We use data from old population, agricultural and industrial census records, together with geo-referenced data on climatic conditions, as well as soil quality. Using exogenous variation in agricultural production patterns generated by climatic features (FAO’s GAEZ data on land suitability), we construct an instrumental variable, and find negative effects of ranching specialization on long-run income per capita that are both significant and sizable. The results are robust to controlling for province fixed effects and an array of geo-climatic conditions. We also show how the effects of early ranching specialization emerged over the course of import-substituting industrialization between the 1930s and the 1970s.
We assess the plausibility of four potential channels: the comparative performance of ranching and other agricultural activities; the role of backward and forward linkages characterizing different agricultural activities; the effects of land concentration (which was higher in ranching localities); and the differential patterns of population density and immigration associated with each specialization pattern.
In sum, building on the staple theory we show that specialization on certain export staples have profound effects on the economy, that last and propagate over the long run. The case of the fertile plains in Argentina, an area with exceptional conditions for agriculture and cattle, peopled over a short period of time by Argentinians and Europeans, provides a good environment in which to test how specialization at early stages of development affects the pattern of development a region may follow.