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A Decade Lost and Found: Mexico and Chile in the 1980s

Author

Listed:
  • Raphael Bergoeing

    (Universidad de Chile)

  • Patrick J. Kehoe

    (Federal Reserve Bank of Minneapolis)

  • Timothy J. Kehoe

    (University of Minnesota)

  • Raimundo Soto

    (Pontifica Universidad Catolica de Chile)

Abstract

Chile and Mexico exoperienced severe economic crises in the early 1980s. This paper analyzes four possible explanations for why Chile recovered much faster than did Mexico. Comparing data from the two countries allows us to rule out a monetarist explanation, an explanation on falls in real wages and real exchange rates, and a debt overhang explanation. Using growth accounting, a calibrated growth model, and economic theory, we conclude that the crucial difference between the two countries was the earlier policy reforms in Chile that generated faster productivity growth. The most crucial of these reforms were in banking and bankruptcy procedures. (Copyright: Elsevier)

Suggested Citation

  • Raphael Bergoeing & Patrick J. Kehoe & Timothy J. Kehoe & Raimundo Soto, 2002. "A Decade Lost and Found: Mexico and Chile in the 1980s," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 166-205, January.
  • Handle: RePEc:red:issued:v:5:y:2002:i:1:p:166-205
    DOI: 10.1006/redy.2001.0150
    Note: A data appendix is availaible
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    References listed on IDEAS

    as
    1. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    2. Vittorio Corbo & Stanley Fischer, "undated". "Lessons from the Chilean Stabilization and Recovery," Documentos de Trabajo 158, Instituto de Economia. Pontificia Universidad Católica de Chile..
    3. Alexis Camhi & Eduardo Engel & Alejandro Micco, 1997. "Dinámica de empleo y productividad en manufactura: Evidencia micro y consecuencias macro," Documentos de Trabajo 19, Centro de Economía Aplicada, Universidad de Chile.
    4. Galvez, Julio & Tybout, James, 1985. "Microeconomic adjustments in Chile during 1977-1981: The importance of being a grupo," World Development, Elsevier, vol. 13(8), pages 969-994, August.
    5. 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 245-273, April.
    6. Gonzalo I. Sanhueza, 2001. "Chilean Banking Crisis of the 1980s: Solutions and estimation of the costs," Working Papers Central Bank of Chile 104, Central Bank of Chile.
    7. Andrew Atkeson & Patrick J. Kehoe, 1995. "Industry evolution and transition: measuring investment in organization," Staff Report 201, Federal Reserve Bank of Minneapolis.
    8. Edwards, Sebastian & Edwards, Alejandra Cox, 1991. "Monetarism and Liberalization," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226184890, October.
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    More about this item

    Keywords

    Chile; Mexico; growth accounting; total factor productivity; depression;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • N6 - Economic History - - Manufacturing and Construction
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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