Contract enforcement and Argentina's long-run decline

Abstract

Argentina has slipped from being among the ten richest countries in the world by the eve of World War I to its current position close to developing countries. Why did Argentina fall behind? In this paper we employ a structural model to investigate the extent to which contract enforcement, as captured by Clague, Keefer, Knack, and Olson's "Contract Intensive Money", conditioned broad capital accumulation and economic growth in Argentina and, consequently, the country's relative international position. Our results suggest that poor contract enforcement played a major role in Argentina's unique experience of long-run economic decline.