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EXPORTS AND GROWTH:
THE CASE OF CHILE
Rolf J. Lüders
Institute of Economics
Catholic University of Chile
WB, Washington, D.C. 9.05.06
EXPORTS AND GROWTH: THE CASE OF
CHILE
• I. Introductory remarks
• II. Export data
• III. Trade policy: coherency with the “model”
• IV. Trade promotion
• V. “The Chilean export model”
• V. Conclusions
I. INTRODUCTORY REMARKS
• 1. CHILE TODAY
• GDP/N
US$7,000; measured at PPP US$ 13,000
• GDP
US$ 115 billion
• Exports
US$ 46 billion (right now copper price at
US$3,5/lb)
• Population
17 million people
I. INTRODUCTORY REMARKS (continued)
• 2. Recent economic systems
1940-1973:
“Import substitution industrialization”
(average τ = 90% in 1973)
1974- present: “Social Market Economy”
(average τ = 2%)
• 3. Present “model”: open market economy in which
the State plays a “subsidiary”
role; exports and the private
sector “drive” the economy
Economic and export growth rates
(percentages)
1820-1995
1940-70
1978-95
ρ
x%
ρ
ρ
CHILE
1,5
2,5
1,5 -0,4
3,2* 6,8*
REST WORLD
1,4
2,8
2,6* 3,3*
1,5
x%
x%
4,4
CHILE 1810-2000: EXPORTS/GDP
Exportaciones como porcentaje del PIB, 1810-2005
30
20
1.4
10
1.2
1.0
0
0.8
0.6
0.4
25
50
75
00
Tendencia
25
50
Ciclo
75
00
CHILE 1810-2000: GROWTH PERFORMANCE
PIB per cápita de Chile respecto a EE.UU y el mundo, 1810-2005
1910=100
120
110
100
90
80
70
60
50
40
30
25
50
75
00
Mundo
25
50
EE.UU.
75
00
II. EXPORT DATA
• 1. Exports/GDP (high growth rate after
liberalization)
• 2. Exports by sectors (significant diversification
after liberalization)
• 3. Regional distribution of exports (very significant
diversification after liberalization)
Exports(q)/GDP (%)
32
28
24
20
16
12
8
4
1975
1980
1985
1990
1995
2000
Exports (%)
100%
80%
60%
40%
20%
0%
1970
MIN
1980
AGR
1990
MAN
2004
OTHER
Exports (%)
100%
80%
60%
40%
20%
0%
1970
LatAm
1980
USA
Europe
1990
Asia
2004
Africa
Other
III. TRADE POLICY: COHERENCY WITH THE
“MODEL”
• 1. The “model”
– Remind: very open, competitive market economy with a
subsidiary role of the government (among other things,
“regulations to improve the working of markets”). Private
sector and exports are the engine of the growth process.
– Emphasizes “good” resource allocation (only minor
discriminations between sectors and agents;
government corrects for externalities; social
expenditures)
– No discrimination against or in favor of savings, nor
against or in favor of FDI (in fact, a progressive
expenditure tax a la Kaldor has been institutionalized).
However, relatively high (marginal) tax rates exist.
III. TRADE POLICY: COHERENCY WITH THE “MODEL”
• 2. All the above tends to generate a favorable
investment climate. Stable political institutions and
strict adherence to the “rule of law” support the
described economic institutions.
• 3. If at all possible, trade policy does therefore not
discriminate between tradables and no tradables,
as well as inbetween tradables (imports-exports).
Reduction, if not elimination, of all trade
restrictions (tariff barriers, non-tarrif barriers, other).
• 4. The aim of the existing economic institutions –
including those in the trade area- is to make the
economy as efficient and competitive as possible.
III. TRADE POLICY: COHERENCY WITH THE “MODEL”
• 5. The trade liberalization was carried-out in two
stages:
– 1974-1989: tariffs were unilaterally reduced (increased)
until an even tariff of 15% was reached (before the
recession of 1982, 10%); non-trade barriers were
eliminated
– 1990-to present: general tariffs were further reduced to
6% and free trade agreements, which lower average
tariffs but not necesarily lower specific effective tariffs,
were negotiated (MERCOSUR, México, Canada, USA,
EU, Korea, others in LA; recently China and India; etc.)
