capital and enterprise, from gross domestic capital formation as a percent of gross domestic income. This estimate of net domestic capital formation yielded better results than any other, and lies between the traditionally computed estimates of net domestic capital formation as a percent of gross domestic income. See Randall, “Personal Income Distribution,” for detailed comparisons.

21. Robert Heilbroner, Understanding Macroeconomics (New York: Prentice Hall, 1972), p. 94. Includes undistributed corporate profits and depreciation allowances.

22. See Randall, “Personal Income Distribution.”

23. Economic Commission for Latin America, Economic Development, pp. 211, 212.

24. For full data, see Randall, An Economic History.

25. See Randall, “Personal Income Distribution,” and An Economic History (forthcoming).

26. See Randall, An Economic History, chaps. 2 and 6.

27. Economic Commission for Latin America, Economic Development, p. 213.

28. See Randall, An Economic History chap. 7, and David Felix, various works, on the problems associated with manufacturing when tariffs are levied on inputs used in manufacturing as well as on the finished good.

29. A United Nations study indicates that the degree to which this is true will probably be influenced by whether the corporation is owned by private domestic stockholders, a government, foreign entrepreneurs, or some mixed arrangement. For example, see “Public Enterprises: Their Present Significance and Their Potential in Development,” Economic Bulletin for Latin America, Jan.–Jun. 1971, pp. 1–70. The question of the implication of redistribution of income to foreign corporations is not included in this article, as foreign investment was a trivial share of total investment in Argentina during the period for which statistical analysis is presented here. Further, the relationship of a percentage increase in either imports or machine imports to net domestic capital formation is weaker than that between withheld profits and net domestic capital formation. Readers interested in these points are referred to Guillermo O'Donnell and Delfina Linck, Dependencia y Autonomía (Buenos Aires: Amorrotu, 1973), and to Randall, An Economic History.