Innovation and Export Dynamics in the Argentine Soybean Production Chain: a Study in Micro-Macro Interactions

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Albrieu, Ramiro
Bernat, Gonzalo
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It is difficult to find a field of macroeconomics in which experts can disregard Argentina. Researchers that focus on economic growth have compared Argentina with Japan or Australia, concluding that the former had experienced many “lost opportunities”. Researchers that focus on inflation dynamics try to explain how an economy can go from hyperinflation to deflation in just a few years. Researchers exploring international finance and emerging economies wonder whether Argentina played a Ponzi game with its external debt during the late 1990s. Researchers studying business cycles have tried to understand the determinants of excess aggregate volatility and the occurrence of crises episodes. And on it goes. As we can see, the set of “macroeconomic facts” for Argentina has few positive elements. Albrieu and Fanelli (2008) and Chisari et al. (2008) elaborated growth diagnostics for Argentina in line with Hausmann et al. (2005) methodology, and they detected that the main binding constraint on economic growth is the low appropriability of the returns on economic activity. The idea is simple. Imagine an economy that is subject to external (and policy-induced) shocks and an especially low ability to process them without generating important economic costs and, in some cases, dramatic regime switching. Given this context, investment decisions in physical capital and innovative activities are rather defensive. So, the investment rate is low, especially in those areas where profits are more uncertain, such as Research and Development (R&D). As a result, the average productivity level of the economy is lower than that reported in the developed world. From a macroeconomic perspective, the stylized fact that arises is a divergence in long run growth (cf. Pritchett, 1997). Nevertheless, since the mid-1990s one sector of the economy has gone in the opposite direction. We refer to the Soybean Production Chain (SPC). Between 1996 and 2007, the primary production of oilseeds grew from 12 million tons to 48 million, whereas SPC exports increased from 11 million tons to 46 million. Hence, Argentina was transformed into the leading exporter of oilseeds and soybean flour, together with being the main worldwide pool of oilseed production in the environs of Rosario, Santa Fe. In sum, SPC registers high rates of growth, is fully integrated with international markets, displays a differentiated pattern of innovative activities, and has developed a complex structure of contracts that it is very difficult to see in the rest of the economy. In this paper we take neither a purely macroeconomic nor a purely microeconomic approach, but a mix of the two. More precisely, we consider that a decentralized decision of the economic unit regarding investment and technological change (that is, the microeconomics) is determined simultaneously with the characteristics and the performance of the aggregate economy (the macroeconomics). To this end we need to detect whether causation runs in both directions: (a) from macroeconomics to microeconomics, we will take into account that macroeconomic shocks are decisive to defining the (micro)economic structure; (b) from microeconomics to macroeconomics, we will analyze how the economic structure and the institutional arrangements implemented (such as, contingent contracts) affect the ability of the economy to process shocks, taking advantage of the positive ones and filtering out the negative ones. The present study on the interactions between the microeconomy and the macroeconomy recognizes – and is inspired by – several studies on economic development in Argentina. In particular, the studies of Fanelli and Frenkel (1994 and 2000), Katz (1996) and Kosacoff (2008) have conducted exercises that are similar in spirit to ours. By contrast, the most important difference between these papers and ours is the sector of the economy chosen to represent “the microeconomy”: while we study a branch of the agricultural sector, they analyze the dynamics of the industrial sector. The difference is important because of the diverging paths these two sectors take. In the above papers the authors explained how the uncertain macroeconomic environment makes profitable a specific kind of adaptative behavior that generates a premium on the more flexible or reversible options. Simultaneously, this (directly unobservable) defensive behavior has its observable counterpart in a pattern of low investment in physical capital and R&D, with the corresponding negative effects on economic growth. As we wrote above, this is not the case for the SPC. Therefore, we have to determine new linkages between microeconomics and macroeconomics. The work is organized as follows. Section II studies the changes in the environment (or the “macroeconomics) of the individual agent that is part of the SPC and makes decisions regarding investment and innovation. We will see the role played by world markets as well as economic policies. That is, we will study how the aggregative conditions influence the individual decision and in so doing, influence the configuration of the economic structure. Section III describes the microeconomic decisions taken by these agents. We will explain SPC’s strategies for investment in innovation as the (best) response to the perceived changes in the environment detected in Section II. Section IV studies how the resulting economic structure of those microeconomic, decentralized decisions affects the macroeconomic performance. Finally, Section V concludes.
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