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Introduction
The main question this work aims at answering is
whether the Chilean recent economic growth is sustainable?
Then the first question that arises is whether this growth
can be sustained in the future or tends to fade out.
Two main theories try to predict what can possibly happen.
If the diminishing marginal product of capital (MPK) assumption
holds, then it is expected that the capital poor economies
will eventually catch up the rich ones. Besides, the economies
are expected to grow up to their steady-states. Beyond this
point, capital accumulation no longer means growth and they
only can keep growing by investing in TFP. In this case, in
some point in the future, Chile’s growth would be expected
to decelerate forcing the country to invest more in technological
progress rather than in capital accumulation. As soon as the
steady-state were reached, the difference between the Chile’s
economy growth pace and the wealthy nation’s would no
longer be significant. 
Alternatively we can test the endogenous growth models, which
assume that MPK is constant rather than diminishing. Then,
the steady-state proposed by the diminishing MPK no longer
exists. In this case, Chile can keep its fast-track growth
only by investing in capital accumulation and taking advantage
of the spill-over effects.
Empirically, however, data compel us to believe that a conditional
convergence seems to be more accurate than the pure convergence
model. By that, in samples with countries with similar steady
states, the poorer ones tend to grow faster than the richer
ones.
This work aims at assessing all of those issues by comparing
Chile with similar countries and eventually reaching a verdict
about its future growth odds.
The main objective of this paper is to anticipate the Chilean’s
future growth potential by analysing TFP and human capital
impacts in the output. In order to do so, I start analysing
Chilean GDP and current fiscal policy highlighting the slowdown
in the country’s GDP in the last years compared to the
extraordinary growth in early 90’s. Then an investigation
of the possible causes of that slowdown and the tools the
country has to recover that pace are offered.
From that broad picture, I begin to explore the possible impact
the TFP investments and the human capital can possibly bring
to the Chilean prospective growth.
Conclusion
As addressed in section 3- TFP, Chile is clearly
relying not only on capital accumulation but also on Technological
progress, be it on R&D or ICT investment, to sustain its
growth rates. Attracting foreign investment has not only financed
its current account deficit but also imported foreign technology
which is eventually an essential condition for TFP improvements.
On top of that, Chile is currently investing in the Labour
Market Education as a means of achieving both a more skilled
labour force and lower unemployment rates.
However, an appropriate economic environment is also essential
to achieve sustainable growth. In this field, the Chilean
economic policy has focused mainly in keeping its inflation
rate within the target range by changing the interest rates
as much as needed.
In addition, the government is working to reduce the country’s
dependency on copper which currently accounts for 40% of GDP.
This dependency has made the Chile’s current account
too much vulnerable to external conditions.
Despite the last years disappointing declining in the country’s
growth rates, the external environment together with a reasonable
internal supportive economic policy seem to guarantee increasing
growth rates at levels of 4-5%. A more stable regional scenario
and an external environment with sound improvements in the
relations with US, EU and South Korea, its main trade partners
will greatly contribute to its uprising.
Finally, if the conditional convergence holds, then Chile
is working hard to not only rely on the catch-up advantage
of the poorer nations but also investing to shift its steady-state
forward, in order to keep growing.
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