Perspiration and Inspiration: Two Centuries of Chilean Growth in Perspective

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José Díaz1 Gert Wagner Department of Economics and Eh Clio Lab, Pontificia Universidad Católica de Chile

ABSTRACT This paper presents yearly growth accounting estimates for Chile extending over the 19th and 20th centuries with input availability and overall efficiency as direct determinants of output. Results are compared with a benchmark based on growth accounting estimates obtained from the literature, the selection criteria including three aspects: year-to-year estimates, equivalent factor definitions, and a time span of at least 150 years. Due to these restrictions the benchmark turns out to be mainly a sample of today's developed countries. The main findings obtained with respect to the benchmark are: (1) In the long run, Chilean TFP contribution to GDP growth is significantly lower; (2) long period averages hide huge and variable differences when various time subdivisions are explored; (3) Chilean economy is highly volatile; and (4) in 68% of the years when Chilean growth of GDP and TFP were positives the benchmark show a similar performance, a coincidence that fall substantially when Chilean growth of GDP and TFP were negatives. The paper also provides TFP estimates incorporating human capital and a quality index of physical capital revealing a lower TFP growth respect to the version with non adjusted productive factors.

JEL codes: N16, O47, O54 Keywords: Chile, sources of growth, productivity

We are grateful for comments from Rodrigo Cerda, Francisco Gallego, Felipe González, Rolf Lüders, Rodrigo Fuentes, Aristides Torche, Klaus Schmidt-Hebbel and Luis Felipe Lagos. Matías Tapia, Rodrigo Wagner and two anonymous referees read and commented on a previous version. Drafts were presented at the XVth World Economic History Congress (Utrecht 2009); CLADHE II preparation meeting at ECLAC (Santiago 2009); CLADHE II (México 2010); and the Meeting of the Society of Chilean Economists (Talca 2010). Financial support from CONICYT/Programa de Investigación Asociativa (Project SOC 1102) and Millenium Science Initiative, Chilean Ministry of Planning (Project P07S-016 F) is acknowledged. The authors bear sole responsibility for the contents of this paper.

1 [email protected]

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1 Introduction In 1810, when Chile’s political independence process began, per capita income amounted to 40% of the corresponding U.S. level. The following two decades were characterized by wars and power struggles, but at the same time the basic ingredients allowing the establishment of a working government emerged. Based on the previously existing property rights system and favorable world demand conditions (Bulmer-Thomas

1994), a healthy investment climate was observed by 1830, as illustrated by the rapid development of the port of Valparaíso (Véliz 1961), and in 1833 the country's per capita product recovered its 1810 level.1

Over the next 180 years or so, the economy expanded at an average annual rate equal to 1.59% in per capita terms, somewhat below the corresponding 1.74% experienced by the U.S. for the same period.2 Currently, Chile's per capita income amounts to 30% of the U.S. benchmark, a consequence of two aspects: the initial difference in 1810 and the diverging growth process over the following centuries.3 The case is consistent with two notions: first, changes in world income distribution are a rather recent phenomenon in

1 In 1833, the fundamental pillars of a centralized state system had been established. A republican system for selecting and replacing political authorities, stable government control over the armed forces and a solid public revenue structure based mainly on foreign trade taxes were capable of sustaining a growing fiscal budget. 2 Over the two last centuries, average per capita income in Chile increased about 20 times, from 108 in 1833 (100 in 1810) to 2,332 in 2010. However, when measuring Chilean per capita income in relation to the U.S., there was a decline during the same time period. There was some convergence between the two countries in the 19th century. Starting around World War I, the relative position of Chile worsened substantially and it has only been in the last 25 or so years the country's average per capital income has once again begun to converge toward the levels of wealthy countries (see Díaz, Lüders and Wagner 2007) 3 Relative income levels from the EH Clio Lab (Díaz, Lüders and Wagner 2010) differ from Maddison’s estimates, since they refer to different base years for PPP income calculations. Furthermore, Maddison’s data for U.S. growth are somewhat lower, in particular, we believe, due to wartime rates during the 1939-45 period. With the Maddison data and for 1820, Chile’s per capita income was 55% of the U.S. level, while according to Díaz, Lüders and Wagner (2010), it was significantly lower at 34% (lower than in 1810 due to the war of independence). 1

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE which 20th century developments played a significant role (Acemoglu 2009), and second, it fits into an older perspective where already in the early 19th century significant differences existed (see, for example, Bértola and Ocampo 2010).

Growth over these two centuries has not been stable in Chile. By Latin American standards the country's performance in the early 19th was exceptional meanwhile in the

20th century it was strongly affected by the de-globalization process that took place from

1913 to 1952. The country also experimented with a package of heterodox economic policies including import substitution and price controls, policies lasting far beyond the retreat in globalization. It was only in the latter decades of the 20th century that relative growth was recovered.

In relative terms , therefore, the country has not experienced development: even so

Chile’s income has increased substantially other countries income also experienced expansions over these two centuries. The obvious question to ask is for reasons behind such a development. Answering it is in our opinion an ambitious adventure, a project whose expected results are possibly nil. But it seems possible to make improvements in the description of the growth process that eventually may bring a better understanding of the underlying situation. This, therefore is the general objective of the present paper and for doing this we plan to concentrate on productivity, after all a measure where differences between developed and developing countries seem to be quite significant.

In what follows the paper concentrates on Chilean growth in a long period perspective stretching over nearly 180 years , doing this with the help of traditional growth accounting framework.

Total product growth rates can be decomposed into a factor accumulation element and an overall productivity measure, that is, total-factor productivity (TFP), where these

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE estimates represent the above mentioned underlying elements. Results so obtained are endogenous indicators that should be distinguished from the exogenous causes of underlying growth trends, where for example, institutions, geography (including underlying natural resource endowments), and technological and cultural development receive a great deal of attention.

Growth accounting amplifies the informative content provided by income growth series by identifying the underlying elements that sustain income growth expansions. Both resource availability and overall productivity are the foundations of a broader description of the growth process, although TFP seems to be receiving more attention. This is somewhat surprising, as its residual character and the notion that there may be thousands of circumstances behind the evolution of this indicator confer on it a certain degree of indeterminacy (Harberger 1998). It is the association with technical change, innovation, reallocation of resource employment and other cost-reducing and/or value-increasing devices, we believe, that explains why it has been given greater emphasis. One additional aspect behind its popularity might be empirical. In comparing the growth trends of rich and poor countries, many studies have found that the share accounted by TFP expansions turns out being significantly higher among the former group.

In a developed country sample stretching over almost 120 years, Cette et al. (2009) find that TFP’s contribution to total growth ranges from 44% to 81%. Spain, a relative latecomer, also registers a contribution above 50% (Prados and Rosés, 2009). Lower- income countries generally do not fit into this pattern and when they do, it is only for short periods. According to Hofman (1998) and for a sample of six Latin American countries

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE from 1950 to 1973, the contribution of the growth accounting residuals is only 20%.4

Easterly and Levine (2001), for a broad Latin American sample over a somewhat more extensive period (1940-1980), find a contribution of TFP to growth equal to 27%. These figures are merely examples, but nevertheless they confirm the general impression: the presence of a significant gap associated with income levels.

But TFP’s contribution along the development path of a particular country, rich or poor, is also far from homogeneous. For example, the contribution of TFP to growth for

France, Japan, the United Kingdom and the United States is 50% from 1890 to 1913

(simple average), then rising to 87% in the 1913-1950 period and declining from 1950 to

1980. Argentina and Brazil, after showing almost identical TFP contributions from 1950 to

1973, diverge radically in the second half of the 1980s and the early 1990s. China is another case that illustrates this sort of instability: its TFP contribution to growth fell from

72% in the 1952-57 period to -42% in the following eight years (Perkins and Rawski,

2008). This the opens up an additional feature a growth accounting exercise should not only consider long periods it also needs to provide for subperiods and, we think, a year to year account.

It is well known that TFP is obtained as a residual and as such it depends among other things on inputs included in the factor accumulation aggregate. Existing estimates by different authors do not necessarily control for these aspects in the same fashion. Growth of human capital and the evolution of the quality of physical capital should be treated in similar fashion in any meaningful comparison. Further work on this front would not only improve the understanding of what really accounts for growth in the long term in the case of a particular economy, but also endows any benchmark with a more precise character.

4 A simple cross-country average for the period. 4

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Also and as mentioned previously, comparisons over time and among economies are common in this field, presumably because the informative content of growth accounting reveals itself fully only through such perspectives. Our aim, therefore, is concentrating on

Chile to identify differences and similarities in growth accounting estimates both within and among countries over two centuries on a year-to-year basis. This comparison should be based on all estimates generated by this method and not only on TFP’s contribution to growth.

There are therefore two types of findings: growth accounting estimates describing the Chilean economy in the long term and comparison of these estimates with the experience of third-party countries. In relation to the former, we find that from 1833 to

2008 the average contribution of TFP to growth in Chile is in the 6 to 22%range; the precise figure mainly depends on the factor definitions employed. The lower contribution is observed when we include measurements of human capital and quality improvements for non-human capital, our broadest definition of factor accumulation.

Averages hide a great deal of heterogeneity, an issue we explore with two time breakdowns for the Chilean economy: one considering Maddison’s growth phases on one hand and other division by decade on the other hand. With our broadest definition for factor accumulation, that is, including changes in human capital and also a correction for physical capital quality, the period 1871-1913 shows a negative TFP rate of growth.

However, the decennial subdivision shows that nearly one-third of these 10-year periods register negative TFP contributions to growth.

The second type of findings flows from a comparison of Chilean estimates with those of a benchmark constituted by a group of countries for which comparable information

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE could be obtained. This exercise confirms regularities that have already been noticed but also underscores much heterogeneity, which is rarely mentioned.

For the 150 years between 1850 and 2000 the average contribution of TFP to growth was 20% for Chile, 31% for the United States, 32% for Sweden, 38% for the United

Kingdom, and 57% for Spain. In the period 1862-2000 Italy exhibits a TFP contribution to growth of 45% while Turkey presents 17% for a shorter period (1880-2000).5 Therefore, the difference among presently high income countries and Chile, a developing country, –is not only a phenomenon that characterizes the second half of the 20th century, as the literature already has reported, but it has been present for at least the last 150 years.

