The country was not quite as rich in the early days as it is sometimes made out to be:
Argentina’s performance on this measure is frequently exaggerated. In 1929, for example, Argentina’s per capita income was less than half of the average of other temperate agrarian societies (such as Canada and Australia) and of European industrialized countries (such as Great Britain, Germany, Belgium, and Sweden). In 1969 and in 1929, it was 38 percent of the U.S. figure…
That is from the very good 1996 Larry Sawers book The Other Argentina: The Interior and National Development. It is related to my earlier post on Salta.
The author also has an excellent explanation of how import substitution strategies run out of steam, even if they produce more growth in a shorter run. The import substitutes usually require subsidies to get started, which puts a squeeze on the government budget, and in fact you can think of import substitution as a kind of deficit spending/borrowing against the future. The import substitution also puts a squeeze on the agricultural sector, which for many countries, Argentina included, had been generating net foreign exchange. The balance of payments then worsens, which also becomes a longer run problem. Over time, in addition, obtaining the needed foreign inputs for the import-substituting sectors becomes yet another problem. In time, tariffs are needed for the nascent domestic sector, and that protectionism lowers living standards and also leads to higher corruption.
As the author notes:
In the early postwar years, ISI [import substitution] was highly recommended by almost every development economist in the world and pursued by virtually every Third World country.
At first it worked, but over time it fared far less well. This is one of the very best and also unheralded books about Argentina, as there are interesting points on almost every page. One point the author makes, for instance, is that the Argentina economy never had great facility in making high fixed investments, even before Peron and various later depredations. Most of all, this is a book that actually tries to answer your questions.
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