This paper discusses economic liberalisation with reference to Chilean experience with trade and financial liberalisation. There are several reasons why the Chilean case is of interest. First, the Chilean economy pursued two distinctly different development strategies. From the 1930s to the early 1970s the economy followed inward-looking strategies and from late 1973 onwards, outward-looking strategies with stabilisation. Secondly, the process of liberalisation after 1973 was considered to be a ‘pure monetarist strategy’ as the economy was following free market oriented policies under the guidance of the military government and Chicago-trained economists. Thirdly, given that trade and financial liberalisation in Chile followed the sequence suggested by economic theory, namely trade liberalisation followed by financial reforms, it is of interest to see whether the results were consistent with the predictions of the theory. Finally, the performance of the Chilean economy both during and after the liberalisation period contained some dramatic changes. The inflation rate reached 500 per cent during 1973 but fell to 10 per cent by 1981. After the liberalisation process changes in interest rates, real exchange rates and the demand for credit remained of great concern. Real GDP growth experienced dramatic changes: for many years it averaged 8 per cent but there were decreases of over 12 per cent in two separate years.
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- Trade Liberalisation and Financial Reforms: Chile 1973–83
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