Chilean Economy Research Articles

Intermediate inputs in Dutch disease. Copper in Chile

PurposeBy means of a practical model, the paper discusses the role of intermediate inputs in the ability of a booming extractive sector to draw resources out of lagging sectors, giving rise to Dutch disease. MethodsThe model is for the Chilean economy and follows an ‘extended’ input-output structure, with 35 production sectors. Once calibrated and parameterized, the model can be solved numerically to estimate the resource movement effect and the spending effect of a copper boom. FindingsThe numerical exercises show that, when the use of intermediate inputs is taken into account, the resource movement effect is of similar magnitude to the spending effect in explaining deindustrialization in Dutch disease. The key mechanism here is that, when the copper sector expands, its effects on real wages and good prices can be significant, due to the use of intermediate inputs. ImplicationThis implies that the policies that are commonly recommended to avoid Dutch disease (fiscal rules, sovereign wealth funds, etc.) may not be very effective if they are not accompanied by others aimed at promoting greater provision or efficient use of scarce resources. OriginalityThe present study contributes to the literature on Dutch disease in two ways. On the one hand, it provides an estimate of the resource movement effect and the spending effect of a commodity boom. On the other hand, it provides evidence in favour of the hypothesis that extractive activities can lead to direct deindustrialization.

An Integrated Approach: A Hybrid Machine Learning Model for the Classification of Unscheduled Stoppages in a Mining Crushing Line Employing Principal Component Analysis and Artificial Neural Networks.

This article implements a hybrid Machine Learning (ML) model to classify stoppage events in a copper-crushing equipment, more specifically, a conveyor belt. The model combines Artificial Neural Networks (ANNs) and Support Vector Machines (SVMs) with Principal Component Analysis (PCA) to identify the type of stoppage event when they occur in an industrial sector that is significant for the Chilean economy. This research addresses the critical need to optimise maintenance management in the mining industry, highlighting the technological relevance and motivation for using advanced ML techniques. This study focusses on combining and implementing three ML models trained with historical data composed of information from various sensors, real and virtual, as well from maintenance reports that report operational conditions and equipment failure characteristics. The main objective of this study is to improve the efficiency when identifying the nature of a stoppage serving as a basis for the subsequent development of a reliable failure prediction system. The results indicate that this approach significantly increases information reliability, addressing the persistent challenges in data management within the maintenance area. With a classification accuracy of 96.2% and a recall of 96.3%, the model validates and automates the classification of stoppage events, significantly reducing dependency on interdepartmental interactions. This advancement eliminates the need for reliance on external databases, which have previously been prone to errors, missing critical data, or containing outdated information. By implementing this methodology, a robust and reliable foundation is established for developing a failure prediction model, fostering both efficiency and reliability in the maintenance process. The application of ML in this context produces demonstrably positive outcomes in the classification of stoppage events, underscoring its significant impact on industry operations.

A New Ecological Contract

A New Ecological Contract is a pedagogical framework for design studios that focus on sites of socioenvironmental conflict. Through ecocritical video game design, students engage with situated impacts of large-scale climate issues by working through images of environmental impact assessment reports and baseline studies as archives of landscape transformation. This framework pursued two objectives: first, to awaken a critical and spatial political imagination in the context of a four-year constitutional referendum process that challenged the basis of the Chilean economy and its relationship to the environment from which it derives its riches, and second, to present students with a case for using their representational abilities to engage with situated impacts of large scale climate issues by going through environmental impact assessment reports’ images and baselines studies approaching a design brief otherwise.