Average tariff (%)
35
30
25
20
15
10
5
0
1975
1980
1985
1990
1995
2000
CHILE 1974-1979: EFFECTIVE TARIFFS
AÑO
AGRICULTURE
MINING
INDUSTRIAL
NO TRADABLE
1974
- 21
- 32
49
- 13
1975
- 7
- 15
32
- 10
1976
- 1
-2
19
-7
1977
- 3
1
13
-5
1978
2
2
7
-4
1979
4
4
4
-3
III. TRADE POLICY: COHERENCY WITH THE “MODEL”
• 6 . Only three exceptions –besides the free trade agreements- to
the non-discrimination policy still exist: (1) the special tax and
tariff treatment for the extreme north and south geographic zones
of the country; (2) a forestry subsidy; and (3) price bands for some
agricultural products. The latter will have to be abandoned to
conform to WTO regulations.
• 7. After 1974, efforts –not always totally successful- were made to
control aggregate expenditures (through fiscal déficit control;
prudent monetary expansions, etc.). The “1% structural fiscal
surplus policy”.
• 8. Measures were taken to matain a relatively high (pesos over
US$) real exchange rate. These include, of course, the reduction
in tariffs, which in itself brings about a higher real exchange rate.
Also, a “copper fund” was institutionalized.
Real Exchange Rate (1996=100)
160
140
120
100
80
60
40
20
1970
1975
1980
Central Bank
1985
1990
1995
2000
Díaz, Lüders y Wagner (2005)
IV. TRADE PROMOTION
• 1. Justified as a way to correct for externalities and
eliminate any remaining discrimination against
exports.
• 2. Must be understood as a complement to
previously described liberalization and
macroeconomic measures.
• 3. Includes actions of PROCHILE, drawbacks for
non-traditional exports, some support for
international marketing, public sector investments in
infrastructure, etc. The recent role of CPC.
V. THE CHILEAN EXPORT MODEL
• 1. As a result of the described institutions, policies, and
promotions, a “Chilean export model” evolved naturally:
– Exports are based to a large extend on primary products,
either in their raw form or processed (copper, molibdenum,
iron, grapes, wine, forestry products of different kind, fish
products, etc.), although manufacturing exports also have
increased.
– A significant diversification in terms of products and
markets has taken place.
– Although there are over 4000 exporters, locals and
foreigners, most of the volume of exports in each industry
is carried out by a reduced number of agents.
V. THE CHILEAN EXPORT MODEL
– In many export industries production is carried out by a
large number of small and medium sized producers, most
of them locals. Exporters often provide technical knowhow, credit, and market access to those producers.
– The government plays a significant role in creating the
proper investment climate for efficient production and in
facilitating access to Chile´s export products abroad,
through the definition of competitive rules of the game, the
provison of adecuate infrastructure, and the negotiation of
free trade agreements.
– Export promotion activities reduce any remaining antiexport bias and provide assistance to a large number of
relatively small exporters.
VI. CONCLUSIONS
• 1. Exports became, after 1973, again one of the engines of
a relatively high growth rate in Chile
• 2. Export growth in Chile is based on non-discrimination.
There exists no anti-export bias any more, as in the past,
nor is there any pro-export bias, as some have been
advocating for.
• 3. The reduction in import duties –among other measuresled to a significant real peso depreciation.
• 4. A relatively free and efficient market economy (overall)
and the corresponding level of the exchange rate, within
the framework of stable and reliable institutions, explain
therefore to a large extent the export performance of the
country.
VI. CONCLUSIONS
• 5. More than a private-public sector partnership, what
exists in Chile is a relatively clear and broadly accepted
definition of the role of each sector, roles which
complement each other. This has been the way in
which rentseeking –generally prevalent up until 1973- has
been minimized and exports have been dynamized.