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A decade lost and found: Mexico and Chile in the 1980s

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

Chile and Mexico experienced 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 based 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.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 292.

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Date of creation: 2001
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Handle: RePEc:fip:fedmsr:292
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  1. Andrew Atkeson & Patrick J. Kehoe, 1995. "Industry evolution and transition: measuring investment in organization," Staff Report 201, Federal Reserve Bank of Minneapolis.
  2. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  3. Sebastian Edwards, 1996. "A Tale of Two Crises: Chile and Mexico," NBER Working Papers 5794, National Bureau of Economic Research, Inc.
  4. 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.
  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 245-73, April.
  6. Edwards, Sebastian & Edwards, Alejandra Cox, 1991. "Monetarism and Liberalization," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226184890, enero-jun.
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