A second view of growth accounting estimates focuses directly on absolute rates of

TFP growth instead of the TFP-to-GDP expansion ratio. Here we find that over the entire

1850-2000 period, Chile’s TFP growth reaches 74% of Sweden’s growth rate, 47% of

Spain's, 58% of the U.S.'s , and 87% of the corresponding figure for the U.K. but is 41% higher than the value for Turkey. Additionally, when comparing factor contribution growth rates over this period, Chilean rates are significantly higher than those of other countries, with the sole exception of the U.S.

The general impression that emerges from these comparisons is that centering attention exclusively on TFP contributions to total product growth generates a significant but still partial picture of the role of proximate causes in development. It also reminds us that in relation to growth accounting, one must always identify the exact measure that is required, that is, the question asked.

5 Turkey is the only country in the sample that is most similar to Chile in terms of development and in many of our comparisons the estimates for Turkey are more similar to Chilean outcomes than to the rest of the sample. But this findings should be interpreted with caution as the information for Turkey covers a shorter time span. 6

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Finally, this comparison is expanded to include a measurement of annual heterogeneity where we find that the variance in TFP’s annual growth rate is clearly higher in the Chilean case: three times compared to Sweden, six times higher than Spain and the

U.K., and two times higher than for the U.S.

In synthesis this paper offers new and extended estimations for the Chilean economy and also their comparison with a sample of countries. In this way the former estimations are seen with perspective which allows a clearer perception of implicit magnitudes. The main conclusion we draw from this exercise is that at least in the Chilean case growth and volatility should be examined as issues that a priori are not necessarily independent.

The second section of this paper describes the underlying model that sustains the growth accounting decomposition and the data sources. The estimates obtained for the

Chilean economy are presented sections three (long run) and four (medium run). Finally, growth accounting results for the Chilean case are compared to a benchmark sample of third-party countries.

2 General Framework and Data Sources for Growth Accounting The growth accounting decomposition of Chile’s economic expansion organizes

around the general aggregate production function YFKLAt  t,, t t  where Y represents total product, K and L stand for capital and labor inputs, and A is a technical parameter.

Differentiating the production function we obtain

gYKLA()()()()()() t t g t  t g t  g t , where gx is the growth rate of x, α and β are capital’s

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE and labor’s share; the first two terms of the equation capture factor contribution (FC) growth, meanwhile gA reflects total or multifactor productivity (TFP) growth (Acemoglu

2008 Chapter 3).

In this context the total factor productivity growth constitutes a residual capturing any total product variation not accounted for by factor changes. Among others, it may include possible quality changes in basic inputs not captured by our quality indices, productivity-enhancing reallocation of resources, effects of overall productivity variations such as production effects due to increasing use of non rival goods –technology – and so on

(Griliches 1996, Lipsey and Karlaw 2000, Fuentes 2010).

Aggregate output (Y) comes from Díaz, Lüders Wagner (2007 and 2010). From

1940 and up to present it is based on national accounts estimated by government agencies.

Levels for the 1940-1860 period are obtained thru production indices for manufacturing, agriculture, mining and government. For the aggregation of these sectors three alternative price systems are explored. Finally for general total product a complement is added for not included sectors, where the relative importance of this complement evolves according to the relative importance of labor force for those sectors.

Before 1860 and down to 1810 total product is based on an estimation which includes government revenue and exports, both in real terms. Export data is deflated by a factor that takes into account of the decrease in smuggling, activity that is said to have been important at the end of the colonial period and then slowly disappeared thru increased enforcement stimulated, we think, by the importance of trade taxes in total fiscal revenue and its corresponding enforcement (Villalobos 1968).

Capital (K) consist of physical or basic capital (C), that is, the sum of infrastructure plus machinery and equipment capital, and a capital quality index (q). Therefore, K = Cq.

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Data for capital (C) comes from Díaz and Wagner (2014), being generated with the perpetual inventory method and are based on year to year investments. Two types of capital goods are distinguished: (i) machinery and equipment, and (ii) infrastructure.

Yearly investments in both types of capital goods plus reasonable conjectures for depreciation rates and an initial early 19th century capital stock are the inputs for the capital series from 1833 onwards. The first of the corresponding investment series comes directly from capital goods imports (Díaz and Wagner 2012), where nominal dollar imports have been deflated by capital goods prices, based on Feinstein (1972), Feinstein and Pollard

(1988) and Kuznets (1961), using Chilean weights for country origins of imports. Secondly infrastructure capital is generated using the same general procedure and the corresponding investment estimate incorporates public and private production in the building sector.

Capital’s quality index (q) is based on the methodology proposed by Christensen et al. (1980), where “quality” basically evolves based on changes in the relative importance of machinery in total capital.

Labor (L) is derived from employment (E) and a quality or human capital index (h), that is, L= Eh. The first component (E) is obtained from labor force (census data) and incorporates a correction factor for estimated unemployment. From 1985 onwards the source for employment is the national statistical office INE, which provides information compatible with census levels.6 Directly measured unemployment rates are available up to

6 Thru time the coefficient of effective work over labor so obtained has been experiencing different changes. This coefficient varies among sectors at least for the 19th and a large fraction of the 20th century. In this sense agriculture seems to have been quite different to urban labor where the possibility of employment is less restricted by climatic conditions. The rapid urbanization process experienced by the country is a source, therefore, of some underestimation of effective labor growth. But hours worked per week, a non available series, eventually experienced an evolution in the opposite direction. Compared to 19th century there has been a gradual decrease of both working days and also of hours per day. But there are also other aspects influencing effective labor and we mention only the evolution in working culture. We have the institution of the “semana corrida” (whole week) that consists in paying Sunday, a supposedly not working day, if the 9

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1960, for earlier years the rate is generated by an Okun type estimation based on the 1960-

2005 period, including an indicator for the evolution of the share of agricultural labor force7.

The human capital index (h) follows Bils and Klenow (2000) where the return to

 1 education is conditioned by years of schooling. The formula is: hs exp, where 1 s is years of schooling, and  and  are assumed equal to 0.32 and 0.58, respectively (taken directly from Bils and Klenow 2000, p. 1168).

The average level of years of schooling of total population comes from Braun et al.

(2000) and for recent decades, Ministry of Finance. According to the first of these sources, years of schooling are near to cero (0.49) in 1833 implying the absence of any significant skills among the labor force that year and a rapidly growth of h when considering the 2010 level (11.13 years).

But and it is our contention that formal education –schooling and so on- is omly one technique for generating human capital. Our conjecture is that thru time and as an outcome of specialization and economic growth, the production of this type of capital undergoes organizational and technological changes. Conditions around 1833 and before were such that the production of human capital was mainly obtained thru a “learning by doing”

worker was present at the workplace on Monday’s. This institution may have seen as an incentive for obtaining steady work of laborers. Our impression is that thru time the effectiveness of such rule has diminished in the sense that to be absent on Monday has been falling for other reasons like human capital growth, competition or changes in regulations. Whatever the reason its consequence has been a rise in the coefficient of effective work to labor. Therefore, when employing “labor” as defined above it is not clear if we are under or overestimating the growth of the factor, hence we cannot say much about its incidence on growth accounting estimates. 7 Endogeneity generated by this procedure should be minor and can be seen when comparing estimates based on employment in relation to estimates generated directly with labor force. 10

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE technology, where observation and teaching in different organizations, within family and business, and occasionally thru institutions like apprenticeship, were the main channels.

Hence and based on fragmentary skill and relative wage information we construct an initial human capital level expressed in terms of equivalent average years of schooling equal to 2.5 years. Therefore our procedure for generating the years of schooling indicator consists in adding 2.5 years to the above mentioned series since its beginnings. Finally, and to underline the significance of such an adjustment the reader should consider that between

1833-2010, whilst the original average years of schooling indicator grows at 1.78% per year, our adjusted average years of schooling expands at 0.86% per year, still and important rate of expansion. The latter implies that human capital (h) expands at 0.61% per year.

Table 2.1 shows the evolution of the variables above mentioned between 1833 and

2010.

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Table 2.1. Capital, Labor and Average Productivity, 1833-2008: Stylized Facts. 1905=100. Selected years Y/E Y/L C/E K/L q h 1833 26 34 7 7 73 76 1845 32 42 9 8 73 78 1865 50 62 13 14 82 81 1885 70 77 37 41 99 90 1905 100 100 100 100 100 100 1925 149 125 172 158 109 119 1945 167 133 186 159 108 126 1965 252 173 259 223 125 146 1985 288 162 295 211 127 178 2005 514 239 466 310 143 215 2010 522 235 552 370 149 223

1905/1833 3.82 2.90 13.33 13.95 1.38 1.32 2010/1905 5.22 2.35 5.52 3.70 1.49 2.23 2010/1833 19.95 6.81 73.59 51.60 2.05 2.93

Y/E: GDP per Employee Y/L: GDP per Adjusted Labor C/E: Capial Stock per Employee K/L: Quality Adjusted Capital Stock per Adjusted Labor q: Capital Stock quality h: Human capital

As shown in Table 2.1, from 1833 to 2010 output per employee multiplied by a factor of 20. A significant share of this productivity growth is due to an increase in human capital stock: output expansion per adjusted employee, that is when incorporating human capital (L=Eh), reduces the above figure to 6.8.

Also, a significant capital deepening process occurred during this period, in particular during the second half of the 19th Century with capital stock per employee (C/E) increasing by 74 times.8 But capital deepening varies through time: compared to the 19th

Century both C/E and K/L exhibit a slower pace of expansion in 20th Century.

Human capital present a slightly higher growth in the last century than capital quality.

