The path to second world status?

A contributer to the Australian website Can Do Better cites a passage from American writer Roy Beck's recent book The Case Against Immigration finds a link between high immigration and Argentina's economic decline in the 1930s (hat tip: Ralph Edwards from the blog Eye on Immigration ).

While the US, Canada Australia and New Zealand slowed down their immigration levels in the 1910s and 1920s, Argentina did not have an immigration timeout. As a result Mr Beck says the country had to borrow heavily on internatinal markets to fund new infrastructure needed to support the burgeoning population, and this led to serious economic problems further down the track:

"How did Argentina cease to be one of the world's richest countries? That puzzle was the challenge for Allan M. Taylor, the Mellon Fellow at the Harvard Academy for International and Area Studies and the Department of Economics at Harvard. "More compelling and mysterious examples of failure than the ruination of Argentina are hard to imagine," Taylor said in a 1992 paper published in the journal of Economic History. He concluded that a key factor for Argentina's economic disintegration was the continuation of high European immigration to Argentina after the United States, Canada, and Australia began ending their eras of mass immigration early this century.

No single explanation could account for such a sustained and deep economic demise, Taylor said. But a crucial factor surely was the country's remarkably low savings rate, as compared to Australia, for example. Taylor linked the low savings rate to the high rate of immigration and the high fertility rate of the immigrants. Both immigration and fertility were higher than in Australia and contributed to Argentina having higher consumption and lower savings, Taylor found. The country made up the shortfall of capital for a while by heavier reliance on foreign capital. The differences in Argentina's circumstances-with their roots in the difference in immigration rates-left the country much more vulnerable than the other advanced nations to international events. Argentina's rich, middle-class economy was not able to survive."

The potential link between high immigration and low savings is not something I've thought about before.

In the case of New Zealand it's certainly noticeable that since immigration levels began increasing in the early 1990s, savings rates have remained stubbornly low, and in economic terms the country has been unable to lift itself off the bottom tier of first world countries.