Chilean Economy Research Articles

Copper and the Chilean Economy, 1960-98

This paper studies the links between world copper prices and the Chilean economy. The main conclusion is that world copper prices play an important role in short-term economic fluctuations. While many mechanisms may be at work, investment seems to play a major role. During a copper price boom, the higher copper revenues and associated capital inflows create upward pressure on the real exchange rate. In turn the, appreciation of the Chilean peso during the first part of the copper cycle contributes to lower inflation, which could explain why real wages grow more rapidly in this part of the cycle.

Should Developing Countries Restrict Capital Inflows?

In the early 1990s, Chile imposed a tax on short-term inflows of foreign capital to control its current-account deficit by reducing the real exchange rate of the peso. The tax reduced capital inflows and increased the maturity of the foreign capital that entered that country, but the preponderance of the evidence is that the impost did not affect the real exchange rate of the peso. Moreover, the tax imposed considerable costs on the Chilean economy. After the 1997-98 financial crisis, some economists and politicians advocated such a tax to effect or preserve macroeconomic stability in developing countries. Aside from "second-best" arguments, imposing such a tax for that purpose can be justified only as a temporary measure to enable countries facing economic or financial crisis to reform and introduce prudential regulation and adequate supervision of their financial systems, but history shows that reforms dissipate as economic and financial conditions improve.

The Political Economy of Chile's Fast Economic Growth: An Olsonian Interpretation

A conceptual framework inspired by MancurOlson's contributions to political economyis used to explain Chile's recent economicand political performance, with particularemphasis on the `hidden hand', politicalstability, rent-seeking, policy-makingquality, institutions, cultural attitudesand cultural change, fortunate historicalaccidents, critical masses, and virtuouscircles and other `positive loops'. Theanalysis combines very long-term withshort-term perspectives, examining the warof Arauco, Basque immigration, open economypolicies, families' educational investment,economic technocrats, female labour forceparticipation, managerial perceptions oflabour, and (other) old myth shattering. Some future trends are also predicted.

Voices of a Natural Prison: Tourism Development and Fisheries Management among the Political Ghosts of Pisagua, Chile

Caught between the sea and one of the world’s driest deserts, Pisagua’s coastal desert landscape is being transformed by the ways people utilize its natural isolation and rich protected waters. Periodically, these waters are altered by El Niño events. As distinct stakeholders -- fishermen, political activists, government planners, tourists and developers -- appropriate the site, their competing voices and identities alter the patterns of resource use. The most consistent resident group is a small number of fishermen, who have been willing to forego modern infrastructure to live in Pisagua’s harsh natural, political, and economic isolation. Because of this isolation, three separate national administrations have utilized the town as a political prison. The fishermen visualize political ghosts roaming the wooden ruins of this once thriving nitrate port. Developers today, however, aim to sanitize local political history in order to create a tourist “paradise”, and are being aided by a government plan to incorporate Pisagua into the core Chilean economy. Political activists, who use Pisagua as a pilgrimage site to indemnify the horrors of the past, protest this planas one of political sacrilege. The plan also has concrete ramifications for the fishing families of Pisagua, who not only struggle with scarcity during major El Niño events, but now face encroaching tourism as globalization encompasses their space. The resident grassroots community leader has proffered additions to the plan that directly benefit the community. He is a former political activist with visions of a community-based “paradise” that would incorporate the marginal voices of the fishermen. We discuss his role as part of an approach which views identity and livelihood as practical and essential elements of any economically viable management plan. We examine shifting identity roles in light of the Pisagua plans, and frame our discussion within the context of three overlapping climate changes: economic, political, and environmental. This lays the foundation for a suggested adaptive management strategy that serves the economic needs of Pisagua through a recognition of the importance of stakeholder identity and livelihood.Key words: Pisagua, Chile, political ecology, ethnography, space and place, identity,livelihood, environment, El Niño, climate change, political activism, pilgrim,globalization, fisheries, migration, tourism, MPA, co-management.

Chile: has social security privatisation fostered economic development?

The purpose of this paper is to provide a critical analysis of the impact of the privatisation of social security on Chile's economy and society. The paper also includes a brief discussion of Chile's current economic problems, and suggestions for integrating the social security system into the future development of the country. Its central argument is that social security should be able to provide adequate benefits not only to a privileged group of people, but to the entire society. In the case of Chile, the privatised system has created new sources of inequities, reduced the population coverage, and it has had a limited impact on economic development.

What accounts for the Chilean saving 'miracle'?

This paper examines the recent saving performance of the Chilean economy in the light of its long-run (1940-96) trends. The first conclusion that can be derived from the data is that most of the increase in private saving since the mid-1980s is due to business saving. Household saving turns out to be a stationary variable with zero mean. Since business saving has a unit root, households do not seem to take the saving of firms into account when making their own saving decisions. Within the theoretical framework of a model of business investment with liquidity constraints, we estimate a VAR for business saving, private investment, public saving and foreign saving (the current account deficit). We are able to determine that business saving is unaffected by public saving, but that, in the long run, foreign saving and business saving are perfect substitutes. Private investment, business saving and foreign saving are jointly determined. The policy conclusions are that policies that stimulate investment are likely to lead to an increase in private saving, that policies aimed at raising household saving will be ineffective, and that increases in public saving are very powerful for increasing domestic saving in the long run. Copyright 2001 by Oxford University Press.

