Economic Liberalization, Distribution and Poverty

Economic Liberalization, Distribution and Poverty

Latin America in the 1990s

Edited by Rob Vos, Lance Taylor and Ricardo Paes de Barros

Since the late 1980s, almost all Latin American countries have undergone a series of far-reaching economic reforms, particularly in the areas of financial and capital account liberalization and trade. This book provides a comparative and analytical framework for assessing the impact of these reforms upon 16 countries in Latin America and the Caribbean, including: Argentina, Brazil, Chile, Colombia, Ecuador, El Salvador, Mexico, and Peru.

Chapter 5: Chile: trade liberalization, employment and inequality

José de Gregorio, Dante Contreras, David Bravo and Sergio Urzua

Subjects: development studies, development economics, economics and finance, development economics

Extract

1 José de Gregorio, Dante Contreras, David Bravo, Tomas Rau and Sergio Urzua 5.1 INTRODUCTION The Chilean economy went through important transformations in the last three decades. Following the import-substituting industrialization strategy, populist economic policies emerged in the early 1970s. Subsequently, Chile moved to an open and free market economy. As a consequence, economic performance has been quite irregular over the past three decades. Therefore, it is of some interest to examine the effects of trade opening on economic growth and inequality. It is also important to analyse the sectoral and macroeconomic transformations that took place during this period. To this end, after briefly discussing the main reforms and the macroeconomic policies, this study is divided into two main parts. The first deals with the macroeconomic effects of the opening process, while the second analyses the effects on welfare, using the methodologies developed in Chapters 1 and 2. In the first part, we tackle the macroeconomic aspects along three lines of analysis. The first consists of decomposing aggregate demand to examine the determinants of economic growth. In order to accomplish this, it is necessary to build consistent time series for GDP from the 1970s onwards and to decompose growth by the main demand categories, i.e. exports, investment, private consumption and government spending. The second line involves an analysis of the changes in employment and labour productivity. The third line explores the effects of liberalization and stabilization on economic growth and inequality from a macroeconomic perspective. The second part provides...

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