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The Golden Period for Growth in Chile: Explanations and Forecasts

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Author Info
Francisco Gallego
Norman Loayza

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Abstract

Economic growth in Chile since the mid 1980s has been remarkable for its high level and persistence. This paper attempts to shed light on the factors behind it and analyze the extent to which they can be sustained in the future. The first part of the paper presents some stylized facts. Taken together, they suggest that the jump in growth was driven by policies and macroeconomic conditions that affected the economy’s overall productivity. The second part of the paper considers the recent empirical growth literature to examine the extent to which a cross-country approach can explain Chile’s growth. We formulate and estimate – using techniques suited for dynamic models of panel data— a basic model containing the most popular variables in the literature. Our basic model allows us to explain about 45% of the change in the growth rate between 1970-85 and 1986-1998, which was 4.74%. When we expand the basic model to include the quality of the political system and governance, the comprehensiveness and compl ementarity of policy reforms, and the availability of public services and infrastructure, we can explain 73% of the growth improvement. The last part of the paper starts the evaluation of possible new growth sources for Chile by, first, projecting the country’s growth rate for the next decade under various assumptions and, second, proposing some areas with potentially large returns.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 146.

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Date of creation: Feb 2002
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Handle: RePEc:chb:bcchwp:146

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  1. Raimundo Soto, 2005. "Capital Taxes and the Quality of Growth: The Case of Chile," Documentos de Trabajo 300, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  2. Klaus Schmidt-Hebbel, 2006. "Chile’s Economic Growth," Working Papers Central Bank of Chile 365, Central Bank of Chile. [Downloadable!]
  3. César Calderón & Roberto Duncan, 2003. "Purchasing power parity in an emerging market economy: a long- span study for Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 30(1 Year 20), pages 103-132, June. [Downloadable!]
    Other versions:
  4. William Keech, 2004. "Democracy, Dictatorship and Economic Performance in Chile," Econometric Society 2004 Latin American Meetings 332, Econometric Society. [Downloadable!]
  5. Raimundo Soto & Arístides Torche, 2004. "Spatial Inequality, Migration, and Economic Growth in Chile," Documentos de Trabajo 274, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
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  6. Rodrigo Fuentes & Fabián Gredig & Mauricio Larraín, 2007. "Estimating the Output Gap for Chile," Working Papers Central Bank of Chile 455, Central Bank of Chile. [Downloadable!]
  7. Klaus Schmidt-Hebbel, 2006. "Chile's Economic Growth," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 43(127), pages 5-48. [Downloadable!]
  8. Rodrigo Fuentes & Mauricio Larraín & Klaus Schmidt-Hebbel, 2004. "Sources of Economic Growth and Total Factor Productivity in Chile," Working Papers Central Bank of Chile 287, Central Bank of Chile. [Downloadable!]
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