8 When constructing our capital stock(C) series this capital deepening episode motivated many comments by colleagues. But and after exploring different aspects of the theme –one is the incorporation into Chile of present northern región- it is our contention that capital deepening and the growing capital output ratio are stylized facts. See Díaz and Wagner (2014) 12

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The capital output ratio, C/Y (Figure 2.1) provides an additional illustration: from an initially low level in the first decades, it experienced steady expansion from 1860 to

1920. Afterwards and up to the present, although characterized by large fluctuations, its trend is flat.

Figure 2.1. Capital output ratios, 1833-2010: Stylized Facts. Total, Machinery and Infrastructure

Source: Diaz and Wagner (2014)

The fundamental growth accounting equation allows us to estimate the contribution of TFP to economic growth using data on output growth, labor force growth and capital stock growth. But in order to make the calculation the factor shares α and β are required.

On this point we do not have direct sources for the Chilean factor shares in the long run and the procedure is to construct shares. This poses serious issues: first, the level of α needs to be determined implying the selection of a procedure; second, estimates of the contribution of TFP to output growth may be biased when the distance between two time periods is

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE large; and third, a constant capital share over two hundred years is a topic hotly disputed in the present. In the next section the presence of TFP is estimated assuming two types of capital share: constant and variable.

A final remark on territorial issues and natural resources. The unit of analysis is total production generated per year in the territory of the Republic, that is the area

“controlled” by its government. The physical extension of Chile has not been constant thru time registering expansions and also some reductions. For obtaining an accurate picture of the relative role played by the proximate causes of economic growth one significant territorial extension experienced in the early 1880’s demands special attention. Thru incorporation of the northern territories of Tarapacá and Antofagasta, an outcome of the

Pacific War, the Republic got access to established resources and its corresponding production: both are included in the respective series. In the following decades these regions attracted significant amounts of additional capital and labor of Chilean and foreign origin, flows which also are included in the data. Other territorial variations, expansion and reductions experienced over these centuries do not pose measurement problems for our present aim since they correspond mainly to areas with more or less nil registered production and therefore resources. In other words, natural resources such as land, sea, air or undiscovered mining fields are not included in the definition of capital9.

9 This treatment of the non human capital variable implies that a change in technology and or World demand faced by Chile in goods whose supply is conditioned by specific natural resources, say wheat nitrates , copper salmon or cellulose, may put into action investments oriented towards the production of such goods. In our estimations resources required for it are exclusively produced capital and labor. This procedure puts the treatment of this supply on equal footing with all other goods; for example, air seems to be an essential factor in the production of any good but never is included in any estimation. 14

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3 Growth Accounting over Two Centuries: The Big Picture Before presenting results of the growth accounting decomposition of Chile’s economic expansion over the 1833-2010 period we start with a short discussion in relation to factor shares. First, and following much of the literature it is assumed that the aggregate production function is of the constant returns type where the empirical question in relation to factor shares is the search for an appropriate estimator of α (capital share).

In general, Chilean estimates concentrating on selected subperiods of the 20th

Century employ capital share in the range 0.33 to 0.55 with the great majority using a constant to scale production function. As a matter of fact current estimates of Chile’s underlying trend GDP growth assumes α=0.4849 following Restrepo and Soto (2006).

The present estimation of participation shares considers two procedures: fixed and variable capital share. The constant capital share is 0.40, obtained with a linear regression considering the whole range of data. The estimated model was

log(YLKLt / t )01 log( t / t ) where estimated coefficient α1 correspond to capital share.

On the other side, the variable capital share is estimated through a linear quantile regression of the above mentioned model. Standard linear regression techniques summarize how the mean of the outcome variable changes in relation to a set of regressors, meanwhile the quantile regression estimates the differential effects of covariates along the conditional distribution of the response variable. This method models the relation between a set of predictor variables (in this case log K/L) and specific percentiles (or quantiles) of the response variable (log Y/L). For instance, a median regression (50th percentile) of variable y on variable x specifies the changes in the median y as a function of the predictors. The effect of x on median y can be compared to its effect on other quantiles of y. Therefore, the quantile regression parameter estimates the change in a specified quantile of the response

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE variable produced by one unit change in the predictor variable (Koenker and Hallock 2001,

Xiao 2012). These estimates are our milestones for building a capital share series on an annual basis (See Figure 3.1).

Figure 3.1. Variable Capital Share 1833-2010

Main results for the complete period 1833-2010 can be seen in Table 3.1. Its first column, upper section, shows the compound growth rates implicit in the data (considering only initial and final years). The following four columns of the same section represent contributions to total growth of each element but now weighted by the corresponding factor share. For example, the factor L grows 1.32% annually while total GDP growth is 3.33%.

When estimating with constant α, and now looking at the contribution column, 39.7%

(0.4×1.32/3.33) of total log period growth can be assigned to factor L.

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Table 3.1. Sources of Growth, 1833-2010. Inputs and Estimates. Annual Growth Rates and Contributions to Growth Compound α=0.40 Variable α Annual Growth Rate (%) Weighted Rate Contribution to Weighted Rate Contribution to of Growth (%) growth (%) of Growth (%): growth (%)

Y 3.33 100.0 100.0

K 4.52 1.78 53.6 1.99 59.9

C 4.09 1.62 48.6 1.82 54.8 q 0.41 0,16 4.9 0.32 9.7

L 2.21 1.32 39.7 1.11 33.5

E 1.59 0.95 28.7 0.76 22.9 h 0.61 0.37 11.0 0.19 5.8

FC 2.59 77.7 2.60 78.2 Using C and E TFP 0.72 21.7 0.71 21.3

FC 2.75 82.7 2.77 83.3 Using K and E TFP 0.56 16.8 0.54 16.2

FC 2.96 89.0 2.96 88.9 Using C and L TFP 0.36 10.7 0.36 10.7

FC 3.13 94.0 3.13 94.1 Using K and L TFP 0.19 5.8 0.19 5.7

Y: GDP K: Quality Adjusted Capital Stock L: Quality Adjusted Employment FC: Factor Contribution C: Capital Stock E: Employment TFP: Total Factor Productivity q: Capital quality index h: Average human capital

Note: , where g is the growth rate of x, and is weighted growth gY g FC  g TFP  g K  g L  g A x gFC g K g L rates. The contribution to growth of K and L are  gK and  gL , respectively

gY gY

The lower section of Table 3.1 divides total growth rates in two categories: Factor

Contribution (FC), that is the sum of capital and labor weighted growth and TFP, the residual of the growth decomposition. For example, when estimating with a constant α and

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE using the broad definition of factors, that is K and L, 94% of total GDP growth is accounted for by factors and only 5.8% by TFP.

Overall impressions when reviewing results for the long 1833-2010 period. First, as expected the capacity of TFP as an explanand of growth varies with the definition of factors; with factor identified simply as physical entities (C, E) TFP turns outbeing large compared to broader factor measurements, that is nearer to productive capacity of inputs

(K, L). Second, differences in TFP’s contribution to growth when employing fixed or variable factor shares are of a secondary nature. Third, it is quality adjustment what makes the difference and not the type of capital share (within the range experimented with).

As previously mentioned, various growth accounting estimations are available for the Chilean economy, where most of them refer only to the second half of the 20th century.

The estimates for TFP obtained by other authors tend to be somewhat lower than our estimates. In general, we cannot establish the origin of such differences but factor definitions are likely to be one of them. The exception is Fuentes et al. (2006), possibly the most complete of these studies, which refers to the 1960-2005 period employing the most recent available data, as our study does. Here, leaving aside factor quality corrections, there is little difference with our results when regarding trends.10

Although TFP’s contribution to total long run growth seems to be relatively small, it might be still significant. This can be illustrated with a counterfactual where output growth exclusively rests on the reported factor contribution growth that is assuming everything is

10 A more in-depth version of this comparison may be found in the supplementary tables and material. 18

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE equal with the exception of TFP growth equal to zero. 11 In that case, the product level in

2010 would represent 71% of real income reached that year.

Insofar the overall long period picture we get from growth accounting, the next step is to explore developments in between.

4 TFP and Factor Contribution: do they evolve evenly? The last section concentrates on the long period 1833-2010 and therefore the impressions we obtain with such as perspective reflect averages stretching over two centuries. Hence the present section will focus on selected time breakdowns and this reveal what is going on in between these extremes. Growth rates and also their stability will be explored and compared. 12

A first time breakdown follows the phases proposed by Angus Maddison (2007) for the World economy. According to this taxonomy of five growth phases, only two register significant TFP contributions to growth in Chile: the first phase extends from 1833 to 1870 and the fourth phase is from 1950 to 1973 (Table 4.1). The last phase distinguishes itself neatly from previous ones as the corresponding contribution by factors expands at an unprecedented rate, emphasizing the importance of perspiration as opposed to inspiration in this development process.13 Also, in this phase and in reference to an aspect to be discussed below, TFP volatility is low in relation to the 20th century experience.

11 Of course, we have no way to show that with zero TFP growth factor accumulation would have stayed the same. 12 Growth accounting of this section considers variable capital share. 13 This phase coincides with the consolidation of profound changes in Chilean trade and market policies that were implemented in the late 1970s. Since the 1990s, the country's institutional scenario has emphasized stability in the rules of the game. 19

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Table 4.1. Sources of Growth, 1833-2010. Growth and Volatility by Phases Least Square Annual Rates (%) Maddison Phases 30 Years Periods

1833- 1871- 1914- 1951- 1974- 1951-1980 1981-2010

1870 1913 1950 1973 2010

Least Squares Annual Rate of Growth

Y 3.44 3.24 2.41 3.93 4.97 3.16 5.36

FC 2.47 3.64 2.03 3.13 4.45 2.75 4.83

TFP 0.94 -0.38 0.37 0.77 0.50 0.40 0.50

TFP/Y 0.27 -0.12 0.15 0.20 0.10 0.13 0.09

Variance. of Annual Rate of Growth

Y 2.55 5.49 11.60 4.50 5.35 5.34 4.73

FC 0.79 1.43 2.70 0.94 2.43 1.70 1.88

TFP 2.24 4.46 9.41 3.98 3.90 4.37 3.35

TFP/Y 0.88 0.81 0.81 0.88 0.73 0.82 0.71

Years of TFP growth  0 as percentage of total years per phase

28.9 46.5 42.1 39.1 43.2 33.3 50.0

Y: GDP FC: Factor Contribution TFP: Total Factor Productivity

The peculiar character of TFP can be appreciated when observing the Chilean economy during Maddison two latter phases. Meanwhile in the 1951-1973 phase TFP’s contribution to growth is 0.20 in the next phase 1974-2000 it comes down to 0.10. But a slightly different breakdown of this 60 years period shows only a fall from 0.13 to 0.09

(last two columns of Table 4.1). Note that although TFP’s contribution to growth is lower

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE in the last period (1981-2010), income, factor contribution and TFP growth rates are higher than in the previous period (1951-1980).

