Congresos y reuniones científicas
? The Dutch disease and the effects of vertical fiscal transfers on the location of economic activity across a country regions: theory and evidence for Argentina,
Otro; Seminario del Departamento de Economía y Finanzas de la Fac. de Ciencias Sociales, Univ. de la República,Montevideo, Uruguay; 2010
Institución organizadora:
Universidad de la República, Montevideo

A non trivial amount of empirical evidence has shown that in Argentina there have been a lack of convergence between less and more developed regions (Figueras, et al., 2003, 2004; Russo and Ceña Delgado, 2000; Marina, 1998; Utrera and Koroch, 1998; Willington, 1998; Porto, 1994, 1996). This outcome is present even despite of the existence of a voluminous system of redistributive fiscal transfers.

The evidence we present below try to provide a plausible and much stylised explanation to an observed phenomenon where provinces that receive the highest per capita transfers show the worst behaviour in terms of footloose activities, i.e. manufactures. This result could be, to some extent, due to a Dutch disease like phenomenon that is negatively affecting the growth opportunities of provinces that are most benefited by fiscal transfers. Our hypothesis is that fiscal transfers, through an increasing purchasing power, may be producing a negative effect on the incentive of manufacturing producers to locate on those provinces which receive the largest transfers. Additionally, a non-benevolent behaviour by State governments may be also contributing to this negative effect.

The rest of the paper is organised as follow. In section 1 we discuss briefly the literature on the effects of capital flows, foreign aid and the Dutch disease. Section 2 presents a stylised

description of the recent evolution of Argentina’s system of transfers from the Federal to State governments, looking at the correlation between these transfers and State governments current expenditures; some econometric evidence is also presented. In section 3 we develop a theoretical model inspired on the New Economic Geography to try to explain the stylised facts presented in the previous section. Section 4 concludes