Is public infrastructure productive? Evidence from Chile

This study assesses the extent to which public infrastructures have contributed to output in the Chilean economy over the period 1960–1995. For the long-run, it uses a vector error correction model for cointegration tests, while for the short-run, it resorts to the use of impulse response functions and variance decompositions. The results appear to show that public infrastructures in Chile have been significantly productive.

Entrepreneurship and innovation in Chilean firms: an exploratory study

The Chilean economy has been recognised as the most competitive of Latin America. In the last two decades, the firms in this small country have been able to cope with a significant increase in foreign competition resulting from reduced tariff barriers and the arrival of world-class firms. These challenges have been confronted by a set of attitudinal changes, the creation of new firms that are started taking as a premise the increased foreign competition, and the creation of indigenous technology. This paper presents and analyses the current status of entrepreneurship and innovation in medium and large size firms in Chile, based on direct information about technological innovation and indirect information about entrepreneurship. Some of the topics covered include changes in the environmental conditions that have affected those firms, the effect of technology import vis-a-vis the capability to develop indigenous technology, product development with local technology, indigenous process improvement and develo...

ANVERSO Y REVERSO DEL LIBERALISMO EN CHILE, 1840-1930

This article analyses the character of XIXth c. chilean liberalism. On the one hand, it was successful in placing chilean economy into the world economy of the period and in the modernization of enfraestructure. On the other hand, although there were important improvements related to the institutional framework of economic activities, there were no changes in social structure. In comparative perspective, the author stresses the need to look experiences of the past for better understanding the present.

The effect of capital controls on interest rate differentials

In this paper we present a model of international interest rate arbitrage under conditions of entry and exit costs to and from the domestic capital market. We seek to measure the maximum potential effect of capital controls, such as non-interest paying reserve requirements, on interest rate differentials. We quantify the effect of such taxes using a dynamic optimization model with uncertainty and transaction costs. An optimal (S,s) rule gives the limits for interest rate differentials that trigger capital inflows and outflows. We also calculate maximum interest rate differentials for various maturities and study the effect of parameter changes. Using parameters estimated for the Chilean economy, the model shows that the effect of capital controls on interest rate differentials is considerably smaller than what static calculations suggest.

Governance and institutional development of the Chilean economy

Chile's economic growth process during the 1990s is often considered as exemplary, therefore, it is worthwhile to examine its institutional development and governance. By the end of the decade there were signs that economic governance was weakening in Chile: the political economy of reforms looked increasingly difficult and the institutional flexibility to accommodate and support the changes required by a dynamic economy did not seem assured. This is the background against which the socialist Ricardo Lagos was sworn in as the new president of Chile in March 2000. Developments in Chile give insights to other countries' experiences. Copyright © 2000 John Wiley & Sons, Ltd.

Computational Analysis of the Accession of Chile to the NAFTA and Western Hemisphere Integration

We present the results based on the Michigan computational general equilibrium model of Western Hemisphere economic integration. It is shown that tariff elimination will have beneficial effects for most countries involved, although the benefits as well as the costs of liberalizatio n are small. However, if a hemispheric treaty were to stimulate an increase in the capital stocks of the major South American economies, the welfare gains would be substantial. Sensitivity tests reveal that the model exaggerates the likely gains from economies of scale due to liberalization. But the error is small in this context because the impact of trade liberalization is small. When econometric estimates of scale economies are incorporated into the model, the welfare gains due to capital flows nevertheless remain robust. A comparison of results for Chile using different databases indicates that the impact of regional liberalization using a 1980 database may overstate the impact on the nonferrous metals sector in particular and manufacturing more generally. Nonetheless, when using a 1990 database, the change in output of the nonferrous metals sector remain larger than for any other sectors in the Chilean economy.

Industrial Interdependence Change in Chile: 1960-90 a comparison with Taiwan and South Korea

There appears to be two main market-oriented policy-models of development: the Japanese Model (JM) and theWashington Consensus Model (WCM). Both stress the importance of, and are based on, macroeconomic stability, export-led development, and private sector initiative. There are, however, fundamental differences as regards the role of the market and the role of the government in development, and thereby the range of economic policies. The star performers, and therefore the main representatives of the Japanese Model are Taiwan and South Korea, while the star performer of theWashington Consensus is surely Chile. The question is whether the Chilean economy has developed a strong overall sectoral interdependence, and a sound manufacturing interdependence, as a basis for endogenous sustainability, as was already the case for both Taiwan and South Korea as early as the mid-1970s. This paper attempts to tackle this issue via sectoral linkage analysis, based on an input-output approach. The conclusion is that, whatever other successes from this wholesale experiment, the result in terms of both industrial interdependence and manufacturing industrialisation is weak and so far unpromising.

