Argentina’s “Missing Capital” Puzzle and Limited Commitment Constraints

Argentina’s capital stock has consistently fallen in periods of total factor productivity (TFP) declines, while remaining largely unresponsive in periods of TFP surges. The net result of this asymmetry is that capital appears to have been “missing” from the Argentine economy when conditions were particularly favorable to an investment boom. Models that assume that a country cannot commit to honor its external debt obligations are a natural...