The Economic Consequences of The Chilean Democratic Transition

This article uses tools from the macroeconomic time series literature to study the economic effects of the post-dictatorship Chilean democratic transition. Using autoregressive vectors (VAR) the dynamic effects of the "democratic shock" that occurred in Chile during the years 1988-89 are estimated, providing relevant empirical evidence for the study of the historical relationships between economic growth, inequality and type of political regime. It is found that this democratic improvement resulted in a higher long-term growth rate of GDP per capita (3% above the baseline scenario) and a slight decrease in inequality of 0.3-0.4 Gini points. In line with the related literature, betterments were observed in the variables associated with human and physical capital. The effects were not immediate, which raises the dilemma of the political economy of transitions: in the Chilean case, the democratic shock of 1988-89 took 3 years to have a positive impact on the growth rate of GDP per capita and the total effect peaked after 7 years.