Working Paper: NBER ID: w8892
Authors: Raphael Bergoeing; Patrick J. Kehoe; Timothy J. Kehoe; Raimundo Soto
Abstract: Both Chile and Mexico experienced severe economic crises in the early 1980s, but Chile recovered much faster than did Mexico. Using growth accounting and a calibrated dynamic general equilibrium model, we conclude that the crucial determinant of this difference between the two countries was the faster productivity growth in Chile, rather than higher investment or employment. Our hypothesis is that this difference in productivity was driven by earlier policy reforms in Chile, the most crucial of which were in banking and bankruptcy procedures. We propose a theoretical framework in which government policy affects both the allocation of resources and the composition of firms.
Keywords: No keywords provided
JEL Codes: E52; N6; 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 recovery in TFP (F16) |
| government policy (F68) | economic depressions (E32) |
| exogenous shocks (F41) | economic activity decline (R11) |
| government policy (F68) | severity of economic declines (F44) |
| delayed reforms in Mexico (E69) | stagnation in productivity (O49) |
| poorly designed bankruptcy laws (K35) | inefficiencies in resource allocation (D61) |
| removal of policy distortions (F68) | long-term improvements in aggregate productivity (O49) |