Debunking the ‘Free Market Miracle’: How industrial policy enabled Chile’s export diversification

Assessing industrial policies in Chile remains a rather contentious and divisive topic. Chile has long been held up as an almost‐textbook example of the success of ‘letting the market work’, as there was a broad agreement among mainstream economists that Chile has largely succeeded in promoting strong and stable growth because it has embraced free market policies. At first glance, this may seem believable.  Afterall, Chile has one of the fastest growth rates in Latin America since its neoliberal turn in the 1970s. Despite the continuing significance of copper, it has also managed to diversify into other sectors and acquire new competitive advantages between the 1960s and 1990s. The dominant view sustains that the successful emergence of new competitive sectors in Chile’s export basket are the result of four decades of commitment to liberalization and free market policies. However, this post, which is based a recent study, shows that Chile’s export diversification was not the result of free market policies, but of carefully crafted government interventions. The idea of Chile as a ‘free-market miracle’, as first described by Milton Friedman, is therefore one of the most enduring myths associated with recent economic development history.

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