An index of sustainable economic welfare (ISEW) for Chile

Chile has experienced a period of strong economic growth. The Gross Domestic Product (GDP) has doubled in the past 12 years, however, income inequality remains relatively the same as in the 1960s. The economic growth is primarily attributed to the exports of natural resources, which accounts for 80% of total exports. However, the GDP fails to account for the loss of natural capital and non-marketed services. The objective of this paper is to more clearly indicate the status of the Chilean economy in terms of welfare using the Index of Sustainable Economic Welfare (ISEW) designed by Daly and Cobb (1989). The ISEW provides corrections to the GDP that includes income inequalities, household labor and damage to natural capital. This index has been applied in several case studies for developed countries. In general, the results show that ISEW runs parallel with GDP until the 1970s when a decline in welfare occurs due to a loss in natural capital. This study is the first attempt to utilize the ISEW for the purpose of analyzing whether or not similar trends exist for Chile, a developing country. The ISEW for Chile grew at a much slower annual rate over the past 30 years, compared with GDP (−0.16% vs. 2.9%). The Chilean ISEW parallels the GDP until the 1980s; a decline in the ISEW then occurs, showing that Chile is not on a sustainable path and that there is a strong link between economic growth and the depletion of natural resources.

Copper and the Chilean Economy, 1960-19+L159298

The paper concludes that world copper prices play an important role in short-term fluctuations and probably influence long-term growth of the Chilean economy. While many mechanisms may be at work, investment seems to play a major role. In a copper price boom, the higher copper price and associated capital inflows create upward pressure on the real exchange rate. The appreciation of the Chilean peso during the first part of the copper cycle contributes to lower inflation, which could partly explain why real wages grow more rapidly in this part of the cycle.

Copper and the Chilean Economy, 1960-98

The paper concludes that world copper prices play an important role in short-term fluctuations and probably influence long-term growth of the Chilean economy. While many mechanisms may be at work, investment seems to play a major role. In a copper price boom, the higher copper price and associated capital inflows create upward pressure on the real exchange rate. The appreciation of the Chilean peso during the first part of the copper cycle contributes to lower inflation, which could partly explain why real wages grow more rapidly in this part of the cycle.

The ongoing history of a Chilean metal products and machinery firm

Processes of adjustment and restructuring of the production sectors to a new system of macroeconomic incentives are slow, costly and more inefficient than conventional microeconomic theory would lead one to suppose. In this article, the authors explore the process of the restructuring of production of a Chilean metal products and machinery company and the way it gradually modified its operations from the 1970s onwards, adapting them to new macroeconomic and mesoeconomic signals. As is well known, in the last two decades the system off incentives and the regulatory framework for production activities in Chile have undergone profound changes, gradually moving --with advances but also setbacks-- towards an organizational model more open to external competition, more deregulated, and with less public sector participation in the field of production proper. In the case of the company studied here, in spite of the considerable length of time that the Chilean economy has been open to the exterior and the fact that the company has been notably successful in its global restructuring, the transition to international levels of productivity is still not complete and displays areas of fragmentation and weakness. Section I of the article describes the general background for the functioning of the Chilean economy in which the company's activities evolved; section II describes the evolution of the firm's manufacturing facilities, and the third and last section explores the links between microeconomic and macroeconomic aspects and sets forth some conclusions drawn from this study.

Fiscal policy and the economic cycle in Chile

This article studies the effect of the stabilization of fiscal expenditure and the anti-cyclical use of taxes as stabilization variables in the Chilean economy, through the calibration of a basic macro-economic model adapted to the actual conditions of that economy. The results show that some 25% of the variability of economic growth could be eliminated by obviating fiscal cyclical impulses through constant growth of public investment and consumption and through anti-cyclical taxes. On the one hand, it is proposed that a system of stabilization of the growth of fiscal expenditure should be established, through a system of rules and degrees of flexibility subject to specific clauses.

Economic Reforms, Social Policy, and the Family Economy in Chile

Chile's long tradition of welfare programs included “generous” benefits for many working women. The social security system, however, perpetuated significant forms of gender and class inequality. In the 1970s and 1980s, poverty was greatly increased by sweeping market reforms. The military government responded to the high social costs with a minimal safety net which targeted expectant mothers, small children and the extremely poor, but was inadequate for most of the population. After the return of democracy, income distribution has improved in the 1990s. Yet, much needs to be done to promote family well-being through effective and participatory social policies.

Should The Capital Account Be Liberalized In A Minimum Real Wage Economy?

Sebastian Edwards and Alejandra Cox Edwards in their analysis of the Chilean economic liberalization argue that both capital inflows and outflows may have harmed the Chilean economy. They model the Chilean economy as using labor and fixed factors to produce traded and non-traded goods subject to a binding real wage floor in both sectors. We formalize this model. We discover that a capital inflow may expand or contract employment. We also find that the shadow price of a capital inflow (alias the shadow price of foreign exchange) can be negative only if either the tradable or non-tradable good is inferior.