Between 1870 to 1914 the Argentine economy performed spectacularly with a yearly average real growth rate of 5.94 per cent. Increased resource endowment in both land and labor, via migration, and openness to trade have been considered the two main drivers of this success. At the same time, The Argentine Republic passed a very advanced constitution in 1862 that contained important reforms for a market economy based on the rule of law. In this project we underline the central role of Argentine immigration in contributing not only to increase resource endowments, but also to lower trade costs boosting exports and imports. We also want to deem the role of economic institutions in both attracting immigrants and shaping the development during this golden age for Argentina that however did not last for different causes. The project wants to underline how institution quality and migration could have feedbacked to each other and both played a key role in the development of the New World, but at the same time it can shed light on the current policies for development.
The innovative aspects of this research projects are as follows:
1) The analysis on the role of Argentine migration in boosting and shaping the trade pattern and the specialization model has not been proposed within an econometric framework as we are proposing here. The empirical investigation adds to the scarce cliometrics literature on this subject and is fully original thanks to the construction of a database of trade flows and migration flows for Argentina by considering distinctively each trading partner.
2) The empirical analysis is based on the gravity model of international trade (see Head and Mayer, 2014), but when considering the beneficial effect of migration in lowering the trade costs between Argentina and each one of the trading countries. Different theories on the pro-trade effect of migration will be reviewed to illustrate the possible channels through which migration could trigger more exports and/or imports. The econometric investigation concentrates on the relative effect of migration on imports and on exports. On the one hand, the presence of migrants causes an increase of the demand for ethnic goods that are not be produced in the destination country, therefore generating demand that can be only satisfied by imports. On the other hand, migrants can increase the domestic formal and especially informal knowledge of their origin countries, therefore lowering the trade costs and help the penetration capabilities of Argentine firms in Europe.
3) Another innovative aspect of our research is on the way of solving the problem of reverse causality between migration and trade. Here, we are interested in evaluating the contribution of migration on imports or exports and not the opposite causality link. In order to isolate the relevant causal direction we need to consider additional variables that would not be affected by the Argentine trade flows, but that are still closely determined by the same causes of the Argentine migration. We could take advantage of the special period of mass out-migration from Europe that was directed not only to Argentina, but to many other countries in America. A good candidate would be migration flows to North America ¿ in particular, to the US. These flows were originated by the same push factors, but they were completely unrelated to Argentine exports or imports from the same origin countries of the migrants.
4) Since the gravity model that we consider would pivot on one single country, i.e. Argentina, we propose a methodology based on three ratios of trade flows and implying data from a third non-European country that would not be characterized by migration from the same group of European countries that we consider as partners for Argentina. By following a methodology that was used to evaluate the NAFTA gains from trade for the three partners in North America and adapting it to the migration case, we could isolate the sole contribution of migration while all the multilateral resistance terms would cancel out in the construction of the triple ratio.
5) The project would propose an evaluation of the quality of institutions with particular attention to the role of corruption by considering the different rules and regulations that were active in Argentina at that time and comparing their construction with current anti-corruption laws.