On the eve of World War I, the future of Argentina seemed bright. From the adoption of the constitution in 1853 to the onset of World War I, Argentina underwent a period of economic exceptionalism known as the Belle Époque. By 1896, Argentina achieved per capita income parity with the United States and attained a considerably higher level of prosperity than France, Germany, Italy, and Spain. Strong economic growth and institutional reforms positioned Argentina among the top 10 countries by 1913 in terms of per capita GDP. Some scholars have called 19th-century Buenos Aires “Chicago on Rio de la Plata,” given the historical similarities between both cities. Nineteenth century Buenos Aires boasted the highest literacy rates in Latin America, unprecedented European immigration, and rapid modernization of infrastructure.
It seems that Argentina briskly moved the “lever of riches” in less than half a century. In 1913, Argentina’s per capita income stood at 72 percent of the US level. In 2010, Argentina achieved barely a third of US level. In 1860, Argentina needed about 55 years to attain the per capita income level of Switzerland. Today Argentina would need more than 90 years to achieve the Swiss level of prosperity. How could a society that achieved astonishing wealth and splendor in less than half a century move from being a developed country to being an underdeveloped one? The most obvious question to ask is, What went wrong? The answer lies in a lack of inclusive and participatory robust legal and institutional framework that would have prevented the reforms from being undermined. A counterfactual experiment for Argentina suggests that institutional breakdowns are a critical explanation in development narratives.