Chile and Mexico experienced severe economic crises in the early 1980s. This paper analyzes four possible explanations for why Chile recovered much faster than did Mexico. Comparing data from the two countries allows us to rule out a monetarist explanation, an explanation based on falls in real wages and real exchange rates, and a debt overhang explanation. Using growth accounting, a calibrated growth model, and economic theory, we conclude that the crucial difference between the two countries was the earlier policy reforms in Chile that generated faster productivity growth. The most crucial of these reforms were in banking and bankruptcy procedures.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
8520.
Length: Date of creation: Oct 2001 Date of revision: Publication status: published as Bergoeing, Raphael, Patrick J. Kehoe, Timothy J. Kehoe and Raimundo Soto. "A Decade Lost And Found: Mexico And Chile In The 1980s," Review of Economic Dynamics, 2002, v5(1,Jan), 166-205. Handle: RePEc:nbr:nberwo:8520
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Find related papers by JEL classification: E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles N16 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - Latin America; Caribbean
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