Globalisation and the Chilean economy

This note describes and analyses Chile’s economic integration into the global trading system, including the impact on goods, services, capital and labour. This was a gradual process starting in the mid-1970s. Currently Chile is a very open economy, even though immigration is a relatively new phenomenon which is already having an impact at the macroeconomic level. During this period, there have been significant institutional developments, notably the establishment of the central bank’s independence, with a clear mandate to control inflation and a ban on funding of the government. New fiscal rules are designed to isolate the public finances from shortterm cyclical fluctuations and volatile copper prices. The adoption of inflation targeting with a free flotation policy in the early 2000s has become a cornerstone of the macroeconomic policy framework. Financial integration has helped to significantly reduce the cost of capital in the country, while providing pension funds with a valuable way of diversifying risks. Chile exhibits some of the largest measures of financial markets depth among emerging market economies (EMEs). Finally, inward FDI has made a large contribution to the development of the country’s productive capacity. In recent years, outward FDI, especially within the region, has helped major Chilean corporations, mostly in the service sector, to expand beyond the limits imposed by the small size of the domestic market.