Copper in Chile - When the Resource “Outside” Becomes a Blessing

Abstract

Abstract The article aims at explaining how a small opened economy can effectively deal with a resource abundance problem. The thesis of the essay is a statement that Chile has been able to cope with the resource “outside” by developing proper institutions and diversifying the structure of its foreign trade. To verify the thesis, a literature review of theoretical recommendations how to utilize resource revenues without harming economy, as well as analyses of chosen macroeconomic variables were conducted. The possible solutions on how to deal with resource abundance problem are following: investing resource revenues outside of the economy, implementing fiscal rules that will stabilize budget revenues and prevent inflation from rising, and diversifying export in terms of product and geographical structure. Consequently, these solutions have been introduced in Chile, the world leading producer of copper, several years ago and proved to be very successful. Chile enjoys stable resource revenues despite the business cycle and performance of the copper market, while its real effective rate and export competitiveness has not been eroded. T is paper presents, according to author's knowledge, the first detailed case study analysis of the country from Latin America, that has been successfully dealing with the resource abundance problem over several decades.