Trade Liberalization and Productive Efficiency: The Chilean Industry, 1975-1988

Abstract

The results of Chile's profound economic liberalizations remain the subject of ongoing debate. Using the Total Factor Productivity approach (TFP), we review the industrial sector performance during the 1975-1988 period. Our analysis shows that greater competitiveness dictated by economic liberalization was not accomplished through technical change but, rather, through intensive factor use (1976-81), or extensive factor use (1984-88). After exhaustion of the "easy phase", new levels of productive efficiency necessitated technical innovation, that is, investment in equipment, training, and reorganization of productive processes. However, after the 1982-83 crisis, firms did not follow this path: previous financial stress and low wage costs determined a growth path based on extensive use of labor, thereby delaying technological modernization of the industrial sector.