The Golden Period for Growth in Chile: Explanations and Forecasts

ECONOMIC GROWTH: SOURCES, TRENDS AND CYCLES, N. Loayza, R. Soto, eds., 2003

48 Pages Posted: 3 Dec 2010 Last revised: 19 Dec 2010

See all articles by Francisco A. Gallego

Francisco A. Gallego

Pontificia Universidad Catolica de Chile

Norman Loayza

World Bank - Research Department

Date Written: February 1, 2002

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 complementarity 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.

Keywords: Economic growth, productivity, Chile, policy complementarities

JEL Classification: O11, O4

Suggested Citation

Gallego, Francisco A. and Loayza, Norman, The Golden Period for Growth in Chile: Explanations and Forecasts (February 1, 2002). ECONOMIC GROWTH: SOURCES, TRENDS AND CYCLES, N. Loayza, R. Soto, eds., 2003 . Available at SSRN: https://ssrn.com/abstract=1718661

Francisco A. Gallego (Contact Author)

Pontificia Universidad Catolica de Chile ( email )

Casilla 76
Correo 17
Santiago
Chile

HOME PAGE: http://www.economia.puc.cl/fgallego

Norman Loayza

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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