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Decades lost and found: Mexico and Chile since 1980

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Author Info

  • Raphael Bergoeing
  • Patrick J. Kehoe
  • Timothy J. Kehoe
  • Raimundo Soto

Abstract

Both Chile and Mexico experienced severe economic crises in the early 1980s, yet Chile recovered much faster than Mexico. This study analyzes four possible explanations for this difference and rules out three, explanations based on money supply expansion, real wage and real exchange rate declines, and foreign debt overhangs. The fourth explanation is based on government policy reforms in the two countries. Using growth accounting and a calibrated growth model, the study determines that the only policy reforms promising as explanations are those that primarily affect total factor productivity, or how inputs are used, not the inputs themselves. Interpreting historical evidence with economic theory, the study concludes that the crucial difference between Chile and Mexico in the 1980s and 1990s is earlier government policy reforms in Chile, particularly reforms in policies affecting the banking system and bankruptcy procedures.

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Bibliographic Info

Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (2002)
Issue (Month): Win ()
Pages: 3-30

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Handle: RePEc:fip:fedmqr:y:2002:i:win:p:3-30:n:v.26no.1

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Related research

Keywords: Economic development;

References

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  1. Simeon Djankov & Rafael La Porta & Florencio LopezdeSilanes & Andrei Shleifer, 2000. "The Regulation of Entry," NBER Working Papers 7892, National Bureau of Economic Research, Inc.
  2. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-73, April.
  3. Edwards, Sebastian, 1998. "Two Crises: Inflationary Inertia and Credibility," Economic Journal, Royal Economic Society, vol. 108(448), pages 680-702, May.
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