Trade Reforms and Manufacturing Industry in Chile

The Chilean economy underwent a deep structural change in the mid-seventies, through several economic reforms. Among these, the most impressive one was trade liberalization. This process caused a string of bankruptcies in the manufacturing industry and a reduction in the share of this sector in GDP, which some authors have used to imply that Chile has become a less industrialized economy. This paper describes the main policy changes that are relevant to understand the evolution of the manufacturing industry in Chile after the reforms, and analyzes the evolution of productivity using plant-level data. Our findings challenge the hypothesis that trade liberalization stifled the manufacturing sector and pushed the economy toward exporting raw materials. Also, our results show that the Chilean industry, after these economic reforms, became more efficient and competitive. ___________________ Paper prepared for Structure and Structural Change in the Chilean Economy , edited by P. Aroca and G.J.D. Hewings. We are grateful for the useful discussions with Antonio Escandón, Ricardo Vicuña and the participants in the XXXVII Anual Meeting of the Asociación Argentina de Economía Política. The views and conclusions presented in the paper are exclusively those of the authors and do not necessarily reflect the position of the Central Bank of Chile or of the Board members. E-mails: [email protected]; [email protected].