The institutional bases of Chile's economic 'miracle' : institutions, government discretionary authority (DA), and economic performance under two policy regimes

Abstract

In 1992, on the basis o f a sophisticated econometric analysis o f the long-term patterns of economic growth of the seven largest Latin American economies during the period 1940-1985 (Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela), a detailed and careful study predicted that Chile would be the country to experience the slowest economic growth during the 1990s (between 2.5% and 2.8% per year). This prediction took into account capital and labor endowments and their growth patterns as well as other economic factors traditionally supposed to determine a country’s pattern of GDP growth. However, up to today—September of 1997—Chile appears as the fastest growing Latin American economy o f the 1990-1996 period, with an average GDP growth rate o f 7.2% per year (5.5% in per capita terms). Moreover, in 1996 Chile completed 13 years o f sustained, uninterrupted economic growth. What determines the pace of growth of the wealth of a country? Why do some countries grow faster than others? Which factors affect the long term pattern o f economic growth of a country? These questions—as old as Adam Smith—have attracted increased attention from economists and social scientists during the last two decades. One remarkable characteristic of this endeavor has been the sustained effort to incorporate non-economic factors into the analysis of growth in order to improve understanding of the sources of divergent patterns in countries economic performance.