A second time breakdown divide the series by decades.14 When considering TFP changes including quality corrections for both factors, annual productivity growth varies from 4.12% in the 1930s to minus 2.04% for the decade of World War I. On the other hand, TFP’s complement in growth decomposition –factor contribution– is positive in all decades, but the corresponding growth rate varies highly from 1.2 to 5.4% (Table 4.2 and

Figure 4.1).

A further look at decades with negative TFP growth rates illustrate the peculiar character of TFP. For example in the 19h Century high decades with negative TFP growth show simultaneously high rates of capital (K) growth although quite different income growth rates. The last decade of our sample 2001-2010 also with negative TFP growth again shows relatively high expansions in adjusted capital. Meanwhile the 1981-1990 decade even as K expands little (1.86%) labor (L) increases by 6% per year. Quite different is the period 1911-1920: income growth almost stagnated, capital growth is significantly lower than previous decades. To our knowledge these profound changes are not independent of the evolution of the World economy and its important impact on government policies.

14 The selection of 10-year periods is mainly an explicative device. In this sample, 10-year periods are short enough to illustrate that long period averages hide substantial information, but at the same time they are long enough to provide an easy overview in tables and figures. A second aspect that should be stressed is that no a priori significance is assigned to the time division obtained thus : its only objective is to illustrate that a great deal of variability is hidden in long period averages. 21

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Table 4.2. Sources of Growth, 1833-2010. Rates of Growth Per Decade. Least Square Annual Rates (%) Y K C q L E h FC TFP

1833-1840 3.11 2.54 2.55 -0.01 1.60 1.43 0.17 1.95 1.14

1841-1850 4.09 2.51 2.49 0.02 1.65 1.49 0.16 1.96 2.08

1851-1860 2.99 5.41 3.84 1.51 1.45 1.23 0.22 2.97 0.01

1861-1870 3.83 5.21 5.10 0.10 2.16 1.70 0.45 3.32 0.49

1871-1880 3.56 9.97 8.43 1.42 2.28 1.72 0.55 5.09 -1.46

1881-1890 1.84 7.53 6.72 0.75 1.14 0.71 0.43 3.51 -1.61

1891-1900 2.18 7.70 6.81 0.84 1.04 0.64 0.40 3.51 -1.29

1901-1910 4.11 5.60 4.74 0.82 2.15 1.23 0.91 3.52 0.57

1911-1920 0.13 3.28 3.48 -0.19 1.48 0.50 0.98 2.21 -2.04

1921-1930 5.20 2.98 2.37 0.60 1.88 1.56 0.32 2.30 2.83

1931-1940 7.18 1.42 1.94 -0.51 4.00 3.73 0.26 2.94 4.12

1941-1950 3.55 2.36 2.23 0.13 2.35 1.89 0.45 2.37 1.15

1951-1960 3.44 4.15 3.08 1.03 1.32 0.67 0.64 2.48 0.94

1961-1970 4.31 3.47 3.49 -0.02 3.31 1.93 1.35 3.46 0.83

1971-1980 1.59 1.39 1.43 -0.04 0.95 0.05 0.90 1.23 0.35

1981-1990 3.83 1.86 2.00 -0.14 6.00 5.11 0.84 4.29 -0.44

1991-2000 6.20 8.42 7.24 1.10 3.01 1.94 1.05 5.36 0.80

2001-2010 4.01 6.51 5.85 0.63 3.50 2.77 0.71 4.84 -0.79

1833-2010 3.11 4.43 4.03 0.38 2.57 1.44 0.62 3.00 0.11

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Figure 4.1. Sources of Growth, 1833-2010. Least Squares Rate of Growth, Per Decade

On a year-to-year level, variance of Chilean output growth is separated into a factor contribution growth variance and a TFP growth variance, although again there is a great deal of heterogeneity. While in the long run the TFP growth variance accounts for 81% of the variance in total product growth, the subdivision per decade show that the observations located at the extremes of the 1833-2010 period show the lowest TFP growth variability

(Figure 4.2). On the other hand, the per-decade variance in factor contribution growth is significantly below the corresponding TFP variance.

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Figure 4.2. Chile, 1833-2010: Weighted Factor Growth and TFP Growth Volatility per Decade. (Std. Dev.)

When the 1833-2010 period is divided into Maddison phases (Table 4.1, second block, last row), 1913-1950 register the higher TFP growth variance compared to the other phases.

To sum up, once the complete series is divided into sub-periods, it can be seen that the long-term averages hide substantial heterogeneity. Nearly one-third of the 10-year periods register negative TFP contributions to growth and TFP growth volatility has been high from mid-19th Century until recent decades.

5 Chilean results in Comparative Perspective The theoretical underpinnings of growth accounting are founded in traditional production and distribution theory, but the corresponding estimates do not associate

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE directly with some conceptual optimum. The evaluation of such estimates, therefore, requires an exogenous reference point which in the case of aggregate measurements may be found either for different time periods in the same country, as examined in the last section, or in comparisons with estimates for other countries. Without such reference values, the informative content of these estimates is not fully revealed. This section therefore compares the Chilean development process as seen through the lens of growth accounting with equivalent estimates for third-country experiences. The first step in this endeavor is to assemble the relevant estimates.

Although the existing stock of growth accounting estimates is enormous, for our purposes this universe shrinks rapidly once it is shown that most estimates are for relatively short time spans. Additionally, not all measurements over longer periods provide year-to- year observations. As they are more focused on describing growth over extended periods, these studies provide information about trends during sub-periods rather than fluctuations during short periods.

Our objective is a comparison in which both long-run trends and also the role of short-run fluctuations may be part of the underlying growth characteristics of the economy.

This explains not only the length of our sample but also the requirement of year-to-year observations based on independent statistics, that is, with no explicit signs of data pooling.

As estimates have shown to be quite sensitive to different factor specifications, a requirement for inclusion in the sample is similarity with respect to this issue.

Compliance of these restrictions leaves few cases and therefore only Sweden, Spain,

Italy, the United Kingdom, the United States and Chile can be included. Turkey is also part of the sample but for a shorter time span. The overall time period for which comparable

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE yearly estimates are available runs from 1850 to 2000.15 All estimations are based on aggregate constant returns production functions employing constant capital shares in the range of 0.35 to 0.40 (the last figure was applied in the case of Chile). Finally, in all cases the results correspond to estimations based only on basic capital and employment data, with no explicit role for the human capital content of labor and the quality of non-human capital.

Thus, the possible effect on income growth obtained by these inputs will be captured by

TFP estimates that therefore are high compared to estimates where such adjustments are given an explicit role, a sort of second best solution, but at least it characterizes equally the whole sample.16 The data sources are indicated in Table 5.1

Table 5.1. TFP Growth / Output Growth. A Comparative View GDP and Population Capital Employment  TFP gently provided by professor L. Prados, based on Prados and ESP Prados (2003) Rosés (2009 and 2010) GBR Hills and Thomas (2010) 0.32 ITA Baffigi (2011) Broadberry, Giordano and Zollino (2011) 0.35 SWE Data gently provided by professor L. Schön, based on Krantz and Schön (2007) 0.40 Data gently provided by professor S. Pamuk, based on Altug, Filiztekin and Pamuk TUR 0.50 (2008) 1925-2000, data from U.S. Bureau of Economic Analysis; Data from U.S. 1850-1925, Gallman Bureau of Labor USA Johnston and Williamson (2010) 0.35 (1992) Table 2.4, Statistics and Kurian Indexes of U.S. and Chernow (2007) Capital Stock, 1860 Prices (interpolated)

ESP: Spain; GBR: United Kingdom; ITA: Italy; SWE: Sweden; TUR: Turkey; USA: United States of America

Although countries included in the sample do not constitute a balanced picture of the World economy, we feel that using the sample as a benchmark provides fresh insights into Chile’s development process. The first comparison directly refers to growth

15 We are not prepared to defend the idea that these are the only countries fulfilling the above requirements; this sample merely reflects what the authors were able to obtain. 16 Data sources and details of the international sample are provided in Supplementary Material 4. 26

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE accounting outcomes, that is, contributions and growth rates over 150 years, while the second concentrates on the volatility of these measures. Results on long-term averages and

Maddison's (2007) phases are reported in Table 5.2.

We start by comparing TFP’s contribution to growth, that is, the ratio of the TFP growth rate to income growth, finding that over the 150 years studied Chile’s productivity contribution is below the rest, except for Turkey (Table 5.2, first row). But it is also important to consider that within these long-run trends there are a variety of heterogeneous sub-periods. For example, from World War I until the Korean War, Chile’s contribution falls to less than one-third of the sample average.

Table 5.2. Contribution of TFP to GDP Growth, 1850-2000: Seven Countries. Total and Phases (%) CHL USA GBR SWE ESP ITA TUR av1 av2 av3 1850-2000 20 31 38 32 57 45 17 34 41 36

1850-1900 1 22 39 13 31 15 6 25 24 22 1900-1950 22 36 46 37 33 42 17 40 39 36 1950-2000 35 37 34 42 72 53 18 38 48 42

1850-1870 19 27 48 15 15 41 30 29 29 1870-1913 5 15 29 25 35 16 11 23 24 22 1913-1950 14 47 55 35 34 51 17 46 44 41 1950-1973 37 42 33 40 71 58 26 38 49 44 1973-2000 34 33 34 46 71 43 09 38 46 39 CHL: Chile; ESP: Spain; GBR: United Kingdom; ITA: Italy; SWE: Sweden; TUR: Turkey; USA: United States of America av1: Simple average of USA, GBR, and SWE av2: Simple average of USA, GBR, SWE, ESP and ITA av2: Simple average of USA, GBR, SWE, ESP, ITA and TUR

TFP’s contribution to product growth conveys a message that can easily be grasped and the presence of significant differences among time periods and countries might be seen as the starting point for further research. But it is also important to take into account that standardization through income growth somehow forces the idea that this ratio contains

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE more information than TFP growth per se. Therefore, it seems appropriate to look beyond it to concentrate on the numerator itself (Table 5.3A), where the first column depicts Chile’s

TFP growth rate for different time periods and columns to the right show the ratio of the former over the TFP growth of the corresponding country. For example, for 1850-2000

Chile’s TFP growth was 0.66 per cent, a figure 0.58 times the rate of USA, 0.87 times the rate of UK and so on..