The biofactories: Quantifying environmental benefits of the wastewater circular economy in Chile using life cycle assessment

The wastewater circular economy promises improved environmental impacts within the food-water-energy nexus. This requires verification as the global sanitation sectors seek to improve environmental impacts and achieve integrated water management. Life cycle assessment (LCA) has been used to compare novel technologies for wastewater treatment and recovery, but research addressing plant-wide improvements of co-product resource recovery using real data from full-scale plants is still needed, particularly in a Latin American context. In Chile, two wastewater treatment plants (WWTPs) have embraced the circular economy configuration, recovering treated effluent, biosolids, and biogas, in addition to implementing advanced nitrogen removal using different technologies. The LCA of these two WWTPs demonstrated that Plant A improved 8 out of 10 impact categories compared to the baseline conventional scenario, while Plant B improved 5 categories out of 10. The analysis of the two plants showed the influence of influent quality on environmental impacts and the trade-off that occurs between the different technologies implemented. Plant B generated larger environmental credits through increased biogas and biosolids recovery due to thermal hydrolysis pre-treatment and anaerobic digestion, combined with cogeneration of heat and power. Plant A implemented water recovery, which provided benefits on a smaller magnitude but to more impact categories. Therefore, both plants improved environmental impacts through the wastewater circular economy, but further improvements in system configurations are recommended in each.

Credit card repayments in a Latin American country: a psychological perspective

PropósitoAnalizamos la decisión de la tasa de pago de los estados de cuenta de tarjetas de crédito a través del uso de factores de fondo y percepciones que indirectamente inciden en las creencias de acuerdo a la teoría del comportamiento planeado.Diseño/metodología/enfoqueDebido a que los marcos legales e institucionales, así como también las encuestas financieras de hogares son heterogéneas entre países, se utilizan datos de los hogares de la economía chilena como un punto de partida en esta materia.HallazgosLa probabilidad de que un individuo elija pagar un monto menor que el total de facturación de sus tarjetas de crédito es afectada por variables proxy asociadas al control conductual percibido. La condición de ser jefe de hogar, ser más joven, la percepción de una alta o excesiva carga financiera de la deuda, y enfrentar situaciones desfavorables e inesperadas que desvían del presupuesto, entre otras, son relevantes para las decisiones de pago.OriginalidadLa novedad de este artículo es que su enfoque difiere del enfoque tradicional de la racionalidad económica en relación a las tarjetas de crédito. Los resultados son relevantes para los hacedores de política y reguladores financieros debido a sus implicancias para las finanzas conductuales de los hogares y sus medios de pago.

Capital controls and firm performance

This paper studies the differential effects of capital controls (CCs) on firms’ performance depending on the firm’s production technology and export status. We empirically characterize the firm’s responses to the introduction of a CC using the Chilean encaje implemented between 1991 and 1998. Motivated by the empirical insights, we build a general equilibrium model with heterogeneous firms, financial constraints and international trade and calibrate it to the Chilean economy. We find that CCs have heterogeneous effects on firms. Exporting firms operating in more capital-intensive sectors are more negatively affected than exporting firms operating in less capital-intensive sectors. Non-exporting firms in capital-intensive sectors experience more negative effects on capital than firms in less-capital intensive sectors, but the opposite is true for domestic sales. These results are a consequence of the increase in financing costs, the depreciation of the real exchange rate, and compositional effects on the mass of exporters and non-exporters.

Analyzing the Impact of COVID-19 on Economic Sustainability: A Clustering Approach

This work presents a comprehensive analysis of the economic impact of the COVID-19 pandemic, with a focus on OECD countries and the Chilean case. Utilizing a clustering approach, the research aims to investigate how countries can be categorized based on their pandemic mitigation strategies, economic responses, and infection rates. The methodology incorporates k-means and hierarchical clustering techniques, along with dynamic time warping, to account for the temporal variations in the pandemic’s progression across different nations. The study integrates the GDP into the analysis, thereby offering a perspective on the relationship between this economic indicator and health measures. Special attention is given to the case of Chile, thus providing a detailed examination of its economic and financial indicators during the pandemic. In particular, the work addresses the following main research questions: How can the OECD countries be clustered according to some health and economical indicators? What are the impacts of mitigation measures and the pension fund withdrawals on the Chilean economy? The study identifies significant differences (p-value < 0.05%) in the GDPs and infection rates between the two identified clusters that are influenced by government measures, particularly in the banking sector (55% and 60% in clusters 1 and 2, respectively). In Chile, a rebound in the IMACEC index is noted after increased liquidity, especially following partial pension fund withdrawals, thereby aligning with discrepancies between model forecasts and actual data. This study provides important insights for evidence-based public policies, thus aiding decision makers in mitigating the socioeconomic impact of global health crises and offering strategic advice for a sustainable economy.

