Mix and sequencing of economywide and agricultural reforms: Chile and New Zealand

Abstract

ABSTRACTOnce committed to economywide and sectoral reforms – stabilization, structural adjustment, and trade liberalization – and companion reforms of institutions, how does government best proceed? With what reforms in response to initial conditions, and in what mix, sequence, strength, and speed? This study examines what factors were most critical to success during transition in two early reformers. The economies of Chile and New Zealand have undergone seismic reforms, starting in the mid‐1970s and 1980s, respectively. Comparative analysis of their reforms look at the prior conditions that induced drastic action and the policy choices made in each country. Though similar in many respects, differences in initial economic conditions and implementation led to dissimilar, even contrary results. For Chile, the outcome was a vigorous, recharged economy and agricultural sector; for New Zealand, the economy and the sector are lagging still. How policy choice and implementation, as well as simultaneity of reforms, affected the outcomes is the major thrust of the study. The preeminence of trade and macroeconomic policies over sectoral interventions, and in particular the strategic nature of the real exchange rate in allowing agriculture to compete domestically and internationally highlight the discussion.