Sources of growth and behavior of TFP in Chile

Chile has exhibited sharp cyclical and trend variation in its GDP and TFP growth rates during the last half century. This paper presents new estimates of the sources of Chile's growth and new measures for factor inputs and TFP during 1960-2005. Capital series are adjusted by utilization and labor employment series by hours worked and labor quality measures. Using a Cobb-Douglas function, the paper presents eight series for TFP based on alternative combinations of input measures. Three alternative cyclical measures for GDP suggest that the full period can be divided into three sub-periods of similar length, with similar cyclical features, and that coincide closely with distinct historical eras: 1960-1973, 1974-1989, and 1990-2005. Across the latter time spans, a negative relation between the first and second moments of GDP growth is confirmed, consistent with international experience. This paper also reports econometric evidence on the behavior of Chile's TFP during 1960-2005. TFP dynamics are shaped by cyclical variables (the terms of trade and real exchange rate undervaluation) and structural policy variables (macroeconomic stabilization and microeconomic reform progress), as well as positive interaction effects between macro performance and micro policies.