This relative TFP growth index shows that over the entire period, Chile’s growth rate reaches about three-quarters of the sample average (leaving aside Spain). Again, there are significant differences among time periods and for example, for the most recent growth phase for the Chilean economy (1973-2000), TFP growth is higher than the rest of the sample.

Second, Table 5.3B shows factor contribution growth rates, where again the first column refers directly to the Chilean economy while columns to its right exhibit the ratio of this expansion over the equivalent measure for the third country. Leaving aside the U.S., this index is higher than one, both in the long run and also in phases. Hence the rate of increase of the factor contribution component has been significantly larger in the Chilean case, emphasizing the role of factor accumulation in the perspiration-inspiration parable.

Implicitly this feature had already been noted in section 4 when we observed periods with relatively low TFP growth rate and high capital growth rates.

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Table 5.3. Chile’s Absolute and Relative TFP and Factor Contribution Growth, 1850-2000. Total and Phases CHL Ratio: CHL / … Rate of USA GBR SWE ESP ITA TUR Growth %

A) TOTAL FACTOR PRODUCTIVITY 1850-2000 0.66 0.58 0.87 0.74 0.47 0.61 1.41

1850-1900 0.03 0.03 0.04 0.10 0.07 0.16 0.33 1900-1950 0.58 0.50 0.88 0.50 1.43 0.79 2.52 1950-2000 1.39 1.06 1.68 1.12 0.41 0.65 1.61

1850-1870 0.61 0.54 0.53 1.67 4.13 1.10 1870-1913 0.16 0.26 0.30 0.25 0.26 0.63 1.02 1913-1950 0.30 0.19 0.41 0.30 0.84 0.40 1.38 1950-1973 1.31 0.79 1.41 0.82 0.28 0.38 0.92 1973-2000 1.46 1.44 1.96 1.56 0.63 1.40 3.77

B) FACTOR CONTRIBUTION 1850-2000 2.57 1.03 2.11 1.38 2.46 1.92 1.14

1850-1900 3.15 0.94 2.48 1.55 3.16 2.89 2.26 1900-1950 2.04 1.02 2.65 1.08 2.45 2.01 1.86 1950-2000 2.54 1.17 1.56 1.51 1.93 1.36 0.67

1850-1870 2.60 0.86 2.09 1.24 3.10 3.22 1870-1913 3.29 0.98 2.58 1.68 2.87 2.40 2.47 1913-1950 1.79 1.04 2.97 0.95 2.59 2.45 1.70 1950-1973 2.21 0.97 1.19 0.91 1.23 0.90 0.56 1973-2000 2.82 1.36 1.99 2.64 3.12 2.06 0.77

CHL: Chile; ESP: Spain; GBR: United Kingdom; ITA: Italy; SWE: Sweden; TUR: Turkey; USA: United States of America

The next step extends the description of heterogeneity, employing the variance of year-to-year growth rates. In Table 5.4 the first column depicts the variance in Chilean TFP growth meanwhile the next columns show the ratio of Chilean TFP growth variance with respect to the variance of other countries in the sample. For example, over the entire 1850-

2000 period, Chile’s TFP growth variance is 33.8, that is 3.3 times the value for the USA,

6.6 times the value for the U.K., and 3.3 times the value for Sweden. Again, Turkey is the exception.

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Table 5.4. Chile’s Absolute and Relative Variance of TFP Growth, 1850-2000. Total and Phases Variance Ratio: CHL / … of Chilean USA GBR SWE ESP ITA TUR TFP growth 1850-2000 33.8 2.3 6.6 3.3 6.7 1.3 0.7

1850-1900 14.3 1.1 5.8 0.9 10.8 2.3 1900-1950 70.1 2.4 6.4 5.5 30.4 1.2 0.6 1950-2000 17.5 6.5 8.1 8.8 3.1 4.0 1.3

1850-1870 5.9 0.4 2.0 0.3 11.8 0.4 1870-1913 20.1 1.4 10.6 1.7 14.3 6.3 1913-1950 88.7 2.7 6.2 6.7 30.1 1.1 0.6 1950-1973 15.5 3.9 7.6 7.4 7.2 4.4 1.0 1973-2000 19.3 9.0 8.4 10.3 3.1 7.1 1.6 CHL: Chile; ESP: Spain; GBR: United Kingdom; ITA: Italy; SWE: Sweden; TUR: Turkey; USA: United States of America

These measures vary significantly among growth phases, but the variance of TFP growth for Chile can nevertheless be considered high when judged by these standards.

Differences in variances corresponding to annual changes in weighted factor growth, although higher on average in the Chilean case, are less pronounced than TFP variances

Now, and as a way for capturing additional characteristics implicit in this development experiences, we offer a taxonomy of annual changes focusing on the sign – positive or non-positive17 – of annual growth rates for income and TFP and compare this taxonomy for Chile with a sample average that is comprised of data from Sweden, Spain,

UK and USA. (Table 5.5). Four categories are possible – either both variables show the same sign or different ones – but only three categories contain observations of the Chilean case.

17 That is, negative or zero growth. 30

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Table 5.5. Rates of Growth: A Taxonomy over 150 Years Variable Unit CHL SWE ESP GBR USA AVG ITA TUR years number 97 101 92 100 97 98 94 80 Category 1 Coinc % 70 67 69 68 69 68 56 gY>0; gTFP % 4,0 2,5 2,6 1,8 3,2 2,5 3,2 3,8 gTFP>0 gFC % 3,1 2,0 2,2 1,6 3,1 2,2 1,5 2,2 gY % 7,2 4,6 4,7 3,4 6,3 4,7 4,7 6,0

years number 19 22 23 24 25 24 20 16 Category 2 Coinc % 21 37 26 21 26 5 16 gY>0; gTFP % -1,4 -0,8 -0,7 -0,5 -1,2 -0,8 -0,6 -1,4 gTFP<=0 gFC % 3.1 2,4 3,7 2,0 3,6 2,9 1,7 4,0 gY % 1,7 1,6 3,1 1,5 2,4 2,1 1,2 2,6

years number 0 2 14 4 0 5 1 0 Category 3 Coinc % ------gY<=0; gTFP % - -1,1 -1,7 -0,7 - -1,2 -0,3 - gTFP>0 gFC % - -2,3 -3,2 -2,1 - -2,5 -1,2 - gY % - -1,4 -2,2 -1,5 - -1,7 -0,9 -

years number 34 25 21 22 28 24 24 24 Category 4 Coinc % 21 18 29 35 26 35 26 gY<=0; gTFP % -6,9 -3,8 -0,8 -2,5 -3,5 -2,7 -5,0 -8,1 gTFP<=0 gFC % 0,9 1,2 -3,2 -0,4 0,0 -0,6 0,6 1,2 gY % -6,1 -2,6 -4,1 -2,9 -3,5 -3,3 -4,4 -6,8 CHL: Chile; ESP: Spain; GBR: United Kingdom; ITA: Italy; SWE: Sweden; TUR: Turkey; USA: United States of America AVG: simple average of SWE, ESP, GBR and USA gX: rate of growth of X Coinc: percentage of years CHL and reference country fall simultaneously into the same category

Considering the first category, that is, years where both income growth and TFP growth are positive, over 150 years this occurs more or less in the same number of years for

Chile and for our sample average (97 and 98 years, respectively). Average annual growth rates for TFP, factor contribution and total product have been calculated for this category and we find that Chile’s growth is significantly higher than the sample average, and also higher than the individual country averages for all three variables.

As for the fourth category – years with non-positive growth of total output and TFP

– it is evident that Chile falls more frequently into this category, 34 years compared to 24

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE for the sample average. In addition, the corresponding averages, that is, -6.9% for TFP change and -6.1% for total output, are clearly more negative than the corresponding sample averages, which are -2.7% and -3.3%, respectively.

As said, the number of years with positive output growth and positive TFP growth is almost the same for Chile and sample countries, but do these years coincide? Our answer for all categories is based on a coincidence index, that is, the number of years in which

Chile and country i are simultaneously fell into the same category, divided by the total years that Chile is present in the category. For example, in the 69% of the years in which

Chile is found in the first category, UK also shows positive income and TFP growth

(second row of Table 5.5).

In the first category, the coincidence is widespread (about two-thirds), while in the fourth category the coincidence is only present in one-third or fewer of the corresponding years: this is also the case for category two (positive income expansion but negative TFP growth). In other words, in expansionary years we see a significant association between the behavior of Chile and the sample countries, but once TFP growth turns negative, the behavior of the country becomes idiosyncratic and the coincidence is low.

It should also be noted that when comparing categories one and four, not only does

TFP growth drop and in some cases dramatically, but factor contribution growth also decreases. This fact is now explored in the complete sample, searching for correlation on the components of economic growth taking all observations for each country.

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Table 5.6. TFP and FC Growth Rates: Correlation. Total and Phases CHL SWE ESP GBR USA ITA TUR 1850-2000 0,56 0,13 0,02 0,26 0,44 0,11 -0,23

1850-1900 0,47 -0,06 0,54 0,10 0,22 -0,30 - 1900-1950 0,72 0,31 0,17 0,37 0,57 0,07 -0,30 1950-2000 0,41 0,26 -0,46 0,06 0,47 0,29 -0,06

1850-1870 0,46 -0,10 0,14 -0,08 -0,02 0,52 - 1870-1913 0,53 -0,06 0,61 0,30 0,44 -0,34 - 1913-1950 0,72 0,37 0,14 0,40 0,61 0,09 -0,30 1950-1973 0,36 0,53 -0,12 0,35 0,48 -0,32 -0,03 1973-2000 0,47 0,08 -0,85 0,03 0,46 0,22 -0,13

CHL: Chile; ESP: Spain; GBR: United Kingdom; ITA: Italy; SWE: Sweden; TUR: Turkey; USA: United States of America

The association between factor contribution growth and TFP growth over the entire

1850-2000 period shows that Chile’s correlation coefficient is substantially higher than that of the rest of the sample: 0.56 compared to 0.44 for USA, the nearest figure (Table 5.6).