From a Brown to a blue economy in Chile

The Chilean brown economy continues to expand, without specific definition of sustainable limits or how to transition to an ecologically balanced future. The article first reviews marine democracy across 42 cases of mining and coastal refinery projects, port developments, aquaculture, factory contamination, wind farms, coal and property development. In depth, an industrial fish factory cluster in Arica, a coastal zone impacted by mining in Chañaral, and fjord aquaculture in Puyuhapi. Using semi structured interviews, and participatory GIS focus groups, it shows the same issues repeat, and how a new participatory marine democratic system might transition the blue economy.

Chicago Boys: Economic Liberalization and the Chilean Economy

Chicago Boys: Economic Liberalization and the Chilean Economy

CHILE: HOW TO BECOME AN ECONOMIC STAR OF THE PACIFIC REGION?

Chile is the state actor that became the regional power to be reckoned with despite a relatively small population and tense geopolitical relations with three neighbours – Argentina, Peru, and Bolivia, – while the pecularities of the national topography make the task of economic development considerably harder. Moreover, at the first sight, the dictatorship of Augusto Pinochet with its notorious repressions hardly could lure foreign investors. The article explains which commodities and services helped the country to reach one of the highest per capita levels in South America The authors focus on the specific features of Chile’s geopolitical location by highlighting key points of its political and economic interactions with Argentina, Bolivia, and Peru, and also identify important segments of the state’s tourism business which turn it into a significant point of cultural and tourist development in the Latin American region. In this vein, the importance of cooperation between Chile and other states in the region in the field of air transportation is emphasized, since this collaboration allows them to actually dominate the airspace and establish numerous tourist and cargo transportations. The importance of mining which allows Chile establishing cooperation with other regional actors in this sector is emphasized. In addition, the authors highlight the sphere of agriculture where Chilean farmers emphasize fishing, fruit growing and wine production, as well as the subsequent export of these goods abroad due to the small consumption capacity of the domestic market. Considering Chile’s foreign policy interactions with external partners, the authors stress the importance of cooperation with China and the US. These states are noted to have a significant influence on the development of the Chilean economy because they cooperate with it in all critically important sectors. However, the uncontrolled growth of Chinese import flows and the excessive presence of Chinese multinational corporations in the territory of Chile cause certain concerns both in Chile and on the part of the United States. Nevertheless, the authors conclude that the state’s balanced economic policy in the region allowed Chile to gain a worthy place in the economic structure of Latin American trade and increase the pace of its own development.

The Biofactory: Quantifying Life Cycle Sustainability Impacts of the Wastewater Circular Economy in Chile

The wastewater circular economy (WW-CE) represents a solution to improving sanitation coverage and management worldwide. However, the transition to circular wastewater treatment plants (WWTPs) requires facilitation to enhance decision-makers’ understanding of the integral sustainability impacts of the WW-CE. This research implemented a Life Cycle Sustainability Assessment (LCSA), combining Life Cycle Assessment, Social Life Cycle Assessment and Life Cycle Costing with a Multi-criteria Decision Making (MCDM) model to quantify the environmental, social, and economic impacts of different WWTPs technologies. Two real WWTPs (Plant A and Plant B) in Chile have embraced alternative WW-CE configurations, adopting the title Biofactories, and are considered as case studies in this investigation. A comparative LCSA considered the service of a 1,000,000-population equivalent, under three scenarios: wastewater discharge without treatment, conventional WWTPs, and biofactory WW-CE configurations. The results demonstrate that the transition to WW-CEs improved integral sustainability, and decreased integrated environmental, social, and economic impacts by 30% in Plant A, demonstrating better performance in terms environmental and social impacts. However, a 58% decrease in integral sustainability impacts for Plant B was achieved via the economic advantage of the thermal hydrolysis pre-treatment of sludge. The urgent need to adopt sustainable decision-making models to improve sanitation coverage and sustainability performance of the sanitation industry across the globe is discussed. The WW-CE in Chile presents an opportunity for this to be achieved.

