Investment and competitiveness. The case of the Province of Mendoza (1997-2017)

Abstract

This paper explores the possible causes of the loss of positioning of Province of Mendoza’s economy in the national concert. First, the phenomenon is described and related to the loss of competitiveness and Government performances, as possible causes. Second, this research distinguishes between two sources of competitiveness: an external one (real exchange rate) and an internal one (provincial investments as “Gross Fixed Capital Formation “account). Third, government performances are explained for each period. Finally, a statistical test is made for the hypothesis indicated.

The main conclusion reached in this paper is that, both the competitiveness that comes from the relative prices abroad (real exchange rate) and the one that comes from the increase in productivity due to greater investment, have affected the rate of Mendoza's economy growth and then its positioning as percentage of national GDP. It is also stated that economic performance comes from external and internal factors associated with provincial economic policy. Regarding external factors, exchange (and probably commercial) policy, which is outside the scope of provincial policy, the investment policy stands out as one of main internal factor. In this sense, it is concluded that the creation of budgetary incentives (public investment), positive economic and political environment (private investment) is vital to recover the position of the economy of Mendoza in the national concert.