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

Author

Listed:
  • Raphael Bergoeing
  • Patrick 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 & Raimundo Soto, 2001. "A Decade Lost and Found: Mexico and Chile in the 1980s," Working Papers Central Bank of Chile 107, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:107
    as

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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_107.pdf
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    References listed on IDEAS

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    1. repec:ucp:bkecon:9780226184890 is not listed on IDEAS
    2. Sebastian Edwards, 1996. "A Tale of Two Crises: Chile and Mexico," NBER Working Papers 5794, National Bureau of Economic Research, Inc.
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    4. Vittorio Corbo & Stanley Fischer, "undated". "Lessons from the Chilean Stabilization and Recovery," Documentos de Trabajo 158, Instituto de Economia. Pontificia Universidad Católica de Chile..
    5. 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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    7. Gonzalo I. Sanhueza, 2001. "Chilean Banking Crisis of the 1980s: Solutions and estimation of the costs," Working Papers Central Bank of Chile 104, Central Bank of Chile.
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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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