The gig economy in Chile: Examining labor conditions and the nature of gig work in a Global South country

While there is growing literature regarding the impact of the gig economy in countries of the Global North, the way it operates in Latin America and the Caribbean remains underexplored. This article describes platform work in Chile, especially in the context of COVID-19, which has highlighted the essential role of geographically tethered digital platforms in facilitating essential goods and services in times of social distancing and quarantine. While the gig economy has provided employment for those outside traditional labor markets, its supposedly ‘collaborative’ employment structures obscure the different costs of precarity and informality transferred from platforms to workers (Ravenelle, 2019). Based on 35 interviews with gig workers using the Fairwork framework to evaluate working conditions in the gig economy, this article examines digital labor relations, both on paper and in reality; the conditions and limitations gig workers face daily; and their perceptions regarding such platforms. We discuss the contradictory experiences felt by platform workers, dependent on the platform in some ways, and independent in others. We argue that the inherently contradictory conditions and circumstances of platform work have become even more salient for gig workers in the context of COVID-19: risks increasingly fall on workers as platforms continue to stress their ‘choice’ to do so. This article reveals that the nature of the linkage between platform and worker is eminently a labor relationship, with clearly established elements of worker dependence.

Reconstructing the Quarterly Series of the Chilean Gross Domestic Product Using a State Space Approach

In this work, we use a cointegration state space approach to estimate the quarterly series of the Chilean Gross Domestic Product (GDP) in the period 1965–2009. First, the equation of Engle–Granger is estimated using the data of the yearly GPD and some related variables, such as the price of copper, the exports of goods and services, and the mining production index. The estimated coefficients of this regression are then used to obtain a first estimation of the quarterly GDP series with measurement errors. A state space model is then applied to improve the preliminary estimation of the GDP with the main purpose of eliminating the maximum error of measurement such that the sum of the three-month values coincide swith the yearly GDP. The results are then compared with the traditional disaggregation methods. The resulting quarterly GDP series reflects the major events of the historical Chilean economy.

The perils of lax economic policy: The case of Chile during the COVID-19 pandemic

This paper examines the short- and long-term effects of lax economic policy in Chile during the COVID-19 pandemic and discusses whether they promoted or inhibited sustainable economic growth and development. The case of Chile is worth studying because it straightforwardly describes the effects of passive and active economic policy on the economy. It is argued that the active or lax economic policy generated a short-term boom period and a long-term recessive environment. Lax economic policy in Chile distorted the price system and the intertemporal allocation of resources, stimulating consumption and indebtedness. Investments became less capital intensive, stagnating labor productivity and reducing growth and development. Regardless of external factors, the research shows that the recession of the Chilean economy emerged from lax economic policies and institutional uncertainty. These findings recognize the causes of the recessive environment of emerging economies, offering new insights into promoting sustainable economic growth and development post-crisis.

Chile

After an impressive recovery from the COVID-19 pandemic, the Chilean economy is undergoing a necessary transition towards sustainable growth amid a challenging external environment. Policy implementation remains very strong, geared towards correcting macroeconomic imbalances that built up during the pandemic while protecting the most vulnerable and advancing structural reforms, consistent with past Fund Advice (Annex I). On August 29, the IMF Executive Board approved a two-year Flexible Credit Line (FCL) arrangement for Chile in the amount of SDR 13.954 billion (800 percent of quota) to augment precautionary buffers and provide substantial insurance against adverse scenarios.