This difference is also present in the sub-periods.

To sum up, thus far we can observe a set of characteristics of Chile’s growth process which become evident once it is compared to other countries. Chile's relatively low

TFP contribution to product growth is compatible with TFP expansions higher than the average observed in the sample. In other words, measured in one way –as a contribution-

Chile falls far away from the frontier; measured in absolute terms –simply as TFP growth- the picture changes importantly.

An examination of yearly volatility shows that Chile's TFP variance exceeds the sample by many times, and is only approximated by the other relatively less developed country in the sample.

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A further impression of volatility is obtained when ordering growth of a country according to both income and TFP expansion, thus generating four categories. The findings show that in expansionary years for Chile, in the sense that both variables show positive growth, significant synergy with the sample average can be observed. But on the opposite – income and TFP growth both negative– the magnitudes for Chile are extremely low and more frequent, and the downturns present fewer time coincidence with third-party countries, suggesting the presence of idiosyncratic issues. Either the sample countries do not present these issues or they are characterized by a greater capacity for adaptation.

6 Final Remarks Employing a growth accounting breakdown this paper provides new information on two centuries of productivity growth in Chile. The role of factor contribution and TFP in total product growth in a particular period may now be compared with the evolution of these indicators in other time spans of this economy, but and additionally they may also be seen thru the prism of equivalent estimates for third-party countries. Previous sections deal with our main results and findings and here we briefly refer to a few general issues which seem relevant to keep in mind in future explorations of Chilean development and economic history.

Comparing development in a particular period with previous experience of this country is an informative exercise insofar it is realized that the impression to be obtained will depend on the particular time period selected for it. Although markedly visible in the

Chilean case this time dependency can also be appreciated in the case of presently high

Version: 8 August 2014 For EHA 74th Meeting DRAFT. DO NOT QUOTE income countries: productivity at least when measured in this fashion is not a constant or inherent to an economy.

One additional issue is instability in the growth process. In the Chilean case instability is not only high, but it also reflects asymmetry. Correlation with the behavior of our benchmark countries is significant in expansionary periods but falls substantially during contractions, underlining in this way the idiosyncratic character of this small economy development. It is precisely disparities like the above mentioned that open up the conjecture that not all volatility of the economy is necessarily determined by exogenous shocks and that occasionally a more local origin of instability cannot be discarded a priori.

More general this brings us to another aspect to keep in mind: the need to unravel the intriguing interaction among growth and volatility.

References Acemoglu, D. (2008) Introduction to Modern Economic Growth. Princeton, Princeton University Press Aghion, P. and Howitt, P. (2007) “Capital, innovation and growth accounting”, Oxford Review of Economic Policy, Vol. 23, No. 1, pp.79-93 Altug, S.; Filiztekin, A. and Pamuk, S. (2008) “Sources of long term economic growth for Turkey, 1880-2005”, European Review of Economic History, Vol. 12, No. 3, pp. 393-430 Aravena, C.; Hofman, A. and Solimano, A. (2006) “Economic growth in the Andean region: the role of economic and governance factors”, in Solimano, A. (ed.) Vanishing Growth in Latin America. The Late Twentieth Century Experience, Cheltenham, Edward Elgar, pp.74-100 Astorga, P.; Berges, A. and Fitzgerald, V. (2003) “Productivity Growth in Latin America during the Twentieth Century”, University of Oxford, Discussion Paper in Economic and Social History No. 52

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Baffigi, A. (2011) “Italian National Accounts, 1861-2011”, Banca d'Italia Quaderni di Storia Economica No. 18 Bernal, J. (2010) “El residuo de Solow revisado”, Revista de Economía Institucional, Vol. 12, No. 23, pp. 347-361 Bértola, L. y Ocampo, J. (2010) Desarrollo, vaivenes y desigualdad. Una historia económica de América Latina desde la Independencia. Madrid, Secretaría General Iberoamericana Bils, M. and Klenow, P. (2000) “Does Schooling Cause Growth?”, The American Economic Review, Vol. 90, No. 5, pp. 1160-1183 Bostworth, B.; Collins, S. and Virmani,A. (2007) “Sources of growth in the Indian economy”, NBER Working Paper No. 12901 Braun, J.; Braun, M.; Briones, I.; Díaz, J.; Lüders, R. y Wagner, G. (2000) “Economía chilena 1810-1995. Estadísticas históricas”, Instituto de Economía de la Pontificia Universidad Católica de Chile, Documento de Trabajo No. 187 Broadberry, S.; Giordano, C. and Zollino, F. (2011) “A Sectoral Analysis of Italy's Development, 1861-2011”, Banca d'Italia Quaderni di Storia Economica No. 20 Bulmer-Thomas, V. (1994) The Economic History of Latin America since Independence. Cambridge, Cambridge University Press Caselli, F. (2005) “Accounting for Cross-Country Income Differences”, in Aghion, P. and Durlauf, S. Handbook of Economic Growth, Vol 1A, Amsterdam, Elsevier, pp. 679- 741 Cette, G.; Kocoglu, Y. and Mairesse, J. (2009) “Productivity Growth and Levels in France, Japan, the United Kingdom and the United States in the Twentieth Century”, NBER Working Paper No. 15577 Christensen, L.; Cummings, D. and Jorgenson, D. (1980) “Economic growth, 1947-73; an international comparison”, in J.W. Kendrick and B.N. Vaccara (eds.) New developments in productivity measurement and analysis. Chicago, The University of Chicago Press, pp. 595-698 Coeymans, J. (1999a) “Ciclos y crecimiento sostenible a mediano plazo en la economía chilena”, Cuadernos de Economía-Latin American Journal of Economics, Vol. 36, No. 107, pp. 545-596 Coeymans, J. (1999b) “Determinantes de la productividad en Chile 1961-1997”, Cuadernos de Economía-Latin American Journal of Economics, Vol. 36, No. 107, pp. 597-637 Cole, H.; Ohanian, L.; Riascos, A. and Schmitz, J. (2005) “Latin America in the rearview mirror”, Journal of Monetary Economics, Vol. 52, No. 1, pp. 69–107

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De Gregorio, J. (2005) “Crecimiento Económico en Chile: evidencia, fuentes y perspectivas”, Estudios Públicos No. 98, pp. 19-86 Díaz, J. and Wagner, G. (2008) “Inflación y Tipo de Cambio: Chile 1810-2005”, Instituto de Economía de la Pontificia Universidad Católica de Chile, Documento de Trabajo No. 328 Díaz, J. and Wagner, G. (2014) “Inversión y capital: Chile, 1833-2010” (work in progress) Díaz, J.; Lüders, R. and Wagner, G. (2007). “Economía chilena 1810-2000. Producto total y sectorial. Una nueva mirada”, Instituto de Economía de la Pontificia Universidad Católica de Chile, Documento de Trabajo No.315 Díaz, J; Lüders, R. and Wagner, G. (2008) “Dos siglos de crecimiento económico chileno: ¿hay etapas?”, Annual Meeting of the Chilean Economic Society (SECHI) Díaz, J; Lüders, R. and Wagner, G. (2010) La República en Cifras. Base de Datos EH Clio Lab-Iniciativa Científica Milenio-Mideplan. URL: http://www.economia.puc.cl/ehcliolab Easterly, W. and Levine, R. (2001) “It’s not factor accumulation: stylized facts and growth models”, The World Bank Economic Review, Vol. 15, No. 2, pp. 177-219 Elías, V. (1992) Sources of Economic Growth. A Study of Seven Latin American Economies. San Francisco, ICEG Feinstein, Ch. (1972) National income, expenditure and output of the United Kingdom, 1855-1965. Cambridge, Cambridge University Press Feinstein, Ch. y Pollard, S. (eds.) (1988) Studies in capital formation in the United Kingdom, 1750-1920. Oxford, Oxford University Press Fuentes, R. (2010) “Acerca de la productividad total de factores en Chile”, in Coremberg, A. and Pérez, F. (Eds.) Fuentes del crecimiento y productividad en Europa y América Latina, Bilbao, Fundación BBVA, pp. 185-205 Fuentes, R.; Larraín, M. and Schmidt-Hebbel, K. (2006) “Sources of growth and behaviour of TFP in Chile”, Cuadernos de Economía-Latin American Journal of Economics, Vol. 43, No. 127, pp. 113-142 Gallego, F. and Loayza, N. (2002) “La época dorada del crecimiento en Chile: explicaciones y proyecciones”, Economía Chilena, Vol. 5, No. 1, pp. 37-67 Gallman, R. (1992) American Economic Growth before the Civil War: The Testimony of the Capital Stock Estimates, in Gallman, R. and Wallis, J. (eds.) American Economic Growth and Standards of Living before the Civil War, Chicago, NBER, pp. 79-120

