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The Chilean economic growth, to what degree is it a miracle?

Chile underwent a set of economic reforms after the military coup in 1973 that overthrew the leftist-government of Salvador Allende.

The right-wing dictatorship was the pioneer in setting radical market reforms characterized by holding the state out of the way and privatizations of state-owned enterprises –something that turned into a worldwide trend (Magginson & Netter, 2021).

For years, Chile was considered a case of economic success; however, after 50 years of market-oriented reforms, Chile is still a primary goods-oriented economy that underwent a long social turmoil (2006-2019; student protests and social outburst).

A question arises: to what degree does Chile constitute a case of economic success? 


To what degree is Chile an economic «miracle»?

By and large, for a developing country, long-term economic growth is the outcome of exports –which brings about the foreign exchange to import capital goods and technical services – and investment –which builds up the stock of capital to expand future production and boosts labor productivity (De Long & Summers, 1991, 1992. Krueger, 1998).

After the economic reforms, Chile’s economy grew driven by exports and investment, relying on imports which grew faster than GDP. In other words, economic growth came about under outer-oriented policies –drawing upon the external sector (exports and imports).

Figure 1. Chile’s GDP by component 1951-2019

Source: figure made with data from Penn World Table, version 10.0. The data differ from version 9.1 in the case of Chile.


The country underwent an improvement in its economic growth rates while the rest of the Latin American economies fell behind after market reforms  –for instance,  Brazil and Mexico slowed down their economic growth rates from 1980 to 2011.


Figure 2. Economic growth rates, selected countries

Source: the figure was taken from Palma (2012); Brazil’s recent growth


However, as Palma (2012) points out, the period 1972-2008 delivered precisely the same average economic growth rate as the Import Substitution Industrialization (ISI) model 1950-1972 –that the Chicago boys substitute with a set of liberal recipes gathered in El Ladrillo, the textbook of the military putschists (De Castro, 1992).

When one looks into the data, the dictatorship period turns out not to be astonishing in economic terms as many have been told; the GDP (PPP) growth rates averaged 4.8% before the dictatorship and 2.3% during the dictatorship –the data comes from PWT (version 10.0) and the ranges of years are 1952-1972 vs 1974-1990, excluding the year of the military coup 1973 to avoid distortions.  

On the other hand, investment and capital accumulation stepped up steadily once democracy took over. 

Figure 3. Capital accumulation and investment rates (%GDP) 1951=100

Source: figure made by the author of the article with data from the Penn World Table, 10.0. The dark red line is the 5-year moving average of the ratio of investment to GDP.


It may be argued that the free-market reforms took time to show their benefits; after all, from 1986 the economic growth speeded up in a period that Palma (2019) identifies as a «highly-dynamic 12 year-period» between 1986 and 1998 –that encompasses the last years of the dictatorship and the beginning of democracy.

Why did the economy grow faster at the end of the dictatorship? Economics-Nobel prize winner Paul Krugman writes in The New York Times

It wasn’t until the late 1980s, by which time the hard-line free-market policies had been considerably softened, that Chile finally moved definitively ahead of where it had been in the early 70s.


Well, moving ahead of a leftist-managed economy under internal and external attacks to bring it down is not a big deal, mostly, when the dictatorship of  Augusto Pinochet was a recipient of «massive capital inflow», as Krugman argues.

In an interesting article on Chile, Michael Ahn Paarlberg writes that «The “economic miracle” Milton Friedman ascribed to Pinochet is one of the great false narratives of modern economic history«. The benefits of the economic reforms «began with kicking out the Chicago Boys, expanding public payrolls, reinstating the minimum wage, and nationalizing the banks.».

As seen in Figure 2, although it is true that in contrast to LA countries Chile succeeded in terms of economic growth rates, it is not that clear compared to the fast-growing countries of Asia (take a look at where China, India, and Vietnam are in Figure 2).

Investment rates are one of the big differences between fast-growing countries and «the Chilean miracle». According to PWT (version 10.0), the ratio of investment to GDP never reached 30%  –in 2008 it peaked at 29.5% during a favorable commodity price boom (including copper, the main Chilean export).

Chile’s ratio of investment to GDP fell far behind the one delivered by countries of East Asia. The following table illustrates what a real booming economy looks like in terms of investment rates sustained over decades.

Table 1. Ratios of investment to GDP, selected countries

Table made by the author of the article with data from the Penn World Table 10.0.


