Problems of Industrialization in Chile

Some Preliminary Observations

by Leland Johnson

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A progress report on the effects of government development policy, inflation, and exchange control on industrialization in Chile. It examines the difficulties encountered in seeking to combine economic and political objectives by stimulating the growth of a domestic automobile industry in the unstable northern region, only to find much of the expected economic benefits lost because of a seasonal employment pattern in which plants are idle half the year. The study shows that: (1) under Chile's complicated foreign exchange control system, even inefficient firms can remain in business (with high costs and profit margins passed on to the consumer); (2) the demand for credit far exceeds the supply; and (3) excess industrial capacity in Chile arises in part from gross imperfections in the capital market caused by an inflationary monetary policy, frozen nominal interest rates, and exchange controls.

This report is part of the RAND Corporation Research memorandum series. The Research Memorandum was a product of the RAND Corporation from 1948 to 1973 that represented working papers meant to report current results of RAND research to appropriate audiences.

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