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Gordon, R. (1999) “U.S. Economic Growth since 1870: One Big Wave?”, The American Economic Review, Vol. 89, No. 2, Papers and Proceedings of the One Hundred Eleventh Annual Meeting of the American Economic Association, pp. 123-128 Griliches, Z. (1996) “The discovery of the residual: a historical note”, Journal of Economic Literature, Vol. 34, No. 3, pp. 1324-1330 Hachette, D. (2011) Latinoamérica en el siglo XX. Crecimiento, comercio y pensamiento económico. Santiago, Ediciones Universidad Católica de Chile Harberger, A. (1998) “A Vision of the Growth Process”, The American Economic Review, Vol. 88, No. 1, pp. 1-32 Henríquez, C. (2008) “Stock de capital en Chile (1985-2005): metodología y resultados”, Estudios Económicos Estadísticos Banco Central de Chile No. 63 Hills, S. and Thomas, R. (2010) “The UK recession in context -what do three centuries of data tell us?”, Bank of England Quarterly Bulletin, Vol. 50, No. 4, pp. 277-291 (Data Annex, URL:http://www.bankofengland.co.uk/publications/quarterlybulletin/threecenturies ofdata.xls) Hoffman, P. (1996) Growth in a Traditional Society. The French Countryside 1450-1815. Princeton, Princeton University Press Hofman, A. (1998) “Latin American Economic Development. A Causal Analysis in Historical Perspective”, Ph.D. Thesis, Groningen University Hsieh, Ch. and Klenow, P. (2009) “Misallocation and Manufacturing TFP in China and India”, The Quarterly Journal of Economics, Vol. 124, No. 4, pp. 1403-1448 Jofré, J.; Lüders, R. y Wagner, G. (2000) "Economía chilena 1810–1995. Cuentas fiscales", Documento de Trabajo del Instituto de Economía de la Pontificia Universidad Católica de Chile, No. 188 Johnston, L and Williamson, S. (2010) "What Was the U.S. GDP Then?" MeasuringWorth, 2010. URL: http://www.measuringworth.org/usgdp/ Koenker, R. and Hallock, K. (2001) “Quantile Regression”, in Journal of Economic Perspectives, Vol. 15, No. 4, pp. 143-156 Krantz. O. and Schön, L (2007) Swedish Historical National Accounts 1800-2000. Lund (URL: http://www.ekh.lu.se/database/lu-madd/National%20Accounts/default.htm) Kurian, G. and Chernow, B. (eds.) (2007) Datapedia of the United States. American History in Numbers. 4th. Ed. Lanham, Bernan Press Kuznets, S. (1961) Capital in the American economy. Its formation and financing. Princeton, NBER-Princeton University Press

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Lipsey, R. and Karlaw, K. (2000) “What does Total Factor Productivity measure?”, International Productivity Monitor, Vol. 1, pages 31-40 Maddison, A. (2007) “Fluctuations in the momentum of growth within the capitalist epoch”, Cliometrica, Journal of Historical Economics and Econometric History, Vol. 1, No. 2, pp. 145-175 North, D. (1990) Institutions, institutional change and economic performance. New York, Cambridge University Press Parente, S. and Prescott, E. (1994), “Barriers to Technology Adoption and Development”, Journal of Political Economy, Vol. 102, No. 2, pp. 298-321. Parente, S. and Prescott, E. (2000) Barriers to Riches. Cambridge, MIT Press Perkins, D. and Rawski, T. (2008) “Forecasting China’s Economic Growth to 2025”, in Brandt, L. and Rawski, T. (eds.) China's Great Economic Transformation, Cambridge, Cambridge University Press, pp. 829-886 Persson, K. (2010) An Economic History of Europe. Knowledge, Institutions and Growth, 600 to the Present. Cambridge, Cambridge University Press Prados, L. (2003) El progreso económico de España (1850-2000). Madrid, Fundación BBVA Prados, L. (2007) “Lost decades? Independence and Latin America’s falling behind, 1820- 1870”, Universidad Carlos III, Departamento de Historia Económica e Instituciones, Working Papers in Economic History 07-18, Prados, L. and Rosés, J. (2009) The Sources of Long-Run Growth in Spain, 1850–2000, The Journal of Economic History, Vol. 69, No. 4, pp. 1063-1091 Prados, L. and Rosés, J. (2010) Human capital and economic growth in Spain, 1850– 2000, Explorations in Economic History, Vol. 47, No. 4, pp. 520–532 Restrepo, J. and Soto, C. (2006) “Regularidades Empíricas de la Economía Chilena: 1986- 2005”, Revista Economía Chilena, Volumen 9, No. 2, pp. 15-40 Rojas, P.; López, E. and Jiménez, S. (1997) “Determinantes del crecimiento y estimación del producto potencial en Chile: el rol del comercio internacional”, in Morandé, F. and Vergara, R. (Eds.) Análisis empírico del crecimiento en Chile, Santiago, CEP/ILADES, pp. 67-100 Roldós, J. (1997) “El crecimiento del producto potencial en mercados emergentes: el caso de Chile”, in Morandé, F. and Vergara, R. (eds.) Análisis empírico del crecimiento en Chile, Santiago, CEP/ILADES, pp. 39-66 Solimano, A. (ed.) (2006) Vanishing Growth in Latin America. The Late Twentieth Century Experience, Cheltenham, Edward Elgar

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Solimano, A. and Soto, R. (2006) “Economic growth in Latin America in the late twentieth century: evidence and interpretation”, in Solimano, A. (ed.) Vanishing Growth in Latin America. The Late Twentieth Century Experience, Cheltenham, Edward Elgar, pp. 11-45 Taylor, A. (1998) “On the Costs of Inward-Looking Development: Price Distortions, Growth, and Divergence in Latin America”, Journal of Economic History, Vol. 58, No. 1, pp. 1–28 Véliz, C. (1961) Historia de la Marina Mercante de Chile. Santiago, Ediciones de la Universidad de Chile Villalobos, S. (1968) El comercio y la crisis colonial: un mito de la Independencia. Santiago, Universidad de Chile Vergara, R. (2005) “Productividad en Chile: determinantes y desempeño”, Estudios Públicos No. 99, pp. 23-62 World Bank (2011) World Development Report 2012. Gender Equality and Development. Washington, The World Bank Xiao, Z (2012) “Time Series Quantile Regressions”, in Rao, T.; Rao, S and Rao, C. (eds.) Handbook of Statistics. Vol.30. Time Series Analysis: Methods and Applications, Amsterdam, Elsevier, pp. 213-257

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Supplementary Material 1. Sources of Growth for Chile: Literature Our results are compared with other estimates for Chile. In this case, differences arising with other estimates may respond to a broad set of possible causes, among them differences in (i)basic data, that is total product, capital and labor series; (ii)factor quality indexes; (iii)the selection of the distribution, , and returns to scale; (iv)inclusion of control variables like electricity consumption. Another aspect refers to the periodicity of data and estimates. Many of the published reports only show average rates for selected periods and not year to year data, therefore the comparison is conditioned by the period utilized in a particular stock. Table SM-1 (a, b and c) summarize characteristics and results of growth accounting exercises developed for the Chilean economy. The following aspects are emphasized in the tables: (i)the definition of inputs; (ii)the period under study; (iii)factor shares employed; (iv)the product growth rate and estimated growth of TFP and factor contribution; (v)the contribution to GDP growth (FC and TFP). The last two columns show the results obtained in the present study. With the exception of Astorga et al. (2003), whose estimation starts in 1900, all other authors cover periods after 1940, year where series produced by government agencies begin (although different public agencies in charge employed diverse methodologies). Product data for our study comes from Díaz, Lüders and Wagner (2007) where the reader may find a lengthy discussion on sources generating differences between sources and also the criteria adopted for generating a coherent series. Most authors settle for a capital coefficient around .35 up to .40 and operate with a constant returns to scale framework, the exception being Rojas et al. (1997) and also Astorga et al. (2003). As can be seen in Table SM-1, the magnitude for TFP changes varies among sub periods and authors. It should be noted also that some shorter subperiods show negative TFP growth. Figure SM-1 compares trends for two TFP indexes available for the complete 1960- 2005 period: Fuentes et al (2006) and the present work. Our index including fully quality adjusted factors, DW_TFP_A, is characterised by an extended period of decline stretching mainly over the 1970’s and up to the middle of the 1980’s, but then increasing in the latter years somewhat above previous levels. The Fuentes et al. (2006) index, FLSH_TFP8, is more conservative in its declining phase but eventually more sanguine about the following expansion in particular in the 1990’s, and also implies a substantial difference between initial and final TFP levels. Average growth rates for quality adjusted TFP for the whole 1960-2005 period differs substantially, Fuentes et al (2006) almost double our estimation, Table SM-1c, but the former is substantially below developed country 20th century levels.

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Little difference can be seen in trends in a second comparison in Figure SM-1a, when factor quality changes are not incorporated in the estimations, DW_TFP_NA and FLSH_TFP1. Since both, Fuentes et al. (2006) and this study, are working with similar series for employment, adjusted and not adjusted, the difference in TFP behaviour should be attributed to differences in the measurement of capital input.18

18 Both Fuentes et al. (2006) and DW TFP series use constant α=0.4 42

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Table SM-1a. Chilean economy: main research on growth accounting Author Period Shares GDP FC TFP TFP / This Study (inputs) growth growth growth GDP TFP TFP / (%) (%) (%) growth growth GDP (%) (%) growth (%) 1940-1950 α=0.53 3.3 1.4 1.9 0.6 Elías (1992) 1950-1960 α=0.50 3.5 2.8 0.7 1.3 Adjusted 1960-1970 α=0.55 5.0 3.7 1.3 0.9 Capital; 1970-1980 α=0.50 3.1 2.1 1.0 0.4 Employment 1940-1980 3.7 2.5 1.2 33 0.8 23 1971-1975 -2.0 1.5 -3.5 -5.7 Roldós (1997) 1976-1980 6.8 4.1 2.7 4.9 Adjusted 1981-1985 α=0.44 -0.1 3.7 -3.8 -5.7 Capital; 1986-1990 6.5 5.6 0.9 1.6 Employment 1991-1995 7.5 6.1 1.4 3.6 1971-1995 3.7 4.1 -0.4 -11 0.1 3 1961-1965 3.8 4.7 -0.9 -0.3 Rojas, López 1966-1970 4.7 4.8 -0.1 0.1 and Jiménez 1971-1975 -2.2 0.5 -2.7 -5.7 α=0.35 (1997) 1976-1980 7.5 5.3 2.2 4.9 β=0.60 Adjusted 1981-1985 -0.3 3.1 -3.4 -5.7 Capital; 1986-1990 6.5 5.3 1.2 1.6 Employment 1991-1996 7.4 5.1 2.3 3.2 1961-1996 3.9 4.0 -0.1 -2.5 0.5 11 1950-1973 α=0.381 3.6 2.6 1.0 0.5 Hofman (1998) 1973-1980 α=0.356 2.8 2.4 0.4 1.9 Adjusted 1980-1989 α=0.356 3.0 3.3 -0.3 -1.5 Capital; 1989-1994 α=0.344 6.4 4.4 2.0 2.4 Employment 1950-1994 3.7 2.9 0.8 22 0.6 15

