Sources of Economic Growth and Total Factor Productivity in Chile

The purpose of this paper is to provide a decomposition of economic growth in Chile, based on the contribution of capital, labor, and total factor productivity (TFP) and to study the determinants of TFP behavior in Chile since 1960 to date. Our results indicate that the contribution of TFP to growth differs significantly from one period to another. During 1961-1973 the contribution of capital dominates, labor takes over in 1974-1989, and TFP in 1990-2003. Evidence on TFP determinants suggests that, besides cyclical factors, TFP growth reflects the impact of macroeconomic stabilization and structural reforms. The interaction of both factors in TFP behavior is worth noting. Evidence suggests also that, under conditions of high macroeconomic instability, the effects of a structural reform on TFP are smaller, and vice versa. An analogous situation can be expected from macroeconomic stabilization efforts.