Working Paper
Export Performance in Chile

Since the mid-1970s, Chile's exports have expanded at a fast rate, and the export basket has diversified considerably, away from copper towards other primary commodities and commodity-intensive manufactures. This paper explores the causal factors and the policy implications that can be drawn from Chile's experience for countries in Africa wishing to follow a growth strategy based on expanding non-traditional exports. The major factors behind Chile's export successes seem to go well beyond trade liberalization, which is usually given pride of place in explaining the country's export performance. In the period since 1983, price signals were not only negative for producers of import substitutes. They were also quite positive for exporters: severe exchange rate overvaluation was corrected and pragmatic policies were maintained toward capital inflows that prevented excessive real exchange rate appreciation; and drawback schemes and subsidies for new exports were introduced. In addition, government policy assisted in improving supply responses by correcting key market failures: there was an energetic public effort to gather information on foreign markets; there were technological breakthroughs, fostered by specific policies, that resulted in the emergence of new export sectors; the public sector had a deliberate policy of fostering the emergence of a forestry and wood cluster oriented to export markets; and human resource and infrastructure policies in decades prior to the trade reforms paved the way for the success of the emerging sectors. We estimate an export supply function for manufactures for the period 1960- 95. The exports of manufactures turn out to be a stationary variable with deterministic trend. Deviations from trend are explained by changes in tariffs, in the real exchange rate, and in excess capacity. During the depression of 1975-77, above-average excess capacity explains 38 per cent of the increase in the exports of manufactures; during 1982-85, another period of sharp drops in aggregate demand, above-average excess capacity explains 12 per cent of the increase in these exports.