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Table SM-1b. Chilean economy: main research on growth accounting Author Period Shares GDP FC TFP TFP / This Study growth growth growth GDP TFP TFP / (%) (%) (%) growth growth GDP (%) (%) growth (%) Coeymans (1999 a y b) α=0.336 – Non Adjusted 1961-1998 4.1 2.6 1.5 37 0.4 10 0.35 Capital; Employment Gallego and 1961-1985 2.5 2.4 0.1 -0.5 α=0.40 Loayza (2002) 1986-2000 6.6 4.7 1.9 1.8 Non Adjusted Capital; 1961-2000 3.9 3.2 0.7 18 0.4 10 Employment Astorga, Bergés 1900-1936 2.6 2.3 0.3 -0.4 α=0.498 and Fitzgerald 1937-1977 3.2 3.0 0.2 0.4 β=0.725 (2003) 1978-2000 4.6 4.0 0.6 0.6 Non Adjusted Capital; 1900-2000 3.5 3.2 0.3 8 0.3 9 Employment 1970-1974 0.9 1.4 -0.5 -2.2 1975-1979 3.0 1.2 1.8 4.7 De Gregorio 1980-1984 0.4 1.7 -1.3 -4.1 (2005) 1985-1989 α=0.40 6.4 4.6 1.8 2.3 Non Adjusted 1990-1994 7.3 4.6 2.7 3.3 Capital; 1995-1999 5.4 4.1 1.3 0.1 Employment 2000-2004 3.7 2.9 0.8 0.3 1970-2004 3.2 2.4 0.8 25 0.3 7

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Table SM-1c. Chilean economy: main research on growth accounting

Author Period Shares GDP FC TFP TFP / This Study growth growth growth GDP TFP TFP / (%) (%) (%) growth growth GDP (%) (%) growth (%) 1960-1965 3.8 4.0 -0.2 -0.2 1966-1970 4.7 2.9 1.8 -0.1 1971-1975 -2.2 2.4 -4.6 -5.7 Vergara (2005) 1976-1980 7.5 2.6 4.9 4.9 Adjusted 1981-1985 α=0.55 -0.7 2.7 -3.4 -5.7 Capital; 1986-1990 6.7 4.8 1.9 1.6 Employment 1991-1995 8.7 5.2 3.5 3.6 1996-2000 4.2 4.0 0.2 -0.1 2001-2004 3.8 3.4 0.4 0.3 1960-2004 3.3 3.0 0.3 9 0.4 10 Fuentes, Larraín 1960-1973 3.1 2.9 0.2 -0.1 and Schmidt- 1974-1989 α=0.40 2.9 3.9 -1.0 0.0 Hebbel (2006) 1990-2005 5.3 2.3 3.0 1.4 Adjusted Capital; 1960-2005 3.6 2.9 0.7 19 0.4 10 Employment Solimano and 1960-1980 3.5 2.2 1.3 0.6 α=0.35 Soto (2006) 1981-2003 4.6 3.2 1.4 0.1 Non Adjusted Capital; 1960-2003 4.1 2.7 1.4 34 0.4 9 Employment

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Figure SM-1. TFP Growth, 1960-2005 (1960=100)

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Supplementary Material 2. Sources of Growth: International Experience, Selected Literature Cette et al. (2009) decompose growth for the 1890-2006 period for various developed countries. Over this time span the share of TFP’s contribution of Japan, UK and the USA are in the range of 41 to 51 per cent of total product growth, France the outlier, registering an incredible 83 per cent, Table SM-2a. In Chile and for the same long period output growth bases mainly on factor contribution, TFP’s contribution amounting only to 7 per cent, and at least part of Chilean 20th century divergence should be taken into account by this difference. When looking at shorter time extensions part of an answer to the above mentioned difference begins to emerge: Chilean TFP behavior is highly heterogeneous between sub periods compared to much more stable evolution in the developed country sample. TFP shares for OECD averages, US, India, Turkey and Spain are shown in Table SM-2b. The previously mentioned gap between Chile and developed countries also holds for the present sample, even so absolute differences tend to be somewhat smaller. It should also be noticed that and in opposition to the Chilean case, India and Turkey do not show negative values for TFP growth. Spain fits into the above profile in the long period (1850- 2000) but is similar to Chile insofar it also registers sub periods with negative TFP contributions. For Latin America, Table SM-2c, periods with negative TFP growth are not rare, particularly in the 1970’s and 1980’s. Second, TFP’s contribution to growth in the 1950- 1973 period in Chile is clearly lower than in all other Latin American countries, but from there onwards this picture changes with the exception of the negative impact of the 1980’s. Table SM-2d shows, again, estimates for Latin America but now from a different source and includes some Asian countries. Quality adjustments for inputs seem to be absent in some cases and therefore row 17 shows Chilean TFP growth without such corrections. In this context Chilean productivity growth turns out being relatively high, but as said this result is obtained when leaving aside factor improvements. From these comparisons various impressions can be drawn. First, our results for the last decades are different from those of other studies for Chile, in particular average growth of TFP is lower and oscillations of positive and negative values are more profound. Second, during the 20th century the contribution of TFP to grow is substantially higher for developed nations, a picture into which Chile and Latin America in general fit nicely into.

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Table SM-2a. TFP Growth / Output Growth. A Comparative View

1890- 1890- 1913- 1950- 1973- 1980-

2006 1913 1950 1973 1980 2006 (1) France 0.83 0.74 1.67 0.75 0.62 0.62 (2) Japan 0.48 0.48 0.32 0.58 0.26 0.43 (3) United Kingdom 0.51 0.47 0.77 0.41 0.50 0.44 (4) United States 0.44 0.32 0.72 0.43 0.04 0.29

(5) Chile 0.07 0.09 -0.16 0.15 0.57 0.05

Sources: (1) - (4) Cette et al. (2009); (5) this research

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Table SM-2b. TFP Growth / Output Growth. A Comparative View

Country or Source Period TFP Share Chile TFP Share Region OECD 1947-1973 0.50 0,20 Easterly and OECD 1960-1990 0.39 -0,02 Levine (2001) East Asia 1966-1990 0.14 -0,15 Aghion and OECD 1960-2000 0.68 Howitt (2007) 0,11 1960-2004 0.26 0,10 1960-1980 0.06 0,18 1980-2004 0.34 0,05 Bosworth et al. 1960-1973 0.06 -0,03 India (2007) 1973-1983 0.14 0,02 1983-1993 0.34 0,15 1993-1999 0.40 0,22 1999-2004 0.33 0,10 1871-1891 0.05 0,07 1891-1913 0.19 0,05 1913-1928 0.32 -0,02 1928-1950 0.37 -0,28 Gordon (1999) United States 1950-1964 0.51 0,31 1964-1972 0.40 0,11 1972-1979 0.29 0,04 1979-1988 0.11 -0,55 1988-1996 0.13 0,36 1880-1913 0.16 0,06 1914-1929 0.06 0,33 Altug et al. Turkey 1930-1949 0.15 0,02 (2008) 1950-1979 0.16 0,22 1980-2005 0.27 0,05 1850-2000 0.31 0,08 1850-1950 -0.09 0,03 1951-1974 0.54 0,15 1975-2000 0.58 0,22 1850-1883 -0.11 0,17 Prados and Rosés 1884-1920 0.03 -0,16 Spain (2007) 1921-1929 0.19 0,60 1930-1952 -0.22 0,10 1953-1958 0.37 0,41 1959-1974 0.58 0,07 1975-1986 1.34 0,07 1987-2000 0.11 0,29

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Table SM-2c. TFP Growth / Output Growth. A Comparative View

1940- 1950- 1973- 1980- 1989- 1990-

1980 1973 1980 1989 1994 2002 (1) Latin America 0.27 (2) Argentina 0.25 -0.03 3.25 0.68 (3) Brazil 0.27 0.07 -0.68 -1.67 (4) Chile 0.29 0.14 -0.29 0.32 (5) Colombia 0.30 0.09 -0.28 0.10 (6) Mexico 0.11 -0.04 -1.85 -0.21 (7) Venezuela 0.23 -0.60 308.00 0.45 (8) Bolivia 0.65 -0.18 -11.10 0.11 (9) Ecuador 0.51 0.23 -1.09 -0.29 (10) Peru 0.41 -0.13 4.28 0.30 (11) Andean region 0.48 -0.02 -1.67 0.09

(12) Chile 0,23 0,15 0,57 -0,52 0,33 0,27

Sources: (1) Easterly and Levine (2001); (2) – (7) Hofman (1998); (8) – (11) Aravena et al. (2006); (12) this research

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Table SM-2d. TFP Growth / Output Growth. A Comparative View

1960- 1965- 1970- 1960- 1965- 1970- 1981-

2003 2003 2003 1980 1980 1980 2003 (1) Argentina 0.27 0.43 -0.27 (2) Brazil 0.10 0.28 -0.65 (3) Bolivia 0.21 0.47 -0.35 (4) Chile 0.34 0.37 0.33 (5) Colombia 0.27 0.34 0.13 (6) Costa Rica 0.16 0.23 0.08 Dominican (7) 0.39 0.47 0.17 Republic (8) Ecuador 0.28 0.57 -0.57 (9) Mexico 0.13 0.31 -0.33 (10) Peru 0.00 0.24 -0.61 (11) Uruguay 0.60 0.50 0.89 (12) Venezuela -0.30 0.06 -3.00

(13) Korea 0.45 0.53 0.36 (13) Philippines 0.26 0.46 -0.07 (15) Thailand 0.42 0.44 0.38

(16) Chile 0,09 0,10 0,06 0,18 0,23 0,14 0,02 (17) Chile (NAI) 0.47 0.47 0.39 0.75 0.92 0.72 0.32

Sources: (1) – (15) Solimano and Soto (2006); (16) – (17) this research (NAI: non adjusted inputs)