Historic Publications

Unlocking prosperity in Chile: building a competitive and inclusive economy

Chile seems to be immersed in a shadow of uncertainty, where the hopes for a new long-term vision are very associated with the constitutional process, rather than differentiating from a long-term national vision that needs to be developed to ensure further change.

Prosperity in Chile has been driven by an open economy, internationalisation, and inclusion in the global economy. In the last three decades, the country has made undeniable social, political and economic transformations, but institutions have not been able to keep up with the pace of evolving Chilean hopes and demands, leaving some people behind.

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In the past 30 years, Chile has made significant progress toward the prosperity of its people. The country has achieved a high-income status, increased access to social protection networks, significantly reduced poverty and became the second most prosperous country in Latin America and the Caribbean. Hence, Chile has gained global positioning through its undeniable social, economic and political transformations, making the country a safe and attractive destination for trade and investment.

However, in the last four years, Chile has faced numerous challenges that are still ongoing today. Importantly, the country has been marked by long-lasting low levels of institutional and interpersonal trust. Such levels not only distort policies that governments have prioritised, but also hinder the degree of implementation, generating mistrust at every level of the policy cycle. Similarly, corruption scandals and collusion cases have undermined relations and interactions between government and the private sector, civil society with enterprises and among enterprises themselves. These increasing levels of mistrust are blocking the pathways to prosperity and impacting innovation, entrepreneurship, investment, and social cohesion.

Simultaneously, the export-led model that has previously brought Chilean economic growth, has lost traction. GDP growth has shown a declining trend over time, and weak TFP has been linked to low levels of value-addition across the economy. The labour market is characterized by low-skill workers across most economic activities, accompanied by issues around quality of education and a mismatch of the educational offerings and labour market needs. Today the country faces stagflation and a negative forecast for 2023. The business environment is marked by economic opportunities concentrated in natural resources and business polarisation with a small number of large companies driving economic growth, and a long tail of micro, small and medium enterprises with difficulties to flourish. Additionally, the 2019 social uprising, combined with the COVID-19 pandemic and the ripple effects of the war in Ukraine have worsened the economic situation.

Hence today Chile is at a pivotal moment, where the country has to agree on the key principles that will guide the country’s future development. Chile has a unique opportunity for creating a unifying country vision that includes an update to the Chilean political and economic model and a long-term economic growth strategy that is embraced across political and social spectrums. to unlock a sustainable future, it is essential to build a new pathway towards an inclusive economy that places MSMEs, regional development, productivity, innovation, and people’s needs at the centre of its policies. This enhanced economic agenda would allow the country to build on its economic openness and institutional strengths, support the reduction of Chile’s vulnerabilities to external shocks and international demand for commodities, as well as rebuild social cohesion.

For this development agenda to succeed, it needs to be built upon political stability and the political elite putting citizens’ long-lasting prosperity at the centre of its decisions. This can be supported by creating a national consensus, across the political and social spectrums, to boost social and economic progress across the entire territory. It will also involve strengthening state capacity through a mindset shift that puts citizens, end-users and beneficiaries at the centre. Furthermore, it can be enhanced by greater integration of Regional Development Strategies with the National plan – so that the differences across the country can be accommodated and harnessed for the national good.

This case study on Chile is part of a series of studies examining the links between a nation’s Economic Openness and prosperity, comparing the performance of over 160 countries. The purpose of this report is to provide a systematic analysis of the policy environment underpinning Chile’s economy, and in doing so, help identify specific actions that would improve the pathway to economic inclusion in the country. In addition, the aim is to further support with key elements that can be the basis for the creation of a common long-term vision towards a prosperous Chile with an inclusive society and economy, as well as empowered people.

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