Economics the Classical School of Thought

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A Rough Road to Prosperity: An Economic Analysis of Growth versus Development in Chile

Table of Contents

1| Introduction| 2|
2| Analytical Frameworks: Economic Growth vs. Economic Development| 4| 2.1| Analytical Framework: The Chicago School| 6|
3| Dictatorship, Recession and the Free Market: A Rough Transition | 7| 4| Onward to the Eighties: Crisis, Growth and Poverty| 9| 5| The Nineties: Height of the Golden Period and Turning Point for Chile| 12| 6| Gross Domestic Product Component Analyses | 15|

7| Conclusion| 17|
8| References| 19|
9| Appendix| 24|

1 Introduction

Throughout the latter half of the 20th century the Chilean economic and political system experienced dramatic change, with direction from each extreme of the spectrum. Prior to 1973, Socialist Chile maintained an economy which was highly centralised, which entailed strong dependency of regional administrations on central government (Posner, 2004, p. 59). It was following the transference of power to the right wing dictatorship of Augusto Pinochet that the Chilean economy began a course of significant alterations as the regime aimed to transform the Chilean economy through mass decentralisation, liberalisation of trade and privatisation (Posner, 2004, p. 62). It would be these economic policies which would lead Chile into a new economic era, significantly increasing economic growth. However, this transition to a new Chilean economy would not be entirely harmonious. Despite substantial economic growth, Chile would suffer severely from recession, increased unemployment and high levels of poverty throughout the 1970s and 80s and would experience periods of hardship and undesirable social policies before experiencing a higher level of domestic economic development (Gregorio, 2004). Following transition to democracy at the beginning of the 1990s, Chile experienced economic growth on an unprecedented scale under the newly elected Aylwin government. However, despite this drastic change in political power, the free market economic orientation of the Pinochet regime was maintained unaltered into Chile's new political era. What defined the democratic government was strategy, particularly in respect to social policies and in particular on the battle against poverty (Hojman, 1990, p. 25). It would be the balance of growth and development which would lead Chile into the height of its 'golden period' economic boom, transforming Chile into a country with one of the highest gross domestic product's in Latin America, not only on par with those of the region, but comparable with several others in the world economy (Gregorio, 2004). This paper analyses Chilean economic history, specifically concentrating on the comparison of economic growth with economic development, in particular the issues of poverty, unemployment and income inequality. The research question of this paper is how the effects of economic growth have influenced economic development in Chile. There are several aspects to the measurement of economic growth and development in a given country, and there exist differing schools of economic thought. The first section of this paper deals with components of economic growth and development in addition to the school of economic thought central to this paper. That which follows analyses the economic growth of Chile vis-à-vis the country's economic development from the period of 1973 until 1996. This consists of three sections of time periods, the first of which pertaining to the period of transition of 1973 to 1980. The second focuses on the height of the Pinochet dictatorship, the period of 1980 to 1990, with the third section concentrating on the period of transference to democracy, 1990 to 1996. The section that follows is dedicated to analysis of the components of economic growth, analysing various sectors of the economy in certain periods covered in the paper. The final section is...
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