Palma (2019) argues that, contrary to Asian countries, Chile’s economy has run out of steam due to its inability to «upgrade» (industrialize) its productive apparatus, something that, according to Chang (2007, 2010) Asian countries, among others, achieved through a sound industrial policy.

Aside from the fast-growing countries of Asian, it is hard to consider Chile an economic miracle; while the former became a set of manufacturing-oriented countries that climbed up the ladder of the international division of labor, the latter never got over its primary goods-oriented economy and relatively low productivity growth (Palma, 2019).


Last remarks; inequality matters

There is a moral dimension in the economic reforms under a dictatorship, as pointed out by Michael Ahn Paarlberg when wrote down that:

The most appropriate gut reaction to this may be moral revulsion—3,000 people killed or disappeared so that you can enjoy your global sushi at the mall? But it’s also worth asking whether story is even true.


Chile has fantastic sushi, no doubt, but its economic growth is not as astonishing as its inequality. Branko Milanovic –a well-known leading economist of inequality  –asserts:

In 2015, its level of income inequality was higher than in any other Latin American country except for Colombia and Honduras. It exceeded even Brazil’s proverbially high inequality. The bottom 5% of the Chilean population have an income level that is about the same as that of the bottom 5% in Mongolia. The top 2% enjoy the income level equivalent to that of the top 2% in Germany… Chilean income distribution is extremely unequal. But even more so is its wealth distribution.


Well, holding less inequality than Colombia is not a great feat, as a Colombian, I know very well how income and wealth are distributed in a country where there are big drug traffickers, an unsettled long internal-armed conflict between guerrillas, the state, and right-wing paramilitaries –which has been a historical tool used against the working class.

Back to Branko Milanovic and keeping in mind that the press is not friendly when it comes to Vladimir Putin and Russia (the so-called land of oligarchs), Milanovic asserts:

Chile is the country where billionaires’ share, in terms of GDP, is the highest in the world (if we exclude countries like Lebanon and Cyprus where many foreign billionaires simply “park” their wealth for tax reasons). The wealth of Chile’s billionaires, compared to their country’s GDP, exceeds even that of Russians.


It is well-known the political turmoil Chile went through some years ago. I am writing this post from Santiago de Chile (the capital) and I was shocked by how the streets looked after the 2019’s «estallido social» (social outburst) –years earlier, in 2006, the country had undergone student protests called «revolución pingüina».

Many corner shops and store premises are closed and many spontaneous wall paintings made by the demonstrators can be seen around. It proves that inequality matters, even for owners.

A corner shop was vandalized and closed after the protest in Santiago de Chile. The photo was taken by the author of the article on 27 July 2022.



Chang, H. J. (2007). Bad Samaritants: The Myth of
Free Trade and the Secret History of Capitalism.
Bloomsbury Press.

Chang, H. (2010). 23 Things They don’t Tell You about Capitalism. Londres: Penguin Books. Recuperado de’t%20Tell%20You%20About%20Capitalism%20(1550)/23%20Things%20They%20Don’t%20Tell%20You%20About%20Capita%20-%20Ha-Joon%20Chang.pdf

De Castro, Sergio (1992). El Ladrillo: bases de la política económica del gobierno militar chileno. Centro de Estudios Públicos: Santiago de Chile. pp.193

De Long, J. Bradford & Summers, Lawrence H. Equipment Investment and Economic Growth. The Quarterly Journal of Economics, Vol. 106, No. 2 (May, 1991), 445-502.

De Long, J. Bradford & Summers, Lawrence H. World Bank and Harvard University Equipment Investment and Economic Growth: How Strong Is the Nexus? (Oct, 1992), 157-211.

Magginson, William. & Netter, Jeffry. Journal of Economic Literature Vol. 39, No. 2 (Jun., 2001), pp. 321-389.

Krueger, Anne. The Economic Journal. Vol. 108, No. 450 (Sep., 1998), pp. 1513-1522.

Palma, . J. G. (2012). Was Brazil’s recent growth acceleration the world’s most overrated boom?.

Palma, J. G. (2019). The Chilean economy since the return to democracy in 1990. On how to get an emerging economy growing, and then sink slowly into the quicksand of a “middle-income trap”.



Medardo Alfonso Palomino Arias

Por Medardo Alfonso Palomino Arias

Economista y Magister en Gestión Pública graduado en la Universidad Santiago de Cali, Colombia. He sido Profesor desde el año 2014 en distintas universidades de Cali. En la actualidad me encuentro adelantando estudios y viajando en Australia. El proposito de mi blog es difundir conocimiento sobre economía y brindar un espacio para el debate.

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