Working Paper: NBER ID: w8520
Authors: 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.
Keywords: Economic Recovery; Policy Reforms; Chile; Mexico; 1980s Economic Crisis
JEL Codes: E32; N16; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Banking and bankruptcy reforms in Chile (G28) | Faster productivity growth in Chile (O49) |
| Faster productivity growth in Chile (O49) | Recovery outcomes in Chile (H84) |
| Monetarist explanation (E49) | Recovery outcomes in Mexico (O54) |
| Real wages in Mexico (J31) | Recovery outcomes in Mexico (O54) |
| Debt overhang hypothesis (F65) | Investment rates in Mexico (F21) |
| Timing and implementation of structural reforms (E69) | Recovery paths of Chile and Mexico (O54) |