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.
Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit www.rand.org/about/principles.
The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.