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Industrial policy in Chile

Author

Listed:
  • Manuel Agosin
  • Cristian Larraín
  • Nicolás Grau

Abstract

Chile has experimented with practically every type of industrial policy in the book: from heavy import substitution, public ownership of domestic firms, directed credit, and heavy use of development banking; to a completely free-market approach. After the liberalization and privatization of the military regime’s early days in the decade of the seventies, a more pragmatic approach was adopted in the eighties. After the return to democracy in 1990, an even greater role was given to the state, while remaining in what could be labeled a horizontal approach, emphasizing the resolution of economy-wide market failures but still eschewing sector selection. A large number of programs aimed at facilitating investment and technological upgrading especially by small and medium enterprises (SMEs) were instituted in the early 1990s, mainly by CORFO, a development agency set up during the heyday of import substitution in 1939. CORFO has also attempted to relax these firms’ borrowing constraints through what amount to a series of development banking programs. During the current decade, Chile has moved to a more focused industrial policy, emphasizing the sectors in which the country has comparative advantages or those it could be expected to develop in a reasonable period of time. CORFO has given increasing emphasis to subsidizing the formation and operation of innovation-based consortia between private firms and universities and other activities related to innovation, increasingly in nine sectors singled out for special treatment by high-level National Council on Innovation for Competitiveness (NCIC) created in 2006.This paper studies three horizontal policy instruments and two vertical ones. The horizontal instruments are (1) a guarantee program for borrowing by SMEs (FOGAPE), (2) a highly ingenious small subsidy to new exports that was operated from 1985 through 2003, and (3) the innovation subsidies provided by CORFO. The vertical policy instruments are the activities of Fundacion Chile (FCh), a semi-public entrepreneur cum venture capitalist, and a CORFO program to attract foreign direct investment in information technology. One conclusion of the study is that most of the programs instituted by the government are well oriented, with clearly defined goals and addressing real problems faced by Chilean entrepreneurs. However, there is a great proliferation of programs, each one of them insufficiently funded. The country could benefit from a prioritization of needs and a consolidation of programs. Second, the instruments for making strategic bets on new sectors are particularly weak. In spite of a track record of success, they are endowed with resources that are too meager for them to have a major impact on the economy. In particular, FCh needs to refocus its activities on high-risk projects with long payoffs, something it cannot do with its small endowment.

Suggested Citation

  • Manuel Agosin & Cristian Larraín & Nicolás Grau, 2009. "Industrial policy in Chile," Working Papers wp294, University of Chile, Department of Economics.
    • Handle: RePEc:udc:wpaper:wp294
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    References listed on IDEAS

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    1. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2007. "What you export matters," Journal of Economic Growth, Springer, vol. 12(1), pages 1-25, March.
    2. José Miguel Benavente & Alexander Galetovic & Ricardo Sanhueza, 2006. "Fogape: an economic analysis," Working Papers wp222, University of Chile, Department of Economics.
    3. Claudio Bravo-Ortega & Manuel Agosin Trumper, 2007. "The Emergence Of New Successful Export Activities In Latin America: The Case Of Chile," Working Papers wp236, University of Chile, Department of Economics.
    4. Hausmann, Ricardo & Klinger, Bailey, 2006. "Structural Transformation and Patterns of Comparative Advantage in the Product Space," Working Paper Series rwp06-041, Harvard University, John F. Kennedy School of Government.
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    6. Agosin, Manuel R., 2008. "Export diversification and growth in emerging economies," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    7. Agosin, Manuel R., 1999. "Trade and growth in Chile," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
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    Cited by:

    1. Bravo-Ortega, Claudio & Egana-delSol, Pablo & Winkler-Sotomayor, Nicole, 2023. "Does the lack of resources matter in a dual economy: Decoding MSMEs productivity and growth," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 716-739.
    2. Amir Lebdioui & Keun Lee & Carlo Pietrobelli, 2021. "Local-foreign technology interface, resource-based development, and industrial policy: how Chile and Malaysia are escaping the middle-income trap," The Journal of Technology Transfer, Springer, vol. 46(3), pages 660-685, June.
    3. Wilson Peres, 2011. "Industrial Policies in Latin America," WIDER Working Paper Series wp-2011-048, World Institute for Development Economic Research (UNU-WIDER).
    4. Agosin, Manuel & Retamal, Yerko, 2021. "A model of diversification and growth in open developing economies," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 455-470.
    5. Gammage, Sarah. & Alburquerque, Tomás. & Durán, Gonzálo., 2014. "Poverty, inequality and employment in Chile," ILO Working Papers 994849553402676, International Labour Organization.
    6. Cornick, Jorge, 2013. "The Organization of Public-Private Cooperation for Productive Development Policies," IDB Publications (Working Papers) 4590, Inter-American Development Bank.
    7. Amir Lebdioui, 2019. "Chile's Export Diversification since 1960: A Free Market Miracle or Mirage?," Development and Change, International Institute of Social Studies, vol. 50(6), pages 1624-1663, November.
    8. Agosin, Manuel R., 2023. "Productive development policy for Chile: an alternative to stagnation," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    9. Lazzarini, Sérgio G., 2012. "Strategizing by the Government: Industrial Policy and Sustainable Competitive Advantage," Insper Working Papers wpe_289, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    10. Peres, Wilson, 2011. "Industrial Policies in Latin America," WIDER Working Paper Series 048, World Institute for Development Economic Research (UNU-WIDER).
    11. Bateman, Milford, 2013. "The age of microfinance: Destroying Latin American economies from the bottom up," Working Papers 39, Austrian Foundation for Development Research (ÖFSE).
    12. Arti Grover Goswami & Aaditya Mattoo & Sebastián Sáez, 2012. "Exporting Services : A Developing Country Perspective," World Bank Publications - Books, The World Bank Group, number 2379.
    13. Devlin, Robert & Moguillansky, Graciela, 2012. "What's new in the new industrial policy in Latin America ?," Policy Research Working Paper Series 6191, The World Bank.
    14. Manuel R. Agosin, 2013. "Productive Development Policies in Latin America: Past and Present," Working Papers wp382, University of Chile, Department of Economics.

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    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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