A Threshold GARCH Model for Chilean Economic Uncertainty

In this paper, an autoregressive moving average (ARMA) model with threshold generalized autoregressive conditional heteroscedasticity (TGARCH) innovations is considered to model Chilean economic uncertainty time series. Uncertainty is measured through the Business Confidence Index (BCI) and Consumer Perception Index (CPI). The BCI time series provide useful information about industry; commerce; the finance, mining, construction, and agricultural sectors; and the global economic situation and the general business situation. As a counterpart, the CPI time series measure the perception of consumers regarding the state of the Chilean economy, evaluating their economic situation and expectations. The ARMA-TGARCH model is compared with the classical seasonal ARIMA and threshold AR ones. The results show that the ARMA-TGARCH model explains the regime changes in economic uncertainty better than the others, given that negative shocks are associated with statistically significant and quantitatively larger levels of volatility produced by the COVID-19 pandemic. In addition, a diagnostic analysis and prediction performance illustrates the suitability of the proposed model. Using a cross-validation analysis for the forecasting performance, a proposed heteroscedastic model may effectively help improve the forecasting accuracy for observations related to pessimism periods like the social uprising and the COVID-19 crisis which produced volatility in the Chilean uncertainty indexes.

Green hydrogen: Chances and barriers for the Energiewende in Chile

<h2>Abstract</h2> Chile's hydrogen strategy aims to make the country the world's lowest-cost supplier of hydrogen from wind and solar energy. By 2030, the country targets to become the largest exporter and price leader in production, including downstream products such as ammonia. As an energy-rich country, Chile could deepen and diversify its value chain and accordingly shape new energy trade flows and exporter-importer coalitions. However, this also risks triggering chain reactions and shifting high-emission and easily transportable industrial (pre-)products from the Global North to sun- and wind-rich countries in the Global South, like Chile, raising environmental justice issues anew. Moreover, hydrogen production itself can interfere with environmental justice issues when it comes to land rights and water distribution in the country. Based on an in-depth examination of the adoption of the hydrogen economy in Chile, chances and barriers for the transition to a sustainable hydrogen society are discussed.

Determinants of FDI in the Chilean Case: A FMOLS Analysis, 1970-2016

This paper examines some of the major economic and institutional determinants of foreign direct investment (FDI) flows to Chile during the 2000s. It reports econometric results which suggest that standard economic variables and major changes in the institutional-legal status of foreign capital are, in large measure, responsible for the rapid increase in FDI flows to leading sectors of the Chilean economy. Cointegration analysis in the presence of structural breaks and FMOLS estimates for the 1970-2016 period suggest that market size, the real exchange rate, the debt-service ratio, education, physical infrastructure, and the Fraser Institute’s economic freedom index are economically significant in explaining the variation in the stock of net FDI to the country. Dummy variables, designed to capture qualitative factors such as the impact of economic crises and institutional reforms, are also included and they have their anticipated signs and are statistically significant. The paper also addresses the long-term negative effects of rapidly growing profit and dividend remittances on the financing of capital formation and the Chilean balance of payments in recent years.

Stylizovaná fakta ekonomických krizí na příkladu Chile

This paper focuses on the stylized facts of macroeconomic variables during crises. These findings are verified on the time series of selected indicators of the Chilean economy. Chile provides an interesting insight into this issue because of its economic history. On the sample of crises since the 1970s, this paper reveals that approximately 60% of macroeconomic indicators fulfilled the stylized theoretical facts. World GDP, the current account balance, terms of trade, foreign direct investment inflow, and foreign exchange reserves could have been possible indicators of the forthcoming crises.

Chile

After an impressive recovery from the fallout of the Covid-19 pandemic, the Chilean economy is confronting an acute deterioration of the external environment. Downside risks have materialized, including a tightening of global financial conditions, a slowdown in global growth, and a substantial drop in Chile’s terms of trade. Domestic economic policies are appropriately being recalibrated to mitigate risks and preserve macroeconomic stability, while supporting vulnerable groups. The authorities will continue leveraging on Chile’s very strong fundamentals and policy frameworks to implement an ambitious reform agenda in a challenging external environment.