Argentina and the Magic Soybean: the Commodity Export Boom That Wasn’t

Argentina’s record levels of employment and massive reductions in poverty have little to do with exports.

One of the great myths about the Argentine economy that is repeated nearly every day is that the rapid growth of the Argentine economy during the past decade has been a “commodity export boom”. For example, the New York Times reported last week:

“Riding an export boom for commodities like soybeans, Argentina’s economy grew at an average rate of 7.7% from 2004 to 2010, almost twice the average annual growth of 4.3% in Chile, a country often cited as a model for economic policies, over the same period.”

Michael Shifter, the president of the inter-American dialogue and probably the most quoted source on Latin America in the US press, wrote in a disparaging article about Argentina this week that “If the sales and price of soybean, Argentina’s principal export (mainly to China), remain high, then the country may be able to continue its path of economic growth.”

I haven’t seen any economists make the claim that Argentina’s remarkable economic growth over the past nine years – which has brought record levels of employment and a two-thirds reduction in poverty – has been driven by soybeans or a commodities export boom. Maybe that is because it is not true.

I know what you’re thinking: “Who cares?” Well, try to keep reading, because this does have implications beyond the sprawling soybean farms in the Argentine province of Cordoba.

What does it mean to have a “commodities boom”, or growth driven by the export of commodities? One possibility would be based on quantity: the production and export of these commodities grows so fast that it makes up a large part of the country’s real growth in output. Thus, as a matter of accounting, we could look at real GDP growth for 2002-2010, the last year for which we have complete data on exports, and ask, how much of this real, inflation-adjusted, growth is due to exports of commodities?

It turns out that only 12% of Argentina’s real GDP growth during this period was due to any kind of exports at all. And just a fraction of this 12% was due to commodity exports, including soybeans. So Argentina’s economic growth from 2002-2010 was not an export-led growth experience, by any stretch of the imagination, still less, a “commodities boom”.

The other possibility is based on prices: the price of soybeans and other commodity exports also rose during part of this period. This can boost the economy in various ways, even if the physical amount of exports does not increase as rapidly as the economy. If this were driving Argentina’s growth, we would expect the dollar value of these exports to have grown faster than the rest of the economy. But this did not happen either. The value of agricultural exports, including of course soybeans, as a percent of Argentina’s GDP didn’t rise during the expansion. It was about 5% of GDP when the economy started growing in 2002, and 3.7% of GDP in 2010.

In other words, there is no plausible story that anyone can tell from the data to support the idea that Argentina’s growth over the past nine years was driven by a “commodities boom.” Why does this matter? Well, as economist Paul Krugman noted yesterday, “articles about Argentina are almost always very negative in tone ― they are irresponsible, they are renationalizing some industries, they talk populist, so they must be going very badly.” Which, he points out, “doesn’t speak well for the state of economics reporting.” It sure doesn’t.

The myth of the “commodities export boom” is one way that Argentina’s detractors dismiss Argentina’s economic growth as just dumb luck. But the reality is that the economic expansion has been led by domestic consumption and investment. And it happened because the Argentine government changed its most important macroeconomic choices: on fiscal, monetary, and exchange rate policies. That is what took Argentina out of its 1998-2002 depression and turned it into the fastest-growing economy in the Americas.

Now for the world-wide significance of how Argentina’s recovery actually happened: as I and many other economists have written, the policies currently being imposed on the eurozone economies – especially the weaker ones – are similar to what Argentina went through during the depression that led to its default and devaluation. These policies were pro-cyclical, meaning that they amplified the impact of the downturn. Together with a fixed, overvalued exchange rate, they made the economy worse. By defaulting on its debt and devaluing its currency, Argentina was freed to change its most important macroeconomic policies.

If the European authorities (the European Commission, the European Central Bank, and the IMF) continue to block the eurozone’s economic recovery with senseless austerity measures, individual countries will want to consider more rational alternatives in order to restore full employment. The people of Greece, Spain, Portugal, Ireland, and other countries are told every day that they must swallow this bitter medicine, and that there is no alternative to the prolonged suffering and high unemployment that they are going through. But the Argentine experience – in reality rather than in mythical portrayals – indicates that this is not true. There are definitely better alternatives – and they have nothing to do with soybeans or commodity export booms.

This article was reprinted with permission from the Guardian UK.