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A Decade Lost and Found: Mexico and Chile in the 1980s

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Listed:
  • Raphael Bergoeing
  • Patrick J. Kehoe
  • Timothy J. Kehoe
  • Raimundo Soto

Abstract

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.

Suggested Citation

  • Raphael Bergoeing & Patrick J. Kehoe & Timothy J. Kehoe & Raimundo Soto, 2001. "A Decade Lost and Found: Mexico and Chile in the 1980s," Documentos de Trabajo 110, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:110
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    References listed on IDEAS

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    1. repec:ucp:bkecon:9780226184890 is not listed on IDEAS
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    4. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    5. Alexis Camhi & Eduardo Engel & Alejandro Micco, 1997. "Dinámica de empleo y productividad en manufactura: Evidencia micro y consecuencias macro," Documentos de Trabajo 19, Centro de Economía Aplicada, Universidad de Chile.
    6. Sebastian Edwards, 1996. "A Tale of Two Crises: Chile and Mexico," NBER Working Papers 5794, National Bureau of Economic Research, Inc.
    7. Galvez, Julio & Tybout, James, 1985. "Microeconomic adjustments in Chile during 1977-1981: The importance of being a grupo," World Development, Elsevier, vol. 13(8), pages 